Case analysis by:

Pooja Raut
Roll No: 42
MMS -A

[IPOD - CREATING AN ICONIC

BRAND]
This is a case analysis of the iPod case study. It gives us the case Pest and Swot analysis for iPod,
future recommendations and a general summary of the case along with the marketing mix and
competitors’ analysis.

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 INDEX

Sr. No Topic Page No.

1. Executive Summary 3
2. Target customers 3
3. PEST Analysis 4

5.1. Political 4

5.2. Economic 5

5.3. Social 5

5.4. Technological 5

4. SWOT Analysis of the Indian cheese industry 6

3.1. Strengths 6

3.2. Weaknesses 7

3.3. Opportunities 7

3.4. Threats 8
5. 4 P’s of Marketing 8

4.1. Product 8

4.2. Price 9

4.3. Place (Distribution) 9

4.4. Promotion 9
6. Porters 5 forces Model 10
7. Competitors Analysis 11
8. Recommendations 11
1. Executive Summary

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Apple’s iPod has taken the world by storm. Nearly ubiquitous, it has changed not only the way
people listen to music, but it has transformed its parent company Apple into an entertainment giant.
Apple’s ipod had become a true cultural and social phenomenon in a short span of time after its
launch.

iPod was first made available to the public in October 2001, and after that Apple came about with
different product designs and clever marketing strategies every quarter into the market by releasing
new versions of iPods.

The success of iPod and use of the music file format let Apple to start its own online iTunes Music
Store, wherein songs would be easily downloadable by users at minimum price, this had an
exponential effect on the sales of iPod.

Apple iPods sales started increasing and by July 2006 almost 58 million iPods were sold. The success
of iPods had an Halo effect on the sales on their Mac computers whose sales also increased to 4.5%
during July 2005 as compared to 2.8% a year before.

iPod from initially being only used for listening to songs had come of age and even able to play high
quality colour video on an enlarged 2.5 inch screen. The continuous innovation in product design
and quality has led to increase in customer loyalty for sure.

Apple’s iPod had through its path faced criticism from the critics, but would always prove them
wrong. Now the question is whether Apple would be able to maintain its leadership position in the
market and come out with different innovations in the music world?

The following part of the analysis will be answering the above questions raised.

2. Target Customers

The core target market for iPod is young adults and teenagers. iPod a music player has a
differentiated market segmentation characterized in age, gender and desire for image. It is targeted
towards the people who have an enthusiasm to the technology and hobby, particularly in music and
literatures. The iPod is unlike any other music player with its unique appeal to a remarkable range of
ages and personalities.

In general, iPod is designed for anyone interested in carrying the equivalent of hundreds of CDs
worth of music, and numerous other files, in a small, easy-to-use design that fits in one's pocket.

Different models of iPod are present in the market to satisfy the different needs of the customer.

The iPod shuffle models are designed for those who are interested in an inexpensive, well-designed
portable music player that holds a few CDs worth of music and offers easy integration with iTunes
and Music Store.

The iPod nano models target the person interested in a device that provides modest capacity for
music and photos in an extremely tiny and elegant case.

The video-capable iPod models are marketed to fill the same need as the other "full size" iPod
systems with video playback as an added bonus.

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Some of the connotations the iPod has come to be associated with so far are youth-culture,
technical gadgetry, and trend. But, it is no longer a matter of just listening to music; the significations
have extended to aesthetics, trends, and status. It is perceived by the customers as the status
symbol, a must have fashion accessory and to have an iPod has become a matter of prestige.

The key audience for the product is dubbed as the iGeneration. iPod’s target market was born during
the company’s growth in the late 1980’s. The iGeneration has been a boon for iMac, and
subsequently, iPod. The company has helped define a “culture” around its brand. The seemingly
simple ‘i’ not only grew to establish the brand for the company but also drove the development of a
host of ‘i’ products like iPod, iTunes, iChat, iMovies, iBook and iSight. Today, the brand reflects the
attributes of being high-tech, “cool” and creative exactly what the product and messaging has
attempted to convey.

3. PEST Analysis

3.1. Political Factors:

1. The adoption of digital music by consumers was limited till Napster was launched which allowed
users to swap digital music files from any point on the Earth that had an internet connection.
However, the Recording Industry Association of America (RIAA) filed a copyright infringement
lawsuit and Napster was shut down in less than a year.

Looking at the popularity of Napster all music companies started aggressively pursuing online music
distribution strategies by the end of 2001.

In April 2003, Apple launched a new service called iTunes Music Store (iTMS). It was the first legal
digital music store. The users could easily download music at a low cost from all the major record
labels.

The shutting down of Napster thus worked in favor of Apple. Any changes in the laws related to
music piracy or copyright infringement may affect Apple’s future policies.

