Apple turns 40 on April 1. In the interim decades it has become the world’s most valuable brand, been responsible for hit products such as the iPod and iPhone and convinced more than 1 billion people to use its products. But as technological innovation becomes the norm, how can Apple ensure it remains at the cutting edge – both in terms of branding and products?
It was back in 1976 that Steve Jobs, Steve Wozniak and Ronald Wayne founded Apple. And while the road has not always been smooth, little could they have known 40 years ago that Apple would become the biggest company in the world by market capitalisation – worth a staggering $605bn by the latest count.
It is also the world’s most valuable brand by almost any measure. Interbrand, Brand Finance and Millward Brown’s BrandZ all rank Apple as number one – citing its user centricity, focus on consumer trust and ability to move into new areas such as payments and wearable tech for its success.
The hallmarks of a leading brand
According to BrandZ, Apple has seen its brand value soar from $16bn in 2006 to $247bn last year. And Elspeth Cheung, global BrandZ valuation director at Millward Brown, says key to that has been its leading position as a brand that is seen as “different” across the markets and categories where it operates. This means consumers see it as a brand that “sets trends” and stays ahead of the curve.
“The ability to set trends is a key differentiating factor for a brand. And being different allows brands to charge a premium and be rewarded with exceptional brand growth,” she explains.
“For whatever product category it enters, Apple very quickly gains market share from existing players. Take the iPhone, where Apple totally turned the mobile phone industry upside down. Recent launches of Apple Music, Apple Pay and Apple Water, though still small in scale, are also creating very genuine threats to existing players.”
Apple is also a world leader in making sure its brand stands for something and implementing that across its business – from its products to customer service to stores – not just in its marketing. As Simon Glynn, EMEA director at creative consultancy Lippincott, puts it, Apple “exemplifies the secret of all the best brands”.
“Apple creates strong emotional connections that are forged deep inside the business, not just in marketing communications. Apple simplifies the alienating tech world through clear choices with a small range of intuitive and different products; it gives us something to believe in based not only the technology itself but on how we use it in our lives; and it gives us something to belong to when we carry and use Apple technology,” he explains.
Turning a strong brand into record profits
Where Apple succeeds is in turning that strong brand into profits. Its latest financial results for the fourth quarter of 2015 show the company posted record quarterly revenue of $75.9bn and record net income of $18.4bn.
It gets most of that profit from iPhone sales. What makes that even more impressive is that it is one of only two smartphone manufacturers to make any money from selling phones.
In total, more than 1,000 companies make phones globally. And according analysis by Canaccord Genuity, Apple hovered up 92% of total operating income. Samsung accounted for 15% while every other company either broke even or made a loss (hence why Apple and Samsung account for more than 100% of profits).
Apple also sells just a fifth of smartphones worldwide. According to the latest data from IDC, Apple sold 74.8 million smartphones globally in Q4 2015, giving it 18.7% share of the market. In the tablet space it accounts for 24.5% of sales.
The figures highlight how Apple has managed to use the power of its brand to command much higher prices than rivals. Almost everyone else in the smartphone space uses Android, making it hard to differentiate and leading to manufacturers to boost sales by cutting prices. Apple on the other hand can continue to charge a premium.
“Despite innovation slowing in the smartphone segment Apple is still the ultimate brand when it comes to smartphones and tablets.”
Ben Wood, chief of research, CCS Insight
“The profit margin it commands on its devices underlines this. In tablets iPad has become almost synonymous with the entire product.”
Mixing love and innovation
Yet that is not to say Apple doesn’t face challenges. As it reaches middle age it has found itself bumping up against a number of new issues.
Last year, its iCloud cloud storage service was the subject of a high-profile hack that leaked hundreds of images of naked celebrities and caused Brand Finance to lower its brand rating down a notch to AAA (rather than AAA+). It has also faced calls from the CIA to help decrypt a terrorist’s phone – something Apple says it cannot do over security issues.
Its products are also facing challenges. Apple predicted that iPhone sales would drop for the first time ever this quarter as the smartphone market becomes saturated. And according to YouGov BrandIndex consumer perceptions of both the iPad and iPhone in the UK come in behind Samsung and Sony.
The analysis shows that Samsung has an Index score – a measure of a range of metrics including reputation, value and quality – of 31.6 and Sony of 21.2 when it comes to mobile phones. Apple comes in on 20.1 and falls down in particular in value where it comes 30th in a list of 31 mobile phone manufacturers.
In tablets, Sony comes top with a score of 26.8, ahead of Apple’s 25.8 points. Wood says the results are surprising given poor sales of Sony tablets and smartphones but that Samsung does provide competition given recent launches such as the Galaxy S7.
Apple is also being forced to fight off perceptions that its products now lack innovation. Apple has started to adopt standard consumer goods tactics when sales slow – namely diversifying its product across new price points.
Yet the event last week to unveil the new, smaller and cheaper iPhone SE was roundly criticised, with Neil Saunders of retail analysts Conlumino saying Apple had “squandered an opportunity” by unveiling “mundane product updates”.
And Lippincott’s Glynn claims that in consumer research carried out by his agency, Apple has seen a drop in people agreeing with the statement “this brand is unique”. “The issue is less about technology innovation as an end in itself, and more about sustaining Apple’s uniqueness at a time when much of the clarity and simplicity it used to stand out for has, to its credits, become the market norm,” he explains.
While the world waits for the next groundbreaking product from Apple, BrandZ’s Cheung says the brand must work on building an emotional affinity. According to its analysis, consumers’ love for Apple across both functional and emotional reasons is “similar” to other brands in the category.
“Love and innovation go together like food and wine. They separately drive brand value growth, but together they form a virtuous circle that balances brands with qualities that help ensure long-term survival and success,” explains Cheung.
“Apple has to continue building strong emotional affinity among the fans so they will continue purchasing the same products with minor feature updates. Plus, while love and innovation ensure long-term success, this is being disrupted by startups, cross-category operations and continued R&D investment by competitors. It is very critical that Apple has a strong product pipeline and is able to bring to the market innovative products and services in a very timely manner.”