Product life cycle analysis of iPhone series

By | April 22, 2014

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List of figures and tables
Figure 1 Product life cycle stages 3
Figure 2 Deutsche Bank report estimating iPhone with in both individual and business sector 5
Figure 3 The OEM handset gross margin (LTM) 7

Table 1 The five top mobile phone vendors by unit shipments 6

Content

List of figures and tables 1
Content 2
1. Introduction of Apple Inc and the basic concepts 3
1.1 Background of Apple Inc 3
1.2 Basic concepts 3
2. Product life cycle analysis of iPhone series 4
2.1.1 Fast growing demand for iPhone 5
2.2 The mobile phone market is growing 6
2.2.1 High profit margin rate of iPhone series 7
3. Implications to the strategic fit 7
3.1 Uncertain demand 8
3.2 Responsiveness of the supply chain 9
3.2.1 Pricing strategy 9
3.2.2 Supplier selection strategy 10
3.2.3 Product design 10
4. Conclusion 10
List of reference 11

Apple Inc’s iPhone series

1. Introduction of Apple Inc and the basic concepts
iphone5
1.1 Background of Apple Inc

The Apple brand came into people’s attention first in April of 1976 when the company released the first Apple computer, Apple I (O’Grady 2009). After the establishment, Apple Inc keeps vividly participating in the consumer electronics and personal computers markets. In the recent years with the new versions of iPhone, iMac, iPad and other well known products and accessories, Apple has achieved an undisputable success. And while much of the business success comes from the Apple’s product design and technological innovations, the supply chain management also helps the company to strengthen its operational success.

1.2 Basic concepts

Figure 1 Product life cycle stages
Source: Ranganatham M. 2006, Investment Analysis and Portfolio Management. New Delhi: Dorling Kindersley (India) Pvt. Ltd. p.244
Product life cycle was first introduced by Raymond Vernon from the Harvard Business School in term of a four stage international product life cycle theory depicting the process in which a product go through its life cycle with different production locations (Stark 2011, p.66).

Demand uncertainty could be defined as the extent of certainty that an adopting company has of the demand for their good or service (Lee 2007). And the implied demand uncertainty is the uncertainty that is due to the part of the demand that supply chain has to deal with and attributes the customer desires (Krzeminska 2008).

Supply chain responsiveness could be referred as how the supply chain responds to environmental changes in a coordinated way (Kersten, Blecker & Jahn 2011, p.131).

Strategic fit refers the consistence that a company should have to ensure that strategies that support the competitive strategy (Furrer 2011).

2. Product life cycle analysis of iPhone series

Among the four stages of a complete product life cycle (introduction, growth, maturity and decline), Apple’s currently most populous product, iPhone series are in the growth stage where the demand for what the nonprofit is doing increases and the market as whole tend to grow (McLeish 2011, p.111), the reasons and evidents for this conclusion are three folds:

2.1.1 Fast growing demand for iPhone

Below is a demand trend for iPhone in two group of users, individual customers and the enterprise users, and based on the prediction made in 2009, the Apple’s iPhone will growing continuously in both markets according to the Deutsche Bank. And as a matter of fact the growing digit is more surprising based on the most recent data.

Figure 2 Deutsche Bank report estimating iPhone with in both individual and business sector
Source: Deutsche Bank (Ventureoutsource.com 2009)

Table 1 The five top mobile phone vendors by unit shipments
Source: Nmurrhmn.com 2011. A massive iPhone shipment increase of 141.8 percent year. [online]: http://www.nmurrhmn.com/apples-142-iphone-growth-outpaces-mobile-phone-market-by-12x-in-q2/

As we can see from the table above, the Apple iPhone hit a record 20.3 million unit shipments with a year on year change reaching 141.8% which is more than 12 times than the global average level. In conclusion the demand of the iPhone series products is growing and expanding significantly indicating that the products could be likely to be in the growth stage in the product life cycle.

2.2 The mobile phone market is growing

Another fact reviewed in the table above is that the global mobile phone market grew by 11.3 percent one a year on year basis in the second quarter of 2011, this means that the growing of iPhone series does not necessarily come with the large market share loss of other competitors but iPhone series products are so popular that it outpaces other competitors in a growing market or we can also understand it as the iPhone stimulates the growth of the market.

