Apple's Leap from Mediocre to Marvelous

ou've heard the clichés: He could sell ice to an Eskimo. She could sell a ketchup popsicle to a woman in white gloves. The sales force is the lifeblood of an organization. After all, the best product in the world is worthless if nobody knows about it. And so, we move on to Phil Fisher's fourth point:

Does the company have an above-average sales organization?

When your company is the company in its industry, your products virtually sell t

When your company is the company in its industry, your products virtually sell themselves. We've talked about Adobe (ADBE) here before (see the chart of Adobe market cap versus intrinsic value), but it applies once again to this discussion. Adobe's products sell themselves. Why? The moat is absolutely massive. In the graphic design / web design world, Adobe is king, and adobe.com is the first place these people turn for new products, updates, and cutting edge tools.

It's easy to spot the company in an industry — Adobe and Google come to mind. Then again, what if there is no true monopolistic leader? Or, what if you are the world's leading provider of, say, operating systems for home and business computers, and then someone comes along and starts snatching your market share?

How did Apple (AAPL) leap from mediocre to marvelous? It's not the mirrors; it's the sales force.

The MP3 Revolution

It started with the iPod. In the 1990s, the popularity of MP3 players took off...and then seemed to die just as quickly. The industry remained dormant for some time as the broad public seemed to care very little about downloading music. The technology itself was mediocre. And let's remember: This was a time when the internet was a free-for-all. Napster offered totally free music (and more), just waiting to be downloaded.

Enter the Apple Sales Force

The iPod was revolutionary in a sense, and not just because of its technology. Until Apple released it, MP3 players were poorly marketed. Along came Apple's sales and marketing department with a crazy idea: Let's put black silhouettes dancing in front of brightly colored backgrounds, with no detail but the iPod in white. You remember the commercials — a wild-haired silhouette having a blast, iPod earphone strings swaying along.

Was the commercial brilliant? Only for one reason — Apple incorporated widely known, well-loved (or extremely popular) songs into its marketing. Then, it rammed its commercials down your throat until you couldn't help but see the silhouette dancing in your head every time you heard the song. After a while, the iPod became the industry standard MP3 player, and Apple became the company in portable music devices. Who knew people would rather spend hundreds on an iPod and pay for each song download from iTunes rather than spend pocket change for an "other" MP3 player and steal music for free (or buy it for peanuts)?

Apple shareholders: How about a big round of applause for Apple's "above-average sales organization."

Then, They Did It Again

If you have the best sales and marketing people in the world, you can sell anything. Having cornered the music market and having shut out the weak competition, Apple decided to go for the holy grail — Microsoft. Admittedly, I don't know if Apple's computers are better or not; then again, that's not the point.

We could sell sand in the Sahara.

Apple came up with a brilliant strategy: Hit the techies first, and the people will follow. The "I'm a Mac; I'm a PC" revolution began, clearly geared towards "in the know" computer people. Admittedly, I didn't even know that I had a PC — I had a computer, and it ran Windows XP. Having seen the commercials, I wanted to check out more. What the heck is an Apple / Mac? Why would I want one?

But Apple wasn't trying to capture my attention. It wanted to let me know it was out there, and that I would eventually want a Mac. Initially, Apple wanted to capture developers — the people who would make my transition to a Mac easier because they would (i) be talking about it all the time, and (ii) be helping make the software and services I love Mac-compatible.

Me? Apple just wanted to let me know it was there, and that it would welcome me when I was ready to make the transition. While Apple waited for me, it gently, but constantly, reminded me of the headaches and problems I have with my "Microsoft" computer — too much garbage installed when I get the computer, not enough "fun" stuff (let's face it — Microsoft Movie Maker stinks), and a constant threat of viruses with incessant updates leading to automatic restarts.

Though I'm still hesitant about switching to a Mac, many of my friends have done so. Though I have no need for an iPod, I'll probably buy one for my wife and then use it all the time until I buy my own. And when I buy a new cell phone in the next month or two, you bet that I'll look at that 3G iPhone. I don't even know what 3G means; still, I know I don't want to suffer through another Microsoft "smart" phone (nothing but nightmares) and my Blackberry is looking awfully boring now that I spend more and more time on the internet from my phone.

