Posted: May 24th, 2022
Apple Inc. is an American multinational technology corporation headquartered in Cupertino, California. It is one of the world’s most valuable companies and the most prominent five information technology companies in the U.S. Other well-known companies in the information technology industry are Amazon, Facebook, Google, and Microsoft. Porters Five Forces Analysis enables businesses to determine their competitiveness in the market, attractiveness, and other elements that affect profitability. The five forces are the threat of new entrants, competitive rivalry, the threat of substitutes, suppliers’ bargaining power, and buyers’ bargaining power. This paper seeks to analyze Apple’s threat of new entrants and the bargaining power of buyers, to understand its position and how it compares to the competing rivals.
The threat of New Entrants
According to Porters Five Forces Analysis, the threat of new entrants shows the effects and probability of new businesses entering the market. It is the risk a new company poses to existing companies in an industry. It is one of the forces that define the competitive nature of the business industry and helps show the attractiveness of an enterprise. Notably, the threat of new entrants that Apple encounters is low to moderate.
a. Reasons for the low threat of new entrants
In the case of Apple Inc., the threat of low entrants is relatively low because of various. The first reason is the high cost of establishing an information technology company. Suppose a new company wants to indulge in personal computing or smartphone manufacturing. In that case, it must have enormous financial backing since it will spend a lot of capital on R&D, producing, and developing its products.
Secondly, a new entrant will require massive capital for brand development. It will incur high costs of bringing and marketing a new product. Despite all the efforts and high costs involved in developing a new product, it is not guaranteed that the product will generate revenue for the new company. Even if the new entrants may successfully penetrate the market, they must face stiff competition from the current companies in the industry. The major challenge that the new company will have to put up with is to present itself as the best brand in an industry dominated by giants such as Apple. Therefore, the cost of competing with such giants would be an expensive affair.
b. Why Apple Inc. is a successful brand in the industry
Although it is not easy for new companies to penetrate the industry and compete with companies such as Apple, it is possible for big companies with strong financial capabilities. For instance, companies such as Microsoft and Google introduced smartphones into the market to seek competitive advantage against existing companies such as Apple.
However, innovation and brand loyalty has enabled Apple to be the best in the market and mainly unchallenged. Furthermore, the company constantly develops and gives its customers high quality products to stop new entrants from gaining market share.
Bargaining power of buyers
Bargaining power of buyers is a force that describes the effects of buyers purchase decisions on business performance. Considering the Porters five forces analysis, the bargaining power in Apple is moderate to high. Globalization is one of the factors that has changed the nature of business and empowered buyers.
a. Factors influencing the bargaining power of buyers
The first factor that influences the bargaining power of buyers is few individual buyers. In Apples scenario, the effect of individual buyers is negligible to its total revenue. This means that the amount of money that individual customers spend on Apple product does not form a large percentage of the companys total sales. Therefore, Apple makes the consumer weak at the individual level by selling products to many of them. Nonetheless, a group of consumers who collectively buy Apple products make bargaining power to be high.
Secondly, low switching costs make it easy for buyers to move from one industry to the next. The ability of a buyer to easily change brands exerts pressure on Apple and other related companies. They have to constantly incur marketing costs in a bid to convince buyers and maintain competitive advantage.
Lastly, the ease of information access enables buyers to easily compare products from different competing rivals before settling on the one that suits their needs. Therefore, buyers can easily move from one company to the next. In this era of social media, product reviews plays a critical role in influencing buyers product choice. Thus, most companies strive to maintain a positive brand image.
b. How Apple handles challenges arising from buyers bargaining power
To address the challenges, Apple invests huge capital in R&D to come up with high quality and innovative goods. Therefore, the company is successful because it has built brand loyalty over the years. Apple produces products that effectively work with each other without additional apps or software. For instance, a customer who owns an Apple watch and an iPhone can effectively use one device to run the other; they can receive messages and calls from their watch.
Secondly, Apple focuses on producing innovative and simple products with advanced features to make their customers life to be easy. The problem-solving mentality has enabled Apple to establish a successful company that is built on a loyal customer base. Consequently, the high-quality products offered by Apple reduce the buyers bargaining power.
Apple is one of the worlds most valuable companies and the largest five information technology companies in the U.S. The company enjoys a fair market share of the technology industry because of innovation and production of high-quality products; the company focuses on the production of problem-solving goods that are simple and easy to use. The company has gained a competitive advantage over its rivals because loyal customer base.
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