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Porter's five forces Apple

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Business Studies

To get valuable industry insights, different analysis models are usually employed by market analysts. One of such analysis models is Porter's Five Forces model. Let's take a look at what Porter's Five Forces analysis is through an example of the company, Apple.

What are Porter's five forces?

Porter's Five Forces is an analysis model used to evaluate an organization's position and competitive standing by analyzing five 'forces' in the industry. Porter's five forces analysis is centered on the idea that there are five essential factors that determine the competitive environment of an industry.

Porter's Five Forces:
1. Industry Competition (rivalry)
2. Supplier Bargaining Power
3. Buyer Bargaining Power
4. Threat of Substitutes
5. Threat of New Entrants

An Apple Inc. Porter's Five Forces analysis example is given below, where these five forces will be examined and explained.

Porter's five forces analysis Apple

Since its founding in 1976, Apple has enjoyed a lot of success in the technology marketplace as an industry leader and is currently regarded as one of the world's most valuable companies. In 2018, Apple became the first US company to reach a market capitalization in the excess of one trillion dollars, an achievement the organization was able to reach due to their constant drive towards innovation, marketing strategies and growing brand loyalty. A Porter's Five Forces analysis can give valuable insight into how Apple remains an industry leader in the technology space despite the fierce competition from the likes of Google, Amazon, Microsoft, Lenovo, Samsung, etc.

Industry competition

Organizations such as Samsung, Google Inc., Amazon Inc., among others, provide high competition for Apple in the technology industry. These companies are just as aggressive as Apple when it comes to innovation, development of new products and marketing, thus, providing Apple with a strong industry competitive force.

Additionally, with regard to product differentiation, Apple's competitors offer similar types of products that fulfil the same purpose for customers.

Another major promoter of competition in the technology industry is the low switching costs between products. It takes little investment from the customer to switch from an Apple product to another brand's product, usually due to the presence of similar products carrying out the same purposes. For example, an Android users' favorite application will most likely also be available for iOS (Apple). Another example of this is the iCloud present in Apple iPhone and Google Drive present in Android devices, both products carry out the same purpose, storing data in the cloud.

The presence of these industry competitors provides an important consideration during Apple's strategic planning, a threat that Apple has continually dealt with by making their product unique with an aim to improve and hold their market position.

As a result, rivalry within the industry is high, making this a strong force for Apple.

Supplier bargaining power

This force of the Porter's Five Forces model highlights the influence suppliers hold in imposing their demands on an organization, which is relatively low in the case of Apple. This is due to the diverse number of component suppliers available to Apple globally, thus weakening individual suppliers' position in imposing demands on Apple. Apple can also easily switch between component suppliers at a low cost with little or no obstacle.

Component parts suppliers are also unwilling to lose a big customer like Apple to rival parts-supplying companies, thus strengthening Apple's position when negotiating a contract with a supplier. This shows the low strength of components part supplier bargaining power and the weak position they hold in regards to Apple's strategic planning. As a result, the bargaining power of suppliers is low, meaning it is a weak force for Apple.

Buyer bargaining power

This force of Porter's Five Forces shows the effect of customer preference and buying behaviors on a business.

This is particularly a key force for Apple when we consider the low-cost switching between brands. This force is low when we consider only individual bargaining power, but high when we consider customers' collective bargaining power.

This is due to the negligible revenue loss for Apple when an individual customer switches to a rival brand, however, a mass switch of customers to a direct rival reduces Apple's market share and improves that of the competitor. This is a strong force due to the availability of information to buyers. Nowadays, customers can easily access information about a variety of products' features, customer reviews, etc. This is particularly countered by Apple through constant investment in research and development, which has led to development of various products unique only to Apple, such as Airpods and the Apple watch, thus strengthening customer loyalty and attracting new customers.

As a result, due to the available information and low switching costs, buyer power is a strong force for Apple.

Threat of substitution

According to Porter's Five Forces analysis, the threat of substitution refers to products that are not direct competitors but can act as substitutes to Apple products.