2. Apple faced lobbying and legislative pressure particularly in the European Union which was aimed
at getting Apple to open its closed system and allow songs of any format to be played on the iPod.

Norway, Denmark and Sweden challenged Apple in court over this limitation of their product. This is
a case which Apple’s competitors are following with great interest.

If Apple can manage this issue the Political environment as such is stable and conducive for the iPod.

3.2. Economic Factors:

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1. Apple targeted a group of consumers who saw themselves as different from the mainstream;
definitely cooler, and part of a community of like-minded people. They knew they paid more, but
they didn’t seem to mind.

Thus the pricing of the iPod was done accordingly and it targeted affluent consumers from
developed countries. It entered price sensitive markets like India and China only much later and that
too without significantly cutting prices.

However, with the growing incomes of the people in developing countries the popularity of the iPod
is increasing and the economic environment is conducive to rise in sales for Apple.

3.3. Sociocultural Factors:

1. Apple popularizes difficult technology by making it fun and intuitive, and characteristically they
wrap it all up in a super-hip package that makes consumers of their products feel as if they belong to
an exclusive community. These appeal to the consumers who wish to be different.

3.4. Technological Factors:

1. Apple used a less widespread format called Advanced Audio Coding (AAC) instead of the common
MP3 format for music in the iPod.

2. The first generation iPod was a success but not yet a sensation. The second generation iPod was
had larger hard drives and the touch wheel replaced the mechanical scroll.

3. It then launched the new service called iTMS i.e. online music store.

4. The third generation iPod was smaller in size. Apple also launched the iPod mini, iPod shuffle and
iPod nano to reach out to various segments of consumers.

5. It also included viewing of photos and videos in the iPod using newer technology.

6. This continual upgrading and innovating of its iPod portfolio has helped the company maintain its
leadership in digital music.

4. SWOT Analysis

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4.4. Strengths:

1. Apple employed both hardware and software engineers.

This gave them the advantage of creating many products “in-house” that would integrate seamlessly
unlike other organizations during that time which specialized either in hardware or software.

2. The simplicity in the design of an apple iPod.

Consumers during that time were increasingly getting befuddled with the complexity of their
handheld device whereas the design for an apple iPod was such that it did not try to do much and
yet was appealing and different.

The most striking feature was the mechanical scroll wheel located below the screen which the
consumers found to be very attractive and convenient to use.

3. With iTMS apple successfully the key customer needs that no legal service had been able to do
since Napster’s demise

iTMS has been a source of major strength because:

a1) Apple allowed users to own the music

b) With iTMS, one could easily download purchased music to the iPod and

c) iTMS was the first legal digital music store to offer music from all five major record labels.

4. Apple’s creative marketing plan and distribution channel were added sources of strength for the
company.

5. Apple’s small size became an advantage for them.

Apple, then, lacked the size of some of the competitors such as Sony and Toshiba, but gave them an
advantage because they don’t have an 85 person audio consumer marketing department spread
over three continents and thus decisions could be made faster.

6. Apple is a very successful company. Sales of its iPod music player had increased its second quarter
profits to $320 (June 2005). The favorable brand perception had also increased sales of Macintosh
computers. So iPod gives the company access to a whole new series of segments that buy into other
parts of the Apple brand. Sales of its notebooks products are also very strong, and represent a huge
contribution to income for Apple.

Brand is all-important. Apple is one of the most established and healthy IT brands in the World, and
has a very loyal set of enthusiastic customers that advocate the brand. Such a powerful loyalty
means that Ample not only recruits new customers, it retains them i.e. they come back for more
products and services from Apple, and the company also has the opportunity to extend new
products to them, for example the iPod.

4.2. Weaknesses:

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1. Apple maintained a “closed system”.

This meant that the music player and music store had to or could be used only with each other. This
created significant barriers to exploit the popularity of either iTunes or the iPod. The iPod owners
could listen to songs only in the AAC format and music bought through apple’s store would not play
on any other music player

2. Easy Replication:

From a design standpoint, the iPod could be easily replicated at hardly any cost whereas Apple had
to incur huge Research and Development costs to come up with innovative design. This gave the
competitors a cost advantage over Apple.

3. It is reported that the Apple iPod Nano may have a faulty screen. The company has commented
that a batch of its product has screens that break under impact, and the company is replacing all
faulty items. This is in addition to problems with early iPods that had faulty batteries, whereby the
company offered customers free battery cases.

4. There is pressure on Apple to increase the price of its music download file, from the music
industry itself. Many of these companies make more money from iTunes (i.e. downloadable music
files) than from their original CD sales. Apple has sold about 22 million iPod digital music players and
more than 500 million songs though its iTunes music store. It accounts for 82% of all legally
downloaded music in the US. The company is resolute, but if it gives in to the music producers, it
may be perceived as a commercial weakness.

