Analysis of Five Forces

Cell Phone Industry

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Cell Phone Industry• There are over 110 cell phone manufacturing companies

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Source: www.GSMArena.com

Apple Inc. • Our focus of study is Apple Inc.

• American multinational technology company from California, that designs, develops, and sells consumer electronics, computer software, and online services

• Launched first generation of smart phones named iPhone in June 2007

• iPhone contributes 62% revenue with 17.7% of market share in smartphone industry

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Source: www.Wikipedia.com

Apple Inc. • Apple has successfully launched 14 models/variants of iPhone

series

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Apple’s Brand Worth

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Net Worth: $ 170 billion

Source: www.interbrand.com

Five Forces Model

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Competitors

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Competitors

1. Who are the main competitors?

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Companies Market Share

Samsung* 24.8%

Apple 17.7%

Huawei** 8.4%

Xiaomi** 5.6%

Lenovo 5.4%

LG 5.3%

* Strong Competitor **Emerging Competitors

Source: www.smartphonemarketresearch.com

Competitors

2. How would you group remaining competitors?Strategic Group Map

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Price

Performance/Specifications

High

Low

Low High

Ultra Premium

PremiumMid-Range

Basic

Low

Competitors

3. What are the key value propositions of the main competitors?

Key value proposition of Samsung:• Quality high technology products at a reasonable price• Quality: reliable, fully featured, good products• High Tech: TVs, cell phones, camera, etc. • Reasonable Price: they are not the cheapest but also not

expensive

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Source: www.Qoura.com

Competitors

4. What customer segments do they focus on?

Samsung is focusing:• Upper-middle and upper class technology savvy customers are

target of high-end phones

• People between ages of 15-25 because their spending power has increased during last decade

• People between ages of 26-50 because they have the ability to purchase high-end phones

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Competitors

5. What do you think their cost structure looks like?

• Samsung is spending considerable percentage of profits on R&D

• Samsung is also spending on various advertising and marketing activities

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Analysis

According to our analysis, competition in smartphone industry is a strong force based on following reasons:

• High aggressiveness of firms (strong force)• Low switching cost (strong force)

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New Entrants

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New Entrants

1. Who are the new entrants in your market?

• Xiaomi, a Chinese cellphone manufacturing company

• Producing cellphones, android smartphones and tablets

• Became world's 4th largest smartphone maker in 2015 by selling 70.8 million units

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Source: www.smartphonemartketresearch.com

New Entrants

2. How are they different?

• Xiaomi is producing high quality phones at much cheaper costs than major players of the industry by making use of:• Cheaper factors of production• Low advertising costs

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New Entrants

3. What competitive advantage or disadvantage do they have?

• Cost advantage is the main competitive advantage of Xiaomi

• Brand recognition is the main disadvantage of Xiaomi

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New Entrants

4. Which barriers must they overcome?

• Customer preferences, brand recognition are the main barriers in smartphone industry

• Xiaomi needs to focus on brand development

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Source: www.Wikipedia.com

New Entrants

5. What are their value propositions?

• Xiaomi wants to provide high quality products to its customers. This involves improving product value and lower customer cost.

• Unique Features:• MIUI System• Big Screen• CPU

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Source: www.justforfans.wix.com

New Entrants

6. Which customer segments are they focused on?

• Currently, they are focusing on low-end technology savvy customers

• Most of its sales are in China and the developing countries

• However, with high quality phones at low prices, they can challenge major players of the industry

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New Entrants

7. What is their cost structure?

• Xiaomi’s cost structure includes low R&D costs, low advertising costs

• Xiaomi is taking advantage of cheap factors of production because it is based in China

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Analysis

According to our analysis, entry of new players in smartphone industry is a moderate force based on following reasons:

• High capital requirements (weak force)• High cost of brand development (weak force)• Capacity of potential new entrants (strong force)

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Substitutes

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Substitutes

1. Which products or services could replace the products or services of this industry?

• Within same industry, best substitutes of iPhone include:• Samsung Galaxy S6• HTC One M9• LG G4• Samsung Galaxy Note 5• Motorola Moto G3

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Substitutes

1. Which products or services could replace the products or services of this industry? (continued)

• Outside this industry, potential substitutes of smartphones include:• Wearable devices e.g. smartwatches

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Substitutes

2. How much do they cost as compared to products of our industry?

• Current versions of smartwatches are relatively inexpensive (but used as bundled product with smartphones)

• In future, standalone smartwatches are expected to be cheaper

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Substitutes

3. How easy is it for customers to switch to these substitutes?

• 2015 has been a year of popularity for wearable devices

• Standalone smartwatches developed with same specifications and performance as of smartphones can gain popularity

• Behavioral change might take a decade to completely replace smartphones

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Analysis

According to our analysis, threat of substitutes in smartphone industry is a weak force based on following reasons:

• High availability of substitutes (moderate force)• Low performance of substitutes (weak force)

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Suppliers

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Suppliers

1. Who are the key players in your industry value chain?

The 10 major companies in Apple’s value chain are:

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Company Components

Analog Devices, Inc. Provides the capacitive touch screen

Glu Mobile, Inc. Provides iOS apps and mobile games

Jabil Circuit Inc. Provides phone casings for Apple

Micron Technology, Inc. Supply various memory modules

Murata Manufacturing Co. Ltd. Ceramic capacitors

Source: www.Investopedia.com

Suppliers

1. Who are the key players in your industry value chain? (continued)

The 10 major companies in Apple’s value chain are:

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Company Components

Nidec Corp. Provides various sensors

Qualcomm, Inc. Multiple electronic components

Samsung Provides flash memory

STMicroelectronics Provides gyroscope and accelerometer

Texas Instruments, Inc. Touchscreen controller

Source: www.Investopedia.com

Suppliers

2. Which are most profitable?

• Samsung and Texas Instruments are most profitable partners of Apple’s value chain

• Samsung is a vertically integrated business with expertise in electronics

• Texas instruments is a global semiconductor design & manufacturing company

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Analysis

According to our analysis, bargaining power of suppliers in smartphone industry is a weak force based on following reasons:

• High number of suppliers (weak force)• High overall supply (weak force)

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Buyers

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Buyers

1. What customer segment is your company focusing on?

• Upper Middle and Upper class technology savvy customers

• High school, college and graduate students

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Buyers

2. What is the bargaining power of your customer?

• Low bargaining power because of high customer loyalty

• Although, switching costs are low and individuals buyers are smaller in number, buyers replace old iPhone with new and expensive models

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Buyers

3. How likely is your customer to switch to competitors/substitutes?

• Customers are less likely to switch to other brands because of:• Product differentiation• High customer loyalty• Apple’s customers are conscious about image and recognition

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Analysis

According to our analysis, bargaining power of buyers in smartphone industry is a moderate force based on following reasons:

• Customer loyalty (strong force)• Low switching cost (strong force)• Small size of individual buyers (weak force)

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Questions and Answers Session

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