The threat of substitutes for Apple products is particularly low due to the limited capabilities of said substitutes. An example of this is owning a DSLR camera instead of an iPhone 12, but iPhone 12 does more than take clear pictures, giving it the edge over a DSLR camera. At the moment, there is no other technology available that could substitute the use of smartphones completely.

Also, the Apple operating system (OS) places Apple products in a strong market position, due to the fact that there is no near substitute for it. As a result, the threat of substitution is a weak force for Apple.

Threat of new entrants

Due to the already established nature of the Apple brand, its enormous market share and the high capital it will require to establish an organization to compete with Apple, new entrants will face a lot of competition and challenges upon establishment. However, large organizations such as Google and Amazon, with large financial and investment power, can compete directly with Apple even as a new entry, thus bringing the threat of potential new entry to a moderate one for Apple.

Though it is essential for Apple to continually invest in the research and development of new products and build its customer base to keep it competitive edge over other brands and potential new brands.

As a result, the threat of new entrants is a moderate force for Apple due to the high costs of developing and setting up a new competitor brand, even though certain large companies have the capability of doing so.

Conclusion

A Porter's Five Forces analysis of Apple suggests that industry rivalry and customer bargaining power are the two industry forces that can have the strongest effect on Apple's position in the technology market. The threat of substitute products and supplier's bargaining power poses little threat to Apple's market position.

Despite this, it is essential for Apple to continually invest in the research and development of new products and build its customer base to keep its competitive edge over other brands and new brands.

Porter's five forces Apple - Key takeaways

  • Porter's Five Forces analysis is an analysis model used to evaluate an organization position and competitive standing by analyzing five essential competitive forces in the industry.
  • The five competitive forces analyzed by Porter's Five Forces are:
    • Industry rivalry
    • Supplier bargaining power
    • Buyer bargaining power
    • Threat of substitutes
    • Threat of new entrants
  • A Porter's Five Force analysis of Apple suggests that industry rivalry and customer bargaining power are the two industry forces did can have a strong effect on Apple's position in the technology market. The threat of substitute products and supplier's bargaining power poses little threat to Apple's market position.

Porter's five forces Apple

Apple uses Porter's five forces by analyzing competitors and the market to get insights on their market positioning and potential threats. 

A Porter's Five Forces analysis of Apple suggests that industry rivalry and customer bargaining power are the two industry forces that can have a strong effect on Apple's position in the technology market. The threat of substitute products and suppliers bargaining power poses little threat to Apple's market position. 

Competitive forces faced by Apple according to Porter's five forces are:

  • Industry rivalry, 

  • Customer bargaining power.

Apple business strategy is centered on continuous research and development of unique products. 

Final Porter's five forces Apple Quiz

Question

Explain Porter's Five Forces

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Answer

Porter's Five Forces analysis is an analysis model used to evaluate an organization position and competitive standing by analyzing five essential competition forces in the industry. The Potter's five forces analysis model is centered on the idea that there are five essential factors that determine the competition and strength of a market. 

Show question

Question

What are the competitive forces analyzed by Porter's Five Forces?

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Answer

  • Industry competitions 

  • Supplier bargaining power

  • Customer bargaining power

  • Threat of substitute 

  • Threat of potential new entry 

Show question

Question

Apple major competitors in the technology market includes the following except

  1. Samsung

  2. Google 

  3. YouTube

  4. Amazon 


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Answer

C. YouTube 

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Question

 The cost of switching between an Apple product to a rival product is high

  1. Not sure

  2. True 

  3. False


Show answer

Answer

C. False 

Show question

Question

According to Porter's five forces, threat from Apple industry competitors is high

  1. Not sure 

  2. True

  3. False

Show answer

Answer

B. True 

Show question

Question

An analysis of the suppliers bargaining power highlights what?


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Answer

This force of the Porter's Five Forces model highlights the influence suppliers hold in imposing their demands on an organization. 