2.2.1 High profit margin rate of iPhone series

As the below figure shows, an early report had reviewed that the profit margin reach 57.8% of Apple’s iPhone series in 2010 and with the anticipated reduced manufacturing cost along the increasing production scale the sale price of iPhone 4 does not fall as this report’s expectation and hence we can conclude that the profit margin does not decline with time but in contrast, it is maintained or increased.

Figure 3 The OEM handset gross margin (LTM)
Source: Corporate report, Bemstein analysis

3. Implications to the strategic fit

With the basic understanding of Apple’s iPhone in term of the typical traits of its product life cycle in the growth stage, below we will discuss the influences this growth stage of iPhone series has for the strategic fit. Three steps will be involved in the achieving strategic fit:
Step no 1: Understanding the customer and procurement uncertainty
Step no 2: Understanding the procurement capabilities
Step no 3: Achieve strategic fit
We will follow this sequence to discuss the influences growth stage of iPhone series in the product life cycle has for the strategic fit.

Figure 4.0 Strategic fit
Source: Blogspot.com 2007. Supply chain management. updated: SEPTEMBER 3, 2007 [online]: http://myniftnotes.blogspot.com/2007_09_01_archive.html

3.1 Uncertain demand

As commented above, the iPhone smart phone is in the growth stage during which the customers gradually accept the product and thus there will be a growth in the demand of the phone, but also to this reasons, the demand would be quite uncertain as it is hard to predict the future demand of the product and also when it will step into the maturity stage. Also the nature of the smart phone market and product nature also which is change fast with high innovation rate also contribute to the uncertain demand. With a uncertain demand, the company could earn more profit margin though and forecast of the future demand. And it also has implications to the supply chain management.

3.2 Responsiveness of the supply chain

The supply chain of Apple’s iPhone series is focusing on the responsiveness rather than efficiency for the following reasons as shown in different strategies that the company has used.

3.2.1 Pricing strategy

As analyzed above, the profit margin of Apple’s iPhone is extremely high among the mobile phone brands with more than a half’s profit margin, the premium pricing strategy could also be felt by most customers though the majority of them consider that it is worthy.

3.2.2 Supplier selection strategy

In term of the supplier selection strategy, Apple has chosen the finest OEM manufacturers and suppliers to put the focus of the product on quality and flexibility. For example, the largest touch screen provider of iPhone series is Sam sung which has a renowned reputation for its quality screen products.

3.2.3 Product design

The product design of iPhone obviously is not focusing on minimizing the product cost though it is also important; the iPhone series concentrate on the modularity that postponement such as the delayed and still unknown released date of iPhone 5.

4. Conclusion

In conclusion, enhanced by the growth stage of Apple’s iPhone series products in the Product Life Cycle (PLC) model, the supply chain of the iPhone series products is managed under a responsive way and this is in accordance with the customers’ high uncertainty in demand. What is more the responsive supply chain also corresponds with the company’s differentiation competitive strategy.

List of reference

Gibbon, P. & Ponte, S. 2005, Trading down: Africa, value chains, and the global economy, Philadelphia PA: Temple University Press. p.101

Furrer, O. 2011. Corporate Level Strategy: Theory and Applications. New York, NY: Routledge.

Kersten, W., Blecker, T. & Jahn, C. 2011, International Supply Chain Management and Collaboration Practices. Lohmar: Josef Eul Verlag GmbH. p.131

Krzeminska, A. 2008. Determinants and Management of Make-and-Buy. Wiesbaden: Springer Science+Business Media.

Lee, I. 2007. E-business innovation and process management. London: Idea Group Inc.

McLeish, B. J. 2011, Successful Marketing Strategies for Nonprofit Organizations: Winning in the age of the elusive donor, 2nd edition, New Jersey: John Wiley & Sons. p.111

Nmurrhmn.com 2011. A massive iPhone shipment increase of 141.8 percent year. [online]: http://www.nmurrhmn.com/apples-142-iphone-growth-outpaces-mobile-phone-market-by-12x-in-q2/

O’Grady, J. D. 2009. Apple Inc. Westport, CT: Greenwood Press.

Stark, J. 2011, Product Lifecycle Management: 21st Century Paradigm for Product Realisation. London: Springer-Verlag, p.66

Ventureoutsource.com 2009. iPhone market share: Enterprise demand may buck trends. accessed on 14 Nov 2011, [online] http://www.ventureoutsource.com/contract-manufacturing/product-market-segments/cell-phones-handsets/iphone-market-share-enterprise-demand-may-buck-trends