Apple was voted the overall winner of the 2012 CMO Survey Award for Marketing Excellence… yet again. Apple has been selected as the winner or co-winner for five consecutive years by the sample of top marketers. So why is Apple a great marketer?
When Apple, Inc. (then Apple Computer, Inc.) incorporated in January 1977, its investor/advisor, Mike Markkula, assembled a 3-point marketing philosophy. Amazingly, thirty-five years later, this philosophy remains at the core of what makes Apple so effective at creating and profiting from loyal customers. This, in my view, is the definition of a strong marketing capability. Here are Apple’s original three points:
- Empathy – We will truly understand their [customer] needs better than any other company.
- Focus – In order to do a good job of the things we decide to do, we must eliminate all of the unimportant opportunities.
- Impute – People DO judge a book by its cover. We may have the best product, the highest quality, the most useful software, etc.; if we present them in a slipshod manner, they will be perceived as slipshod; if we present them in a creative, professional manner, we will impute the desired qualities.
Apple has used these principles to become the world’s most valuable company (measured by market capitalization) and one of world’s most valuable brands. Here are ten strategies Apple has used to become one of the world’s greatest marketers:
1. Hire customer-obsessed, empathetic employees. Steve Jobs had unique and effective insights about how people want to interact with technology. Jobs used a quote originally attributed to Henry Ford to describe why these insights were so important: “If I had asked people what they wanted, they would have said faster horses”—illustrating the problem that customers may be limited to thinking only in terms of what they know, instead of what is possible. So Jobs and colleagues thought about the customer experience more deeply than the customer could. Jobs once said, “One of the keys to Apple is that we build products that really turn us on.” Lucky for customers, this often means products are exactly what they want because Apple employees are so deeply entrenched in and committed to the customer’s experience.
2. Iterative customer involvement. This customer obsession made formal market research less important. However, it is no secret that Apple spends an enormous amount of time observing customers using Apple’s and other companies’ technologies. Called “participatory design” or “usability testing,” Apple integrates customer experience into its design and development process to understand their “pain points” and “opportunities.” Of course, Jobs himself was often the most important customer, but this did not get in the way of more systematic participation from customers throughout the process.
3. Protect against scope creep and feature bloat. According to stereotypes, engineers only want to work on projects that are innovative, intellectually challenging and cool, while business people only want to work on projects that make money. Anyone who has worked in a tech environment can attest to the fact that this leads to a natural tension between the two groups. Compromises result in scope creep, feature bloat, and confusing, overburdened, unfocused products. There were mp3 players before the iPod and smart phones before the iPhone, but Apple’s innovation was to distill those products down to their fundamental purposes (e.g., 1000 songs in your pocket) and then design them to be simple and interesting to use. As Jobs noted, “We make progress by eliminating things.”
4. Build compatible experiences. Customers want a streamlined, intuitive way to make their computing and entertainment devices work as a system. Apple understood this and conceived of its array of products as offering the customer first a “digital hub” and then an “entertainment hub.” In both cases, hardware and software were designed for customer compatibility within the system. This of course meant some incompatibilities with other companies’ offerings. However, the joint benefits of having combinations of the Mac, iPod, iPhone, iPad, and of course, iTunes, were of great value to customers.
5. Enable customer discovery and differentiation through Apple stores. A retail presence gave Apple another forum to flex its design prowess. Customers come into the stores to experience firsthand the aesthetics and ease of use of Apple products. They also get to see the larger “solution” that the array of interconnected products offers. Carefully recruited and trained sales associates are encouraged to take customers on a “ride” which former head of Apple stores, Ron Johnson, describes as “something short, fun, and something you want to talk about.” Finally, the stores provide a place where customers can go for support (the Genius Bars), creating yet another touch point to delight the customer. The result: the highest retail sales per square foot of the top U.S. retailers.
6. Build a moat. Apple has done this in three ways. First, Apple’s unique products are communicated to customers through novel and provocative advertising. The 1984 Super Bowl ad introducing the Macintosh is a perfect example. Apple vividly contrasted its independent philosophy and status with the tired and unimaginative computer industry establishment (specifically, IBM). Apple built on this theme of independence in 1997 with its “Think Different” ad campaign which lauded “rebels” and “the crazy ones” as the source of great ideas and inventions. The target market was not big business, but rather artistic and design-oriented fringe business sectors and the educational sector. The heavily advertised iPod with the silhouettes of people dancing to the beat of their own drummer kept this brand image alive and well. Finally, Steve Jobs contributed to this renegade, non-conformist image through press accounts of his demanding aesthetic.
Second, although Apple’s product development utilizes multiple branded partners, it broke with industry norms and turned down attractive financial incentives to keep customers focused on the Apple brand and not its component providers. Since the mid-2000s, Apple has brought on new suppliers such as Intel, Microsoft, and ATI to provide hardware and software solutions for many of its products. However, it has turned down co-marketing efforts (such as Intel stickers on its machines) that every other major competitor participates in with those same suppliers.
Third and related, Apple’s decision to exclude other companies’ brands from Apple Stores has contributed to its brand moat.
7. Devise a business model that creates ongoing customer value. Generating customer value means building a business model that ensures this value is created repeatedly. Hiring customer-obsessed employees and opening retail stores are a big part of creating value for Apple customers. However, iTunes should also be viewed as an integral part of the business model. While iTunes itself is not a big money maker for Apple, the iTunes desktop software and the iTunes Music Store make Apple’s hardware even more valuable. As Yoffie and Kim put it, “Jobs had created a razor-and-blade business, only in reverse: Here the variable element served as a loss leader for a profit-driving durable good.” From the customer’s point-of-view, this bundle of device and content provides enormous value that promotes loyalty and cross-category spending.
8. Cannibalize when necessary. Good marketing requires a willingness to cannibalize your offerings if you have a superior option to bring to market. Apple has done this at this least twice. First, Apple dropped its most popular iPod, the Mini, when it introduced the Nano. Second, although offering unique features, the iPhone is a potential threat to independent iPod sales because both play music. Many organizations might have been afraid to build a product that would detract from its most popular product. Apple understood that if it wasn’t the one to do it, another company would.
9. Don’t try to be all things to all customers. Many companies fail by being unwilling to make tough decisions about which customers to seek and products to offer. Apple, on the other hand, made these tough decisions and adopted a strategy that focused on a limited number of product lines and limited offerings within each line. Jobs brought this strategy to Apple when he returned in 1997 at which point he slashed Apple’s 15 product lines to just four. This strategy holds today. A few years ago, then COO Tim Cook described Apple’s philosophy as, “One traditional management philosophy that’s taught in many business schools is diversification. Well, that’s not us.” With a laser-like focus, Apple makes a few big bets that deliver customer value and stand out in the crowd. The result is that customers know what to expect from Apple and they usually get it.
10. Create an ecosystem that makes offerings valuable. The introduction of the iPhone was coupled with building an online App Store. However, the App Store only works if there are companies willing to develop for the platform and integrate iOS apps into their strategies going forward. Apple created development tools that promote a simple, consistent experience for developers on the iOS platform. This helps to speed up app development and deepen user engagement, a win-win-win for developers, customers and, of course, Apple. With over 500,000 apps available and over 24 billion apps downloaded to date, apps have not only helped increase switching costs for iPhone and iPad users, but have also proved to be a lucrative revenue stream.
After five CMO Survey Awards for Marketing Excellence, Apple has shown that it is not only an outstanding technology company but also an outstanding marketer. Apple’s marketing strategy is a