5. Early in 2005 Apple announced that it was to end its long-standing relationship with IBM as a chip
supplier, and that it was about to switch to Intel. Some industry specialists commented that the
swap could confuse Apple's consumers.

4.3. Opportunities:

1. Apple has the opportunity to develop its iTunes and music player technology into a mobile phone
format. The ROKR mobile phone device was developed by Motorola. It has a colour screen, stereo
speakers and a advance camera system. A version of Apple's iTunes music store has been developed
for the phone so users can manage the tracks they store on it. Downloads are available via a USB
cable, ands software on the handset pauses music if a phone call comes in. New technologies and
strategic alliances offer opportunities for Apple.

2. Podcasts are downloadable radio shows that can be downloaded from the Internet, and then
played back on iPods and other MP3 devices at the convenience of the listener. The listener can
subscribe to Podcasts for free, and ultimately revenue could be generated from paid for subscription
or through revenue generated from sales of other downloads.

4.4. Threats:

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1. The biggest threat to IT companies such as Apple is the very high level of competition in the
technology markets. Being successful attracts competition, and Apple works very hard on research
and development and marketing in order to retain its competitive position. The popularity of iPod
and Apple Mac are subject to demand, and will be affected if economies begin to falter and demand
falls for their products.

2. There is also a high product substitution effect in the innovative and fast moving IT consumables
market. So, iPod and MP3 rule today, but only yesterday it was CD, DAT, and Vinyl. Tomorrow's
technology might be completely different. Wireless technologies could replace the need for a
physical music player.

3. In 2005 Apple won a legal case that forced Bloggers to name the sources of information that pre-
empted the launch of new Apple products. It was suspect that Apple's own employees had leaked
confidential information about their new Asteroid product. The three individuals’ prosecuted, all
owned Apple tribute sites, and were big fans of the company's products. The blogs had appeared on
their sites, and they were forced to reveal their source. The ruling saw commercial confidentiality as
more important as the right to speech of individuals. Apple is vulnerable to leaks that could cost
them profits.

5. Marketing Mix

5.1.Product

By introducing the various models, Apple catered to the different social structures which have been
very successful for them.

The major categories of iPod consist of the iPod Classic, Touch, Nano, and Shuffle. Each of the
different categories is designed to meet different consumer needs.

Apple introduced the first IPOD on November 10, 2001. It offered the users the ability to store 1000
songs. The main feature was the mechanical scroll wheel located below the screen.

The Second generation iPod came out in 2002 having larger hard drives with capacities of 10 GB &
20 GB. Next, the third generation iPod’s were introduced which were smaller but had storage
capacity of up to 40 GB. Simultaneously, Apple launched the iTunes Music Store (iTMS), the first
legal digital music store.

2004 brought in the introduction of iPod mini, a device having 4 GB storage which came in a broad
range of colours like silver, gold, blue, pink and green. Also the fourth generation iPod was
introduced with the click wheel design. The model came in two versions, 20 GB and 40 GB. iPod
Photo was launched in October 2004.

Apple announced a smaller iPod in 2005 called iPod Shuffle with flash memory of 512MB an 1GB
rather than hard drives. The iPod nano which replaced the iPod Mini held 1, 2 or 4GB of music was
very lean and sleek in design.

The fifth generation iPod was launched with the ability to play high-quality colour video. Apple
came out with the new iPod Touch which is equipped with a touch, high definition screen and Wi-Fi
so the operator can surf the internet to buy music or video’s online. The consumers could choose

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what size hard drive they need since the Touch was equipped with an 8GB, 16GB, or a 32GB hard
drive.

5.2.Pricing:

Apple is a premium brand that does not attempt to compete on price. The company has reduced
prices after some initial product launches. It uses skimming and premium pricing strategies.

The First generation iPod was priced at $399.

iPod Mini was priced at $249 while the fourth generation was priced at $299 and $399.

The fifth generation iPod, the video iPod was priced at $299 and $399.

Prices for the iPod Touch range from $229.99 to $399.99 depending on the size of the hard drive.

As we see Apples iPod pricing strategy includes the flexibility to lower the prices if consumer
response dictates such action.

In 2009 Apple announced a reduced cost pricing structure for iTunes - songs will cost 69 cents, 99
cents or $1.29. He said the "vast majority" of the songs will cost 69 cents. Changes are said to be a
response to a slower pace of music downloads

5.3.Place:

Distribution is one of the key factors in Apple’s success with the iPod. Apple has 200 stores
worldwide located in nine different countries and an online store. The online store is accessible from
computers at home and for many more countries that do not have a brick and mortar stores
[ CITATION App091 \l 1033 ]. iPod’s are sold in two major physical locations, the store brand or
Apple store as well as Best Buy retail store.