Judging The Sales Force

How does one judge the sales force? Better yet, what the heck is the sales force? The sales force is more than just the commission-based reps on the street. If Phil Fisher were around today, he' probably change his point from "sales force" to "sales and marketing strategies that marry the various sales media, from the efforts of the sales reps to the quality of the print and broadcast advertising to the website." (After all, Fisher would have known most of us check out websites long before we actually go to a store or call for more information and that the website is the "gentle half-step" between I'm interested and I'm ready to buy.)

You'll know your company has an "above average sales force" if:

• It has great "traditional" marketing (see this post about marketing);
• Its website supports its sales efforts, rather than being little more than a "our company, about us, look what we can do" ego boost (it's the 21st century; you can't ignore the web anymore);
• It's generating a lot of revenue per employee relative to its competition (AAPL: $1.1 million per employee; MSFT: $647,000 per employee);
• Its prospective customers know its name and products, and want them (even if they're hesitant to switch today); and,
• It is (or is becoming) the company, if not in its entire industry, at least in a powerful niche of the industry (I still can't buy a Mac from Dell, but I know where to turn if I want an Apple computer).

How Does This Apply To Our Pharmaceutical Discussion?

In a highly competitive environment, few products will sell to their maximum on their own. This is not necessarily the case with pharmaceuticals. Looking to do right by their patients, most doctors will not prescribe just any old drug the cute sales rep pushed that day. The drug has to be the best, with the least risk. Then, the doctor has to make a judgment call.

To help increase awareness of the name and effectiveness of the drug, we've seen (way too many) commercials spring up, telling us to ask our doctor about this drug and that, assuming we don't mind the minor risks of chronic vomiting, bleeding from the eyes, and risk of hearing loss (you get the idea).

From a consumer standpoint, I don't know what's good or bad — particularly when a company asks me to remember some 30-letter, half-Latin half-English drug name (if you suffer from indigestion with uncontrollable sneezing, ask your doctor about Alexiopropalinal Digestneezinate). Then again, I do know what the purple pill is, and I might ask my doctor about it if I had acid reflux.

Odds are, most of this site's readers (myself included) are not capable of judging the sales force of a pharmaceutical company unless they are (a) in pharmaceutical sales, (b) in the pharmacy, or (c) doctors. In that case, we have to get our noses out of the EDGAR database and get on the phone with friends and family that might fit into the categories above.

(Now if only my wife would believe that golfing with Joseph at Eli Lilly is "research"...)

Comments

[Toni]

Doris ?

[dragon10]

Leave Doris, Toni. She have fans even in Serbia. Toni Toni Toni...

[wallawallabingbang]

This is an odd interpretation of reality in the consumer space and an undue emphasis on marketing versus the outstanding quality of the products (do you read PC magazine, for example?).

Customer satisfaction studies, independent reviewers, and design/usability experts attest to the high quality of Apple's offerings.

The silhouettes have little to do with it.

Think you should scratch your head, look past the shadows and see the light...

[Brewer]

Apple have never been mediocre. Apple showed IBM there was a market for personal computers. Then they invented the modern computer with the introduction of the Mac in 1984. Macs have always been much better at many things than a DOS/Windows PC. But the best product doesn't always become the highest seller.

Apple marketing is great, but it's the products. To imply that they are selling something you don't need (sand in the sahara) is ludicrous. Everyone who doesn't already have one needs a Mac or an iPod.

[Cho Cha]

Apple mediocre? Microsoft is mediocre, Palm is mediocre. Apple is not mediocre and hasn't been for many, many years. They don't have the market share of it's competitors but they have been producing outstanding products for a long time.

[Mcluhan]

Apple is aware of it's strengths and knows it can dominate anywhere. It just was never had the momentum to do so until the ecosystem was ready for the products. It took several years, headaches, a few failures (meaning the users didn't buy the ideas, not that they were a flop) and lots of free and paid marketing publicity efforts; advertisements, including word-of-mouth, personal selling, referral, contracts, exclusive contracts, distribution arrangements, solid product matrix, standardized pricing, premium brand positioning, the best electronics online presence, the best lifestyle retail presence, an international extension of everything before, global service coverage, the best sales force still with the world' best software/hardware products, exceptional service and awards for doing so, understanding the customers needs before they did, emphasizing making it easy enough for anyone and powerful enough for everyone, understanding the competition's failures and limitations, and an emphasis that Apple could win at any challenge this world poses or change the world until it will. That's probably not all. But it's DEFINITELY Apple.