Show question

Question

Why is the force of supplier bargaining power low for Apple?


Show answer

Answer

This is due to the diverse number of component suppliers available to Apple globally, thus weakening individual suppliers' position in imposing demands on Apple.

Show question

Question

Apple ability to switch between components suppliers at a low cost strengthens Apple position when negotiating with suppliers


  1. Not sure

  2. True

  3. False

Show answer

Answer

B.. True

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Question

The force of customer bargaining power highlights what in the market?


Show answer

Answer

This force of the Porter's Five Force shows the effect of customer preference and buying behaviors on an organization's businesses. 

Show question

Question

Why is the force of Apple's customer bargaining power low when considered for an individual?


Show answer

Answer

This is due to the negligible revenue loss for Apple when an individual customer switches to a rival brand. 

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Question

Why is the force of Apple's customer bargaining power high when a collective customer bargaining power is considered?


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Answer

This is because a mass switch of customers to a direct rival reduces Apple market share and improves that of the competitor.

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Question

Explain why the force of threat of substitute low for Apple


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Answer

The threat of substitutes for Apple products are particularly low due to the limited capabilities of said substitutes. An example of this is owning a DSLR camera instead of an iPhone 12, but iPhone 12 does more than take clear pictures, giving it the edge over a DSLR camera.

Show question

Question

According to Porter's Five Forces, threat of substitute refers to


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Answer

According to Porter's Five Forces analysis, this refers to products that are not direct competitors but can act as substitutes to Apple products. 

Show question

Question

Is the force of potential new entry threat high in Apple's case?


  1. Not sure

  2. True 

  3. False 


Show answer

Answer

C. False

Show question

Question

Why is the threat from potential new entrants low for Apple?


Show answer

Answer

This is due to the already established nature of the Apple brand, its enormous market share and the high capital it will require to establish an organization to compete with Apple, new entrants will face a lot of competition and challenges upon establishment.

Show question

Question

How can Apple keep threats from other big technology organizations under control?


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Answer

Apple should continually invest in research and development of new products and building its customer base to keep its competitive edge over other brands and new brands.




Show question

Question

What does buyer barganing power consist of?

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Answer

  • individual bargaining power
  • collective bargaining power

Show question

Question

The threat of substitutes of Apple products is ...

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Answer

low

Show question

Question

Apple is able to counter buyer's increasing bargaining power through ...

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Answer

constant investment in research and development in unique products

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Question

How does Apple restrict supplier bargaining power?

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Answer

By contracting a large number of component suppliers around the world. Apple can easily switch to suppliers with lower costs.

Show question

Question

Apple's suppliers have relatively high bargaining power.

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Answer

True

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Question

What is the consequence of low supplier bargaining power?

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Answer

Suppliers are at a weaker position when negotiating a contract since they are unwilling to lose a big customer to the rival companies. 

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Question

Buyer barganing power is a strong force for Apple whereas supplier bargaining power is a weak force for Apple. 

Show answer

Answer

True

Show question

Question

Name 2 factors that affect industry competition.

Show answer

Answer

  1. Product differentiation
  2. Switching costs

Show question

Question

Is competitive a strong or weak force to Apple?

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Answer

Strong force

Show question

Question

Who are the competitors of Apple?

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Answer

Google, Amazon, Microsoft, Lenovo, Samsung

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Question

What makes threat of substitution is relatively weak force to Apple?

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Answer

The threat of substitutes for Apple products is particularly low due to the limited capabilities of said substitutes. 

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Question

Is it easy for new entrants to enter the same industry as Apple?

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Answer

No, since a company will require enormous market share and the high capital to compete with an established brand like Apple. 

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Question

What can Apple do to limit the threat of new entrants?

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Answer

  1. Continuously invest in research and development of new products
  2. Build customer base
  3. Develop competitive edge over other brands

Show question

Question

Threat of new entrants is a ... force to Apple.


Show answer

Answer

moderate

Show question

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