You must be hearing a lot about Apple these days. After the enormous success of the iPod (and related products in the portfolio), iTunes, and all sorts of innovative versions of its product line including iPod Photo, PowerBook, Mac Mini, and iPod Mini, Apple has reported record financial results. Plus, it has become the world's leading brand, replacing Google. The investors are cheering and if Apple's stock performance (chart at the bottom of this page) is any indicator, it is now one of the hottest companies, along with Google and eBay. (Related article: Google's robust strategy and business model)
Secret of Apple's success - Business model transformation
Broadened its customer base: Apple traditionally appealed to a segment of customers that were fanatic about its products. Apple's customers in Japan are almost like a cult. But so are customers of Louis Vuitton or Prada or Hermes. While that narrow focus makes sense for high-end bags, apparel, scarves, etc., it is not the right strategy for a consumer electronics products. Now Apple targets a much broader base of customers, including those who do not own an Apple PC.
Making commodities cool through innovative design: Have you been to a Target store lately? I recommend that you take a trip. It is a favorite company of management consultants right now. While Target has always made cheap but chic products, it continues to push the limits. It is amazing what you can find for $1 in Target stores these days. That is exactly what Apple has done. In a time when computers are called boxes, hardly any are made in the United States, consumers replace their PCs (and other consumer electronics items) as frequently as their clothes, the only way to differentiate is through design and convenience. Apple has done that with iTunes/iPod (convenience of downloading only the songs that you want for the price of a soda and play it on a device that looks cool and works perfectly).
Luxury for the masses: In line with what many other consumer goods companies are doing, you don't have to be rich to carry a cool Apple product. Apple now sells a PC that competes (somewhat; monitor not included) in price with Linspire at Walmart.
What does it mean for you?
- Just because a market has commoditized, it does not mean that no value can be created. While Apple is a great example, spend some time analyzing companies like GE Plastics, Ecolab, Target, and Dow Chemical.
- We feed gourmet food to our pets (animals in many other parts of the world struggle to survive for lack of food), spend $2 billion dollars on candles (not to provide light, as millions of people worldwide need them for), and light a fire at home using smokeless logs, not for the heat, but for the romance (while hundreds of millions of people stay warm in many parts of the world that way), the only way to sell something to Americans is to create value for them beyond a lower price. And delightful design is one way to do that.
- There is nothing embarrassing about selling to the hoi-polloi. Even Karl Lagerfeld is selling his designs in H&M.
Recommended article: Luxury for the masses