[roger that]

Get real. Apple has always sucked at marketing. Only computer company I know of that builds dramatically better computers and is still outsold 10-to-1 by its competitors.

[jonboy]

The author apparently has been living in a cave or walking aimlessly in the desert. MP3 players that predated the introduction of the iPod were awful devices that were hard to use. They were temperamental devices with poorly designed interfaces. The market was fragmented with Microsoft mediaplayer or winamp or any of a number of different players to try to interface to the multiple brands of MP3 players. It is easy to suggest that it was just marketing hype that allowed Apple to take the MP3 player market by storm until you actually own an iPod. My first iPod was a gift from my family. I didn’t think I even needed one but it was a birthday present. I fell in love in the first week. It is well designed work of art that is pleasant to operate, integrated into a music store, integrated into a total experience. The total experience is value that Apple adds to their products. By Christmas of that year we had bought three more iPods, one for each family member. Yesterday my daughter got an iTouch – part of buying a laptop under Apples recent education discount program. I could not wait to play with it and check it out. It is so easy to use, another work of art. Now I want to upgrade to my iPod. That is the power that Apple has right now; they are wizards at marketing but they are also wizards at engineering. I will scrimp in other areas of my life (food, gas, entertainment) just to have that experience and own their products. Apple has figured out the ultimate success formula, exceed customers expectations, day in, day out. It’s a hard act to beat!

[Sebhelyesfarku]

Fortunately for Jobs he was able to create a cult for brainwashed Maczealots and also recently the tech media and blogosphere are full of Mactards as well. Reality Distortion Field works well in this situation and hyping anything to epic proportion is easy.

[wallawallabingbang]

Now, Sebhelyesfarku, you don't seem MUCH like a paid basher...

Your, ahem, comments:

seekingalpha.com/user/...

[REB]

You should look into the medical uses of the iPhone G3. There will be software for it very soon after it's debut on the Apple iTunes website for iPhone software. Two were demoed in the debut announcement earlier this year.

[Bobz]

Calling Apple mediocre is like calling a BMW mediocre. Apple computers have always been the creme de la creme of computers.

[Steve W]

"I don't know if Apple's computers are better or not; then again, that's not the point."

It may not be YOUR point, but it does make a difference. It's the difference between selling sizzling choice hamburger and selling sizzling prime porterhouse steak. Unless you taste them, all you can see is the sizzle.

[macmatthews]

It is totally missing the point to suggest that marketing and advertising are the keys to Apple's success. People constantly talk about the Apple Hype machine and the Apple Fanboys, but these are people who genuinely appreciate the products that Apple produces. Steve Jobs has clearly stated that he and his team produce products that they themselves want to own. The iPod was a success because of its connection with iTunes, and the ease of downloading music, where previously there was total chaos in this space. Similarly with the iPhone, most people were very dissatisfied with the mobile phone industry. Apple set about making a phone they would like to use. It has nothing to do with advertising. Apple has the best possible advertising - free advertising from satisfied customers.

[taojones]

Marketing and branding is all about creating tribes. when you buy a brand you join the tribe, you feel the cool when you see a fellow BMW driver or a nike wearer, Watches got ridiculously big so you could be sure your Michelle or Charioll would be noticed on your wrist. making the pod phones white was the marketing genus move instead of blending it into your hair it broadcast your tribal affiliation. Every time a pod owner sees white earphones he knows that person is having the same sort of great user experience and is warmed by the wisdom of their purchase. the next important thing in marketing Pride in ownership now get out of that pc tribe your obviously not proud to belong and come and play with the cool Kids. spring for 50 dollars and buy yourself a shuffle you will feel better for it.

