Why Apple must move beyond the ‘wow’ moment
Presented here for discussion is a summary of a current article published with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania.
Apple’s disappointing second quarter earnings — including the first-ever drop in sales for the iPhone — accelerated worries about how the company will deliver the strong growth investors have come to expect.
The big problem is that the smartphone market is starting to look more like the PC industry, where there is little to differentiate companies’ product lines and customers stretch the lifespans of their systems for longer than vendors would like.
Apple’s conundrum isn’t unique. Companies such as Microsoft and IBM have developed new technologies to grow quickly, but then are forced to reinvent their businesses.
However, Peter Fader, a marketing professor at Wharton [and a RetailWire BrainTrust panelist], isn’t worried about Apple. “Customers are more in love with Apple than ever before.”
Indeed, Prof. Fader believes Apple needs to be careful about focusing on hit products as a way to drive sales. “Apple is going to have to be about running the business better than creating a ‘wow’ moment all the time,” he says. “How much of Apple’s future revenue is going to be product sales vs. services? The product upgrade approach is working for Apple, but the value is in all the stuff surrounding the hardware.”
To Prof. Fader, Apple’s growth conundrum is analogous to software companies that have to transition from business models that revolve around licensing to one focused on subscriptions and cloud services.
As examples, he pointed to Adobe Systems’ transition to cloud services, but also how Starbucks refocused on customer experience, easing transactions and then selling its customer base more products through a loyalty program and apps.
While noting Apple doesn’t have the analytics or customer knowledge that rivals like Amazon.com or Netflix have, “the key to victory will be valuing the customer base,” Prof. Fader said.
Apple should study Starbucks, says Prof. Fader. “Because of data and analytics, Starbucks has made it very easy to order more coffee,” he points out.
Ultimately, Apple has to see its customer base as its primary asset, much like Amazon does. “Apple’s most golden asset is the one that isn’t on the balance sheet,” says Prof. Fader.
DISCUSSION QUESTIONS: Should Apple shift focus to better capitalize on its rabid fan base? Do you see challenges for Apple to relying more on a service and subscription model?