Apple’s distribution of iPods is very spacious. Most Apple stores are located in or around shopping
malls. Their main distribution is through Best Buy retail stores.

Also, another method used was airport vending machines.

The company has over 21,000 distribution points for the iPod.

5.4.Promotion:

iPod is known worldwide for its unique, basic yet effective advertising. IPod commercials are known
for their creativeness, vibrant colour, dancing and music.

Television ads are a vital medium used by Apple right from the introduction of the First Generation
iPod reinforcing the iPod’s status as a design icon.

Nightclubs had events like iPod nights. Support of Hollywood celebrities made the product even
more desirable to the public.

Apple’s website practices a great method of permission based marketing. They offer a “stay in
touch” option when a customer is checking out online. This option provides customers with news,

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updates, and special offers which allow them to be constantly updated about the software that they
have, as well as show them the new products coming out.

Brand extension: Using the trademark, “i”, Apple has successfully extended their iPod brand into a
multitude of products. From the original iPod came iPod minis, iPod shuffles, iPod nanos’, and
eventually the iTouch. Accessories such as the iLounge and the iHome are other products
complimenting the original iPod.

Co-Branding: Teaming up with the ever famous Nike brand, the Nike+ was created. The forth
generation iPod was released in a U2 special edition.

6. Porter’s five Forces Model

Existing Rivalry:

Existing rivals to the iPod are Windows OS and media player for playing music and video (Microsoft)
and Small stylish MP3 players (Creative, Samsung).

Online music stores which mainly include P2P files sharing programs, and the large amount of music
piracy are rivals to the iTunes stores.

Threats of New entrants:

Streaming audio and video with v-cast (Verizon), on demand online services (similar to i-tunes), new
entrants with disruptive technology (The “next Google”) are threats to iPod.

Bargaining Power of Customers:

Customers share music using peer-to-peer networks without paying for music (Ares, Lime wire) ,
Retailers may pressure for lower prices or better terms (Distributors). These may cause Apple to
reduce the prices of iPod.

Bargaining Power of Suppliers:

Sources of music (like BMG, Sony, Warner, and Universal) may ask for higher profits per song looking
at the success of iTMS and make downloading music more expensive for the customers.

Threats from Substitutes:

Substitutes like Satellite radio for music (XM, Sirius), Entertainment media, media and music (XBOX,
PS2), alternative means to acquire music (Music CDs, DVDs) and a lternative sources for videos
(Cable, Broadcast, Theatres) exist for the iPod.

7. Competitors’ Analysis:

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Apple was not the first to enter the digital music category thus it did not have the first mover
advantage when launching the iPod. There were already existing MP3 players in the market and the
competitors imitated the iPod features.

Creative Technology launched the Zen Micro which was roughly the same size as the iPod, had a
similar navigation to the iPods scroll wheel and offered 1GB more storage space. In addition other
makers of MP3 players included Gateway, RCA, Panasonic, Sony, Phillips, Dell, Rio Carbon and
SanDisk.

By 2005, it appeared that the cell phone would be a competitor to the iPod. Cell phone providers
Verizon, Sprint and Cingular charged as much as $2.5 for wireless download of a song which was
twice the $0.99 per song on iTMS.

In May 2006, SanDisk targeted iPod with a series of attack ads by insinuating that its users were
mindless trend-chasers or iSheep.

Software giant and rival Microsoft created the Zune, a combination of portable media player and
download store. Zune, Microsoft’s newly released media player, will not likely challenge the
popularity of Apple’s iPod anytime soon, but the competition it creates between the two high-tech
giants may benefit consumers. Zune is however currently available only in the U.S.

However, the imitations or ad attacks and other competitors failed to move iPod from the number
one position in digital music market where it still holds around 75% market share.

8. Recommendations:

1. Apple must try to maintain its closed system for as long as possible so that it can earn maximum
benefits of this system. However, eventually competitors will enter and to stay ahead Apple must
continue its innovation and maintain its high quality standards.

2. Apple is a very well established brand and a very large organization hence it must launch its new
iPod maybe one that is enabled with video games by creating a very large scale advertising
campaign.

3. It must also try to continuously increase its distribution, by creating more Apple stores in the
developing countries which will further enhance its presence and market share not just for iPod’s
but in all product categories. Since, shopping in an apple store gives consumers a much better
experience and may convert to sales more often.

4. Having new and different functions for the iPod will broaden the areas that it can be used in which
will increase sales even more. Podcasts would be a useful tool for businesses to give employees
tutorials, instructions, training, or communicate instructions to the company globally. E.g. Duke
University’s the Duke iPod First Year Experience.

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