[jonesy]

Clearly, marketing and a sales force does matter, as it is obvious the Apple Stores (and not just commercials) that have helped turn Apple around. But having the best product at price-points that customers will consider matters even more.

Apple products in the mid-90s left lots to be desired (though argubly they were still better than the competition). But since Jobs return to Apple, the products have been much better thought out, the design began to be pleasing, the user experience even more so. The overall value of Apple products has grown tremendously.

Apple has great strategy, great products, great stores, and great marketing.

[taojones]

oh yeah, apple as macmatthews said is not Selling you a bag of shells and promises we leave that up to Vista. my original mac from 1992 still runs.(I own 6 )

[Yourope]

Apple bubble will burst, much worse that RIMM.

The expectations are completely unrealistic for a small cellprhone manufacturer that's never going to gain a market-share in excess of 1%.

[msftxno]

This article show a thin understanding about iPod and what Apple did differently to make it happen.

1. Every survey and focus group said the iPod was too expensive, Apple went ahead with it because they believed in the product.

2. The iPod wasn't designed to conquer the world. When it was released there wasn't even a windows version offered, and then without iTube, Windows itunes and the Music store came much later.

3. Marketing wasn't a factor in its initial success. In fact, Apple barely promoted it. It was an Apple only product, expensive, and sold in low quantities to early adopters.

4. The iPod was (and is) profoundly more advanced than competing mp3 players. The early use of a hard drive combined with solid state memory gave great performance and storage capacity. But more than anything Apple's ground breaking interface allowed huge music libraries to be quickly navigated. The user experience was heads and shoulders above the competition.

5. Apple understood the importance of an ecosystem, and built the iTunes music store to make browsing for music fun and incredibly easy. Buying music on other stores was a huge pain. But most importanly, Apple broke the digital log jam by getting the major labels to agree to digital distribution. We take this for granted now. but that was an earth shaking accomplishment when it happened.

Sales? Apple is certainly competent in sales and marketing, but is biggest asset is it willingness to make gutsey decisions, For example, opening Apple stores was greeted with derision by all the pundits, but are responsible more than anything for Apple's breakthrough success (from a sales and marketing context) than any other factor.

[TBNTX]

To Yourope: Name one other company that has risen to the #3 top-selling mobile phone maker within its first year of doing business in thatthe so-called 'smartphone' market segment. And this is while Apple was limiting its availability to just the US, and selected western-European countries. Now that the iPhone has been made available world-wide, it will be interesting to see the impact.

Go to an airport baggage claim area and count how many people are using the iPhone.

Finally, with the new firmware that will be introduced next month that supports direct push-email updating with Exchange (among other new features), third-party applications, and its new price, it's gaining wide-spread acceptance.

I've had Palm, Nokia, and RIM devices. Ever try to do any web-browsing with any of those. They pale in comparison. I'll keep my iPhone and you can keep your Blackberry, and we can both come back here in one year to revisit our respective points of view.

[TBNTX]

To Sebhelyesfarku:

As one of the 'brainwashed Maczealots', I just want to say that I've used PCs and Macs for decades. Still do. My company used to be almost exclusively a Windows shop, except in the marketing department. Now, Macs are replacing the PCs because our company realized that they just worked, and required less support. Think I'm delusional? Check Computerworld's article today 'Survey: 8 in 10 businesses now using Macs' (www.computerworld.com/...) or All Things Digital's article 'Total Vistaster' (digitaldaily.allthings.../) from which I quote 'Intel [corporation-tbntx] information technology staff just found no compelling case for adopting Vista.'

Oh, yeah... and you can run Windows on Macs nowadays - if you want/need to.

Anyone who has used both platforms seriously will have the right to make a decision which system they prefer to use. It's not up to close-minded bigots and 'bash-tards' like yourself to denigrate those who make their decisions to use Macs based on decades of experience.

[dorian]

This guys is either a complete Fruitcake or he's intentionally instigating everyone to write about the most hilarious sense of reality I have ever read.

[Zoltar]

Sebhelyesfarku's favorite word is dumbass, he speaks out of experience, he should know what he's talking about. Dumbass Windowszealot PcTard MStard Zealot...

Meanwhile let us ponder how Joe Pozio did NOT leap from mediocre to marvelous...

