The Bargaining Power Of Supplier And Generic Strategy Business Essay

Published Date: 23 Mar 2015

Generic strategy is the framework that explains in competitive advantage. According to Porter (Campbell, 2002), the generic strategy was insisted that there are three main options which are the best fit to the competition between firms that are differentiation, cost leadership and focus.

In the past, the most consumers of computer market might know only Windows OS (operating system). Therefore in order to compete with large firm like Microsoft and the other, the differentiation strategy has been chosen by Steve Jobs. As a result, Macintosh, iPod and iPhone had been published and Apple can be achieved in several years later.

Porter's five forces analysis

The bargaining power of supplier

More bargaining power of supplier can determine less profitability in any companies (Smit, 2006). On the other hand, it can refer to the benefit of the buyer who may get better quality products. Apple Company has published the supplier responsibility report which explains the detail of Apple's supplier standard (Apple, 2010). In addition, as can be seen from this report, Apple has tried to improve the efficiency of their supplier in order to meet their expectation and may reduce the bargaining power of their supplier.

There is no doubt that Apple Company is still rapidly growing (Apple, 2010a), therefore the company still looking for new suppliers. Moreover, Apple has developed an ecosystem to obtain the best possible value and benefit to their customers and stakeholders.

To decrease the bargaining power of Apple's suppliers, the company allows new suppliers to register online on the company's website (Apple, 2010). Moreover, due to Apple is the leader technology company which has large demand of raw material. Thus, there are a plenty of suppliers which have been registered in order to be the Apple's suppliers. Then, when there are more competitive among large number of suppliers, the bargaining power of them will be decreased.

The bargaining power of buyer

In order to achieve in the majority of markets, a company should meet the expectations of their customers which come from age, income, educational level, or even personality (Gilligan & Wilson, 2003). Buyers seem to be more prices sensitive if the products are not differentiated because they can alternative to another retailer (Smit, 2006).

However, Apple Company's positioning more focuses on less price sensitive customers which suppose to purchase premium product. Therefore, brand image of Apple had been created in order to contain the royalty of their customer and try to maintain their premium position. In addition, the product of Apple has been created base on differentiated and their customer requirement which cannot find from the other brands. (from lecture in the class)

Furthermore, due to Apple's products are differentiated form the other brands and the loyalty of Apple brand is quite high level, the bargaining power of buyers are therefore quite low.

Threat of new entrance

An entering of new companies to the industry may cause of decreasing the market share of the company (Hill & Jones, 2009). However, Kurtz et al (2007) state that differentiation of product and brand as well as having a strong marketing strategy like competitive advantage might help the company to maintain the market share and generate profit.

According to Apple (2010b), the operating system of Mac has been designed to unable to infect any PC viruses or any malware whereas Windows which is the operating system of Microsoft brand can be infected by varieties of PC viruses. Additionally, Graphical User Interface (GUI) of Apple's applications is also different from the other brands.

Furthermore, as can be seen Apple is differentiated from the other brand which make them have a strong position in the market. However, their competitors of MP3, phone, OS, Laptop PC, and the other products (Sony, Nokia, Microsoft, Dell, and so on) have tried to compete with Apple and they try to improve themselves as well as Apple Company. Consequently, the threat of new entry in Apple Company's level is low to medium and may increase in the future. ,

Threat of substitute product

The products can be substituted by the same need of consumers (Campbell et al, 2002). For instance, if consumers want to buy a laptop, there are many choice of laptop which has similar performance and the same Operating System. Therefore they can pick the brand they want, nothing so different. However, Campbell (2002) insisted that the threat of substitute might have 2 factors which are the price and performance of the substitute and willingness of buyers to switch to the substitute.

First the price and performance of the substitute, According to the feature of iPhone4 which is the earliest product of Apple, it combined together with smart phone which including FaceTime function, high quality camera and video recording, MP3, map and much more features. As a consequence, it is difficult for the other firms to substitute this company. In contrast, the price of Apple's products is quiet high hence if the need of customer is not met, thus the competitor of Apple may have an opportunity to substitute the market.

Secondly the willingness of buyers to switch to the substitute, the buyers may want to change supplier if they found the brand that have similar performance but cheaper. In Apple case, the customers are quiet high loyalty in the brand. As can be seen from Daily mail news (First & Poulter, 2010), the first day that iPhone 4 released, there were crowned of people queued in front of their shops around the world. Furthermore, Campbell (2002) stated that the thread of substitute of the product can be as reduced as more buyers' loyalty of the products. Consequently, the thread of substitute product of Apple is quiet low.

The intensity of rivalry among competitor in the industry

Businesses usually compete with each other in many ways for example, pricing, promotion, advertising and additional services (Campbell, 2002). In addition, Smit (2006) supports the idea that to compete between firms is similar to the jockeying for position which many tactics are used to compete with each other. Moreover, Campbell (2002) insists that the fifth force is the most important in five forces model and 3 factors of the fifth force have been explained.

First 'the height of entry barriers and the number and size of the competitors in the industry' (Campbell, 2002: p. 140), as mentioned above Apple have large firms to be their competitors such as Sony, Microsoft and more. On the other hand, due to the differentiated and quality of Apple's products, it results in that Apple is in the first position of the most innovative company and their financial situation is successful (Bloomberg Businessweek, 2010)

Second 'the degree of brand loyalty of customers' (Campbell, 2002: p.141), as can be seen on the first day of releasing iPhone 4 (First & Poulter, 2010) that there were more than thousands of people who queued to purchase iPhone 4 around the world, it additionally shows that the Apple's brand loyalty of customers is high. Hence, the intense competition of Apple is quiet low.

Third 'the power of buyers and availability of substitutes' (Campbell, 2002: p.141), due to the differentiated in Apple's products, it results in low bargaining power of the buyers and low availability of substitutes also.

Conclusion

In conclusion, due to achievement of Apple's differentiated, the loyalty of their customers among the products and many firms want to be a part of Apple's supplier, it result in low bargaining power of supplier and buyers, quiet low thread of new entrant and substitute of product and the intensity of rivalry is low. Thus it may be conclude that there are not many effects from five forces on Apple Company.