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Jeremy Johnson, CFA
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Most recently, Jeremy held the title of Assistant Vice President at a listed investment bank's asset management group as a buy-side analyst. Previously he worked as a senior valuation analyst for a large international accounting firm. He has also worked in sales for a separate listed investment... More
  • Apple's Design-Focused iPhone Strategy Remains Intact 3 comments
    Sep 19, 2012 10:45 AM | about stocks: AAPL

    In 1993, two Arthur D. Little consultants, Jean-Philippe Deschamps and P. Ranganath Nayak, penned a seminal piece on product strategy titled: "Lessons from Product Juggernauts". In the piece, the two authors detailed five categories for product strategy: product proliferation, value, design, innovation and service. With the release of the iPhone 5, Apple (NASDAQ:AAPL) has received some criticism for not being innovative. Much of that criticism comes from those that wrongly assuming Apple is trying to be innovative and failing, when in fact, in my view Apple is focused not on innovation but rather on design.

    It is worth taking a step back and reviewing Deschamps and Nayak's strategic categories starting with product proliferation. One need not look further than Samsung to see this strategy at work. The basic outline of the strategy is to saturate the market with options, see which are adopted and then support the winners.

    The second strategy outlined is competing through value. The proposition here is that a company will create a product that is meaningfully cheaper than the competition while offering comparable quality.

    The third strategy, competing through design, has a few hallmarks: the product should be differentiated, appealing to the eye, pleasing to the touch and easy to operate. While these ideals look simple on paper, when it comes to implementation they can be devilishly difficult.

    Competition through innovation involves the continuous introduction of first-to-market product features.

    Finally, competing through service means that a manufacturer will rely on pre- and post-sales communication and support to differentiate itself.

    A company can compete using more than one strategy, but usually one is dominant over the others and often times it is clear that one or more strategies are not in use at all. For example, it would be difficult to defend a position that stated Apple competed through product proliferation. At the same time, while Apple as a company can be innovative, it can use a different strategy for an individual product such as the iPhone, once it is released.

    Having set out the framework, we can turn to analyzing Apple's strategy with respect to the iPhone. Is the company more of an innovator or is it more focused on design? Using the description of a design focused strategy, we can see that Apple checks all the boxes: the iPhone is differentiated in shape and in its surface textures, it is an attractive device both to look at and to interactive with and it is purportedly one of the easiest smartphones to use. As well, the device maintains its design language from one model to the next.

    Meanwhile, can we say that every iteration of the iPhone has been at the leading edge of technology? In the beginning, perhaps, but for the last several versions, the company has left a number of features off the table. At best, it can be said that in the iPhone 5, Apple has created a phone that compares with the competition, but does not exceed it in terms of features.

    The elements Apple has changed have often been in the service of improving the design. Apple's thin screen technology, which is probably the greatest innovation of the iPhone 5, was done in the name of making a somewhat thick and heavy device thinner and somewhat lighter. A review of the product presentation will show that the new aluminum case was given as much attention as any specific technological feature.

    Investors are right to question Apple's strategy - companies make strategic mistakes all the time, but in my view investor's should not question Apple's tactics. They are doing quite well carrying out their design-focused product strategy.

    Stocks: AAPL
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Comments (3)
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  • Jeremy Johnson, CFA
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    Comments (775) | Send Message
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    A good video which references innovation in the iPhone.
    19 Sep 2012, 05:59 PM Reply Like
  • Ronin.
    , contributor
    Comments (1556) | Send Message
    Very good concepts in your blog here....better than most articles...
    28 Oct 2012, 12:30 AM Reply Like
  • Jeremy Johnson, CFA
    , contributor
    Comments (775) | Send Message
    Author’s reply » Thank you!
    8 Nov 2012, 12:02 AM Reply Like
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