Although comparing these geographical areas, the population differs significantly the units sold in 2004 are relatively similar: European Union 132.84 million, China 120 million, and Latin America 115 million units. The maturity of the market is also important to be considered. China’s 9.9% GDP growth together with only 25% creates good future market growth outlook. Comparing these to the US market, all three geographic areas still have good potential growth. 93.2% American own cell phones. 145 million phones sold in the US in 2006.20

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TECHNOLOGICAL ENVIRONMENT

Technological Environment “The technological environment refers to new technologies, which create new product and market opportunities. Technological developments are the most manageable uncontrollable force faced by marketers. Organizations need to be aware of new technologies in order to turn these advances into opportunities and a competitive edge. Technology has a tremendous effect on life-styles, consumption patterns, and the economy. Advances in technology can start new industries, radically alter or destroy existing industries, and stimulate entirely separate markets. The rapid rate at which technology changes has forced organizations to quickly adapt in terms of how they develop, price, distribute, and promote their products.”21

The four P’s of marketing are directly affected the moment a new design is created. New technology is an ever-growing competitive industry based on consumer demand. Consumers want to do everything faster and easier, thus causing companies to combine their technologies into one product. The idea of multi-media device is not new, mobile phones have been able to make calls and access the internet for a some years now. With the latest craze of listening to music outside of the car and Discman’s becoming a history channel special, digital music; MP3 has skyrocketed. With many PDA’s supporting a Window’s based OS, consumers were able to buy a memory card, load music, insert that into their phone, and listen via Windows Media Player.

The iPhone is different because it allows music to be stored directly onto either a 4 or 8GB hard drive (Apple Website). The iPhone uses a new multi-touch display and new software so everything can be controlled by touch. It capabilities of listening to music and watching videos are amazing compared to standard software on PDA’s and other multi-media phones currently available. The phone capabilities are the same, you just simply touch a name and press call on the display, there are no buttons to press. The internet allows you scroll web pages while downloading, just like a computer.

However, in the international market, if Apple were to enter into Europe, they would be faced with a challenge of accommodating their technology. Europe’s largest mobile phone service provider, Vodaphone, uses 3G/UMTS technology, which the iPhone does not support. iPhone currently operates on GSM, however rumors have been spread about the possibility of Apple developing two versions of their phone22. If a contract between Vodaphone and Apple was generated and the two versions of the iPhone were available for both markets, the launch of the iPhone would be astounding.

SOCIO-CULTURAL ENVIRONMENT

One of the primary aspects in examining a socio-cultural environment is to attempt to analyze how to gain wide acceptance of a product and approach the market using this information. The tendency to use self-reference criteria when evaluating a marketing strategy can lead to poor, or complete, marketing failure of a product. Apple has already experienced huge success in their international strategy to market the iPod. However, in marketing the iPhone they must be careful not be complacent on past iPod successes in approaching this highly competitive industry, where pricing alone can road block your marketing efforts23.

For example, in a EU launch of their product Apple would have to consider the consumer preference in EU in shying away from most contracts with cellular providers, especially any longer than 12 months. In the US, Apple has given exclusive rights to the iPhone product to Cingular who requires a 2-year contract for which US consumers are used to when choosing a cellular carrier. With this in mind Apple needs to structure its marketing approach tailored to each market.

The Apple “iProduct” Culture

The culture surrounding the iPod has been amazing and truly disruptive. The iPod family of products has lead to a generation of new terms such as ‘podcast’ along with numerous iPod accessories. Auto manufacturers are even including features in automobiles where iPods are integrated into the audio system. Corporations have made huge profits on just manufacturing accessories for the iPod. Yet, Apple was not the first to market an mp3 player; but their product design along with cleaver marketing, has created an iconic culture. It is this mass brand recognition that Apple can use to leverage its new iPhone product24. The fact that individuals will want the iPhone merely because it is an Apple product cannot be ignored and is the salient point of successful marketing.

Importance of cultural acceptance for the iPhone An important aspect in dealing with any product is to examine its acceptance in main stream culture and by the social institutions that make up that culture (family, media, government, etc). The iPhone product is targeted to various demographics in both business and personal sectors. Certain aspects of the purchasing power of these sectors will impact how much and to what extent the iPhone will become main stream compared to its iPod cousin. This is very important and it should be noted that the inexpensive nature of the iPod family of devices along with other inexpensive cellular phones will provide a cultural threat of ‘substitutes’ to the acceptance of the iPhone.

Another aspect of product acceptance is the features of a product. The touch screen interface lacks the tactile feedback that many are used to when using hi-tech products. However, like many other technologies in the past that have been viewed as ‘disruptive’, the iPhone’s cultural acceptance is difficult to measure in this area. Humans are highly adaptive to innovation and learn and respond to cultural changes through socialization (acculturation) quickly.

The Internet’s wide acceptance is a perfect example of how quickly technological innovations are accepted when they are embraced by youth. The iPhone is designed to compete outside of the arena of mere ‘cell phones’ and is designed to compete with PDAs and smart phones such as the Blackberry by RIM. True, a high degree of cultural acceptance will rely on the ‘feel’ of the device; however the bottom line for cultural acceptance will be its reliability, especially at the hefty price tag Apple is demanding. This should come as no surprise since Apple fell flat in mass acceptance of its first personal device (PDA), the Apple Newton. Poor product performance outweighed the huge marketing hype and Apple removed the Newton from the market after a few short years of production.

In evaluating the cultural acceptance, Apple itself researched those attending an Expo in Paris at the end of 2006. From the information they gathered, approximately 74% of those asked indicated that they a high likelihood of purchasing the iPhone once it became available. However, cost is a major consider and of the “74 percent who would be highly likely to purchase an iPhone said that, on average, they would pay $285 for such a product. This is consistent with our thinking that Apple must price an iPhone in the $300 range to gain significant traction with the product.”25 Thus price is clearly a deciding factor for most, not only in the US but also in EU. With this in mind, Apple would need to reconsider its pricing strategy before and after launch.

Cultural values and consumer behavior (Hofstede’s dimensions) Cultural values and consumer behavior has been the subject of much research. This research has lead to a classification of certain ‘indices’ which relate to cultural consumer behavior patterns when determining the best way to approach a global marketing plan. Cultural values affect how consumers respond to marketing ads as well as products. The iPhone seems to hold broad acceptance in varying degrees of these indices.

The Individual/Collectivism Index which references to a cultural preference for either group or individual promotion can support and justify the iPhone marketing regardless of which preference is made by the culture. In Europe there are various levels of this index. For example, the US, Great Britain, and France score on the high side of Individualistic side, but Germany is slightly higher than mid-range. However, considering the iconic nature of Apple’s iPod product line gives reason to believe that group acceptance has already taken place and is a conduit for the iPhone into cultures that integrate into strong cohesive groups, thus Germany’s mid-preference range does not appear to be an issue.

The Power Distance Index refers to the inequality between inferiors and their superiors; although Great Britain, Germany and the US score relatively low on the Power Distance Index, France scores relative high. Already the iPod is seen by many cultures as a product of prestige and affluence26. Therefore, its acceptance as a statement of power and prestige would mean targeting the iPhone to a business market in France rather than a general consumer market. As with Individual/Collectivism, cultures scoring high in Uncertainty Avoidance would be adverse to the iPhone, however again the iPod has paved the market in overcoming this adversity with its widespread use.

Consumer behavior is complex and any product wishing to be a success on a global scale must consider factors such as icons, symbols, colors, and imagery, and what these mean to their target consumers in each country. Countries have their own ‘accepted’ and distinct symbolism which may or may not be shared with other countries or even similar regions. It is known that consumers respond to imagery, icons and symbols for which they are familiar with within their cultural reference criteria.

The iPhone relies heavily on aesthetics and symbol recognition. As part of any cultural research before product launch, Apple will have to make use of extensive local knowledge and customs so as not to inadvertently offend a cultural sensitivity or contort an icons meaning and be seen as malfeasant. Thus a degree of adaptation may have to be considered in markets where specific imagery and icons are considered unacceptable.

Imitation of the US culture

Just because a culture ‘borrows’ from the American cultural concepts technologies or ideas, does not mean they will accept the same marketing techniques as those used in the US. Similarities may or may not exist and inferences made because of them fall short of cultural values, rituals, beliefs and thoughts. A primary example of this is the European market where the limited supplies and high costs must be factored when deciding upon a marketing campaign that may or may not be affective in the first place. Since many may not be able to afford the iPhone, a marketing strategy targeted at specific consumers such as business professionals, rather than a wide spectrum as in the States, would have to be considered, especially in those with higher Power Distance Indexes like France.

Also a consideration that should be made by Apple would be the evolution of the iPhone product similar to the iPod’s. Possibly a smaller, less expensive iPhone may be more readily accepted by a broader audience globally in the general consumer market, not just in the US but also for the EU regions. Just like the wider acceptance and purchase of the nano and shuffle over the iPod, more consumers in other cultures would be likely purchase a product that they can afford.

This is evident by the comment of Frank Yu and Neema Moraveji, “The iPod is very popular in China among the rich and middle class segments, which in terms of numbers is larger than some European countries. However, Apple’s real success here seems to be their low and affordable Shuffle product. …Of course the deal breaker for mass acceptance continues to be the price point ($499 for a 4GB model, $599 for 8GB) for the relatively expensive iPhone. I mean, thats the cost of a cheap new laptop here.”27

Apple has the ability to capitalize on the appeal of ‘western’ technology with the iPhone. Already consumers in many countries have accepted and widely use cellular technologies, therefore the use of an iPhone would be readily accepted as well. However as stated previously, it would be a grave mistake for Apple to market the iPhone based upon self-reference criteria and its domestic appeal. Apple will also need to consider factors such as carrier’s reputation before signing exclusive deals, if even at all, with operators like it has done in the US with Cingular. Currently the top carrier has been Vodaphone which supports another wireless technology, WCDMA and 3G rather than GSM, which is already built into the iPhone for Cingular since that is their broadband. It would not be an issue for Apple to integrate another chip set to support 3G or WCDMA to allow for these ventures.

CANNIBALIZATION AND CREATIVE DESTRUCTION ISSUES

Apple’s product strategy of the iPhone has numerous implications on its existing market and product lines. There is debate on whether or not this ‘next generation iPod’, as some are calling the iPhone, will cannibalize Apple’s existing product lines, more specifically the iPod. Discussed are the topics of cannibalization and creative destruction, both of which force difficult decisions by many corporations as they market their products and develop new technologies.

Cannibalization – iPhone vs. iPod A full screen is a feasture consumers have been asking for with the iPod. They have also been requesting a full color and fully-designed interface along with wi-fi and Bluetooth along with built in speakers. All of which are found in Apple’s iPhone. Some even ask why this new product has to have a phone incorporated at all. The question is ‘Why not produce a ‘phone-less’ iPod which will allow for a possible price point of $299 instead of $499?’

The answer to that question is the converse of the iPhone cannibalizing the iPod. If such a new generation iPod existed it would surely cannibalize the iPhone28. However, its features are obviously something consumers have been asking for and are eager to purchase. That is why Apple has strategically decided to offer both, but only to offer these ‘6th gen’ iPods about 6-12 months after its initial iPhone offering29. However, ‘What about Apple’s existing iPod line of products, will iPhone cannibalize the iPod?’

Gartner Inc (leading provider of research and analysis to the global IT industry) believes it will and is advising industry to expect it, “A new advisory from Gartner warned that the iPhone could eat into existing iPod sales, as some buyers will want a converged device rather than the dedicated devices currently available.”30 Their report highlighted that Apple has positioned the iPhone as three devices in one: a widescreen iPod (which consumers have been waiting for); a smartphone (a security concern addressed for many using cellular today); and an internet communicator (also a feature consumers have been asking for).

However some argue that sans (without) the phone, iPod loyalists are waiting for widescreen touchscreen video iPods, not the smartphone. This point is adequately argued by HardDrive Life, “What do the current iPods cost? The Nano sells at $149, $199 and $249 for its 2, 4 and 8 GB sizes respectively. The video Ipod models start at $249 and $349 for 30 and 80 GB models. The iPhone will cost $499 or $599 for 4 GB or 8 GB models…Parents will have to get the message that THIS IS NOT AN IPOD.

It’s a feature-rich smart phone, or a step further, a portable PC (running OS X). This is not like their son or daughter’s RAZR or Sidekick they want to ditch. It’s a whole other level of phone, once reserved for journalists and business-types…I just don’t see any parent (or practical-thinking teen, for that matter) getting an iPhone for its iPod features when the music/video only devices do such a superior job already.”

Other analysts agree with this blogger, Barry Ritholtz discusses his take on Street Insight’s views of the iPhone cannibalizing the iPod’s sales, “I do not see the iPhone as cannibalizing Apple’s iPod sales. First, the iPhone creates an entry point into a huge market for mobile phones. Second, it creates an even higher end iPod model for Apple to sell, between the existing iPod models and the new iPhone…As drool worthy as it is, I am not sure if I will be getting an iPhone.

However, we can assume that the same touchscreen device will available – without a phone built in – as a high end touchscreen iPod. That would be a must have for me and a lot of other Apple fans, and I would expect to pay a healthy premium for it.”32 In addition, according to Innoblog, “Some analysts already have argued that Apple actually set an artificially high price tag to minimize cannibalization of its profitable iPod line.”33 However it should also be recognized that if the iPhone price is too high it will limit iPhone sales and work against Apple’s supposed strategy that Innoblog is proposing.

With the foreknowledge that iPod fans may not have to wait long for their 6th Gen iPods, there may be justification in their observations to ‘wait and see’. According to various forums like the AppleInsider, Apple plans to launch new iPods with WiFi towards the end of the year, just in time for the holidays; although, this has yet to be confirmed by any legitimate sources from Apple Inc. Some feel that Apple will not be releasing any 6th Gen iPod until iPhone sales start to stagnate, which would possibly be a huge mistake given that the Zune WiFi player that Microsoft has marketed could capitalize on the lack of Apple’s initiative to make a marketing move.

“Creative destruction occurs when a new generation of technology moves into the mainstream, competes with, and eventually overshadows and replaces its predecessor technology.” Austrian Economist Joseph Schumpeter Creative Destruction (Innovation and Disruptive Technologies) The music industry has seen records replaced with 8-tracks, 8-tracks replaced with cassettes, cassettes replaced with CDs and finally the CD replaced with digital music files such as mp3s. As the world started to replace CD format with mp3s, Sony was the leader in providing first the cassette walk-man and then the mp3 player.

However, all of this changed abruptly with what was considered a disruptive technology, that of the Apple iPod. The Apple iPod was not all that different in its primary functionality, however it was entirely different in its features. The way the consumer enjoys music has drastically changed over the past 5 years as cleaver innovators jumped on the iPod bandwagon and developed ‘iPod accessories’ ranging from iPod integration into automobiles to under the kitchen counter iPod players.

This innovative approach to providing consumers with mobile music players has drastically impacted the market with Apple iPods establishing not only dominance but also a sub-culture with cult-like followings. As of April 9 2007, 100 million iPods have been sold in the 5 1/2 years since its first sale in November 2001. In comparison to the product it replaced, the Sony walkman, who only seen 50 million sales in a span of 10 years, indeed the iPod has had incredible success.

The idea beyond creative destruction or creative disruption is to continually develop, alter and destroy preconceived ideas, established products and processes in the effort to change and grow with the market. The market is constantly changing, especially in technology sectors, and the need to change with it is a necessary component of survival. This is clearly demonstrated in the example of the iPod. However as Apple decides to launch yet another potentially ‘disruptive’ technology, the iPhone, the question is will the iPhone displace current cell phone leaders like Nokia, Motorola or Blackberry like it did with the Walkman and Sony?

We have addressed the possibility that the iPhone may displace the iPod and Apple becoming a victim of its own creative destruction, however it is likely that the marketing in December of the 6th generation iPod that will eliminate this risk. The iPhone is targeted to compete with not just the cell phone market, but also the PDA market. Its superior design and integrated features make it unique in its appeal not just to the cult-like iPod fans, but also those who seek to eliminate the need to carry numerous devices. An added issue in comparison to the existing cell phone market is the iPhone’s “stunningly clear, large iPhone screen and its unique sensor-based interface will provide a truly distinctive user experience.”