Apple Inc. Five Forces Analysis (Porter’s Model)

Apple Five Forces Analysis Porters case study, competition, bargaining power buyers, suppliers, threat, substitution, new entrants
MacBook Pro, iPad and iPhone from Apple. Apple’s Five Forces analysis (Porter’s Model) on external factors in the industry environment shows that the company must prioritize competition and the bargaining power of buyers. (Photo: Public Domain)

Apple has achieved success as one of the most valuable companies in the world. This Five Forces analysis gives insights about the external factors influencing the firm. Apple’s Five Forces analysis also sheds light on what the company does to ensure leadership despite the negative effects of external factors in the competitive landscape. Established in 1976, Apple has been through low times. However, under the leadership of Steve Jobs, the company has succeeded to become an industry leader. Based on this Five Forces analysis, Apple continues to address competition and the bargaining power of buyers, which are among the most significant external factors impacting the firm. Also, this Five Forces analysis indicates that Apple must focus its efforts on these two external factors to keep its leadership in the industry.

Apple’s Five Forces analysis (Porter’s model) of external factors in the firm’s industry environment points to competitive rivalry or intensity of competition, and the bargaining power of buyers or customers as the most significant factors that should be included in strategic formulation to ensure the continued success of Apple products.

Overview: Apple Inc.’s Five Forces Analysis

Apple’s strategies are partly based on the need to address forces in the external business environment. These forces can limit or reduce the firm’s market share and revenues. Apple’s Five Forces analysis, based on Porter’s model, shows the following strengths or intensities of external factors in the industry environment:

  1. Competitive rivalry or competition (strong force)
  2. Bargaining power of buyers or customers (strong force)
  3. Bargaining power of suppliers (weak force)
  4. Threat of substitutes or substitution (weak force)
  5. Threat of new entrants or new entry (moderate force)

Considering these five forces, Apple must focus its attention on competitive rivalry and the bargaining power of buyers. The analysis supports Apple’s current position of continuous innovation. The firm effectively addresses the five forces in its external environment, although much of its effort is to strengthen its position against competitors and to keep attracting customers to Apple products.

Competitive Rivalry or Competition with Apple (Strong Force)

Apple faces the strong force of competitive rivalry or competition. This component of Porter’s Five Forces analysis model determines the intensity of influence competitors have on each other. In Apple’s case, this influence is based on the following external factors:

  1. High aggressiveness of firms (strong force)
  2. Low switching cost (strong force)

Companies like BlackBerry, Samsung, LG, and others aggressively compete with Apple. Such aggressiveness is observable in rapid innovation, aggressive advertising, and imitation. On the other hand, switching cost is low, which means that it is easy for customers to switch from Apple to other brands, thereby making competition even tougher. Thus, this part of the Five Forces analysis shows that competitive rivalry is among the most significant considerations in Apple’s strategic formulation.

Bargaining Power of Apple’s Customers/Buyers (Strong Force)

The bargaining power of buyers is strong in affecting Apple’s business. This component of Porter’s Five Forces analysis model determines how buyers impact businesses. In Apple’s case, buyers’ strong power is based on the following external factors:

  1. Low switching cost (strong force)
  2. Small size of individual buyers (weak force)

It is easy for customers to change brands, thereby making them powerful in compelling companies like Apple to ensure customer satisfaction. On the other hand, each buyer’s purchase is small compared to Apple’s total revenues. This condition makes customers weak at the individual level. However, because it is easy to shift from Apple to other brands, buyers still exert a strong force. Thus, this part of the Five Forces analysis shows that Apple must include the bargaining power of buyers or customers as one of the most significant variables in developing strategies.

Bargaining Power of Apple’s Suppliers (Weak Force)

Apple experiences the weak force of the bargaining power of suppliers. This component of Porter’s Five Forces analysis model indicates the influence of suppliers in imposing their demands. In Apple’s case, suppliers have a weak bargaining power based on the following external factors:

  1. High number of suppliers (weak force)
  2. High overall supply (weak force)

Even though Apple has less than 200 suppliers of components for its products, the company has more options because there are many suppliers around the world. This condition makes individual suppliers weak in imposing their demands on firms like Apple. In relation, there is a high level of supply for most components of Apple products. Thus, this part of the Five Forces analysis shows that Apple does not need to prioritize the bargaining power of suppliers in developing strategies for innovation and industry leadership.

Threat of Substitutes or Substitution (Weak Force)

The threat of substitution is weak in affecting Apple’s business. This component of Porter’s Five Forces analysis model determines the strength of substitute products in attracting customers. In Apple’s case, substitutes exert a weak force based on the following external factors:

  1. High availability of substitutes (moderate force)
  2. Low performance of substitutes (weak force)

Substitutes to Apple products are readily available in the market. For example, people can easily use digital cameras instead of the iPhone to take pictures. They can also use landline telephones to make calls. However, these substitutes have low performance because they have limited features. Many customers would rather use Apple products because of their advanced features. Thus, substitution has a weak force in impacting Apple’s business. This part of the Five Forces analysis shows that Apple does not need to prioritize the threat of substitution in business processes like marketing and product design and development.

Threat of New Entrants or New Entry (Moderate Force)

Apple experiences the moderate force of the threat of new entrants. This component of Porter’s Five Forces analysis model indicates the effect and possibility of new competitors entering the market. In Apple’s case, new entrants exert a moderate force based on the following external factors:

  1. High capital requirements (weak force)
  2. High cost of brand development (weak force)
  3. Capacity of potential new entrants (strong force)

Establishing a business to compete against firms like Apple requires high capitalization. Also, it is considerable costly to develop a strong brand to compete against large firms like Apple. These factors make new entrants weak. However, there are large firms with the financial capacity to enter the market and impact Apple. Google has already done so through products like Nexus smartphones. Samsung also used to be a new entrant. These examples show that there are large companies that have potential to directly compete against Apple. Thus, the threat of new entry is moderate. This part of the Five Forces analysis shows that Apple must maintain its competitive advantage through innovation and marketing to remain strong against new entrants.

References
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