[Zoltar]

I have said it and I'll say it again:

Mac users are much more articulate, intelligent and downright beautiful!

PcTards like Sebhelyesfarku like to be on their knees with their S pointing upwards with a screw driver trying to install a new video card in their shaistey fugly filled with poisonous dust Windoze dumbass system (talking like this so that he gets it)

[mkreisel]

I fear for Steve's health.

[Jon T]

Weak article. Poor understanding, poor research and generally not contributing anything to our wider knowledge and understanding.

Moved on.

[Mac'em X]

Wow. I'm all behind the *title* of the article – but the rest of the Apple history is so off-target.

The "secret" behind Apple's surge is great products. Marketing and sales forces provide nothing here but a little tail wind. (Case in point: a growing Apple presence in enterprise, despite all observations that the company's enterprise-oriented marketing and sales force amount to diddly in the industry's bucket of squat.)

Any discussion of iPod success that misses out on the "whole integrated experience" of iPod + iTunes has really missed the boat. (Quick tip for anyone seeking to write on the topic of iPod success: your ratio of "iPod" and "iTunes" usage should be close to 1:1.)

Likewise, the Mac's resurgence is almost entirely a story of Apple's relentlessly building a better product than the competition over the last 10 years. Not marketing, not sales force, not "cool", not "cult", none of that. Simply a far better product, one whose superiority all the Vista and Dell and HP marketing just can't hide.

Sorry, gotta file this story under "way off the mark".

[Gmel]

I like this article.
I am a computer geek and I think that Apple computers are way oversold. I know that they are good and easy to use but they are not perfect and they are way expensive. I make a spreadsheet and check all the numbers before making a major buying decision; BUT Apple's computer marketing IS NOT aimed at me. Most people buy htese things based on emotion. (Apple really does make their darn products look sexy).

I suspect that investment web sites such as Alpha attract a high number of fact and figure and chart people like me; but most investors make decisions by poking a finger at a list of funds provided by their IRA. Or perhaps they make a decision according to which company's CEO was being praised in Time or Newsweek last week. We can't ignore these folks buying on emotion simply because we might be a bunch of number geeks. Those other investors are not wrong just different.

PS: I really loved that DELL guy a few years ago. He was way cool and too bad that he jumped the shark or whatever happened to him.

[imacademic]

May the sales force be with you.

[imacademic]

May the sales force be with you.

[Mac'em X]

gmel, as someone who actually buys Apple products, and is surrounded by so many people doing the same, I have to disagree. "Emotion" might have its moment when people watch commercials or waste time in forums, but when it times to plunk down a hard-earned grand or two, people lose "emotion" and become hard-nosed realists. Really fast.

Maybe it's different with some college kids – I wouldn't know – but among the people I see buying Macs, the sale is pretty much centered around the concepts of "productivity&quo... "value", and "bang for the buck".

Just another subjective observation, FWIW.

[Mac'em X]

Yikes, look at that mess at the end... A couple of my sentences should read:

...when it's time to plunk down...

...concepts of 'productivity', 'value', and 'bang for the buck'.

[mollytjm]

unlike Dell... Apple knows how to treat it's customers with top rated customer tech support. this article is clearly written by someone who knows nothing about computers, or mp3 players or anything tech. do you know why IT people resist Macs? because they need less IT support! why?... they work better. but companies are starting to realize that the bottom line is better if they don't have to pay so many IT people so many billable hours. the switch is happening. Vista helped a lot... it's the worst operating system in history. Thanks, Bill!

[Mac'em X]

I hear you, mollytjm, on the claim that IT people resist Macs because Macs need less IT support... but then again, if IT people prefer high-maintenance products, shouldn't Vista be riding a wave of IT love, not shunned and shut out?

[Partners in Grime]

But then they'd have to learn something new.

I really like how Leopard has incorporated Spaces, Time Machine, and Quick Look. Talk about productivity enhancers!

[Jae Jun]

The title was probably edited by the SA team.
If you read the article PROPERLY, you'll know that AAPL is just an example. The focus of the article is on Philip Fishers 15 points. He could have used any other company as an example but probably chose aaple because everyone knows about them.