Understanding Apple's positioning: Part 3 - entry barriers

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Jun
06

By: switchtoamac at: 11:21 AM on June 6, 2009 | Comments (0)

This is the third part in the series that analyzes the Apple product strategy with a specific emphasis on the Macintosh.  In part one I analyze Apple's positioning as a premium brand.  In part two I describe how Apple has conducted a trade-off in order to protect the position.  In this post I describe the entry barriers that competitors must address in order to compete with Apple.
Entry barriers analysis
Apple's positioning, brand image, and loyal following have created an entry barrier that PC vendors must cross in order to enter the premium computer market, a market that the Macintosh has exploited for years.  Customer loyalty, advertising, lower price sensitivity of target customers (relatively inelastic demand), sunk costs, patents and innovation speak to this point.  If a PC manufacturer wanted to enter Apple's market segment, it would have to overcome the barriers that Apple and the market have constructed.

Dell is attempting to enter the premium segment with a premium branded line of notebooks called the Adamo.  The Adamo was officially launched in the first quarter of 2009.  My expectation is that Dell's Adamo endeavor will fail for two reasons:
  1. Dell is unable to offer the value proposition that Apple provides with the Mac: an integrated end-to-end approach of hardware and operating system design.
  2. Dell's core competencies are not directed towards premium buyers - Dell's product lines are geared towards businesses and price sensitive consumers.
As highlighted earlier, Apple products appeal to buyers who are less price sensitive and therefore, price elasticity is not a major concern.  Dell will either have to up sell the Adamo to their current customer base and/or lure customers away from Apple.  The former is not likely to be successful due to the price sensitive nature of Dell's customers and the latter won't happen in any meaningful way.  Perhaps some Apple customers will switch to an Adamo but most are loyal to Apple brand, especially those who have had a long-standing relationship with the Mac and other Apple products such as the iPod and iPhone.  This is a direct byproduct of the entry barriers I highlighted earlier.  In my view a key component of Apple's competitive advantage is their end-to-end value proposition that drives innovation and results in a superior user experience for customers.  PC vendors are at the mercy of Microsoft.  Apple on the other hand can simultaneously innovate at both the software and hardware levels and bring integrated products to the market.  They have proven this model with the Macintosh, the iPod, and now the iPhone.

Another challenge is the expansion of the Mac user base.  Most of the Macintosh growth over the past several years has been fueled by switchers and those to whom Apple refers to as 'New to Mac'.  Dell will have to turn this tide while simultaneously working against the two reasons discussed above.  Given these sets of circumstances, I predict that the Adamo will fail.  Other PC vendors with plans to enter the premium segment should take note of the entry barriers.

Apple's steps over the past several years have not only protected this positioning but have also enhanced it.  This will be evident once Mac OS X Snow Leopard and the next generation of Macs hit the market.

Other Articles in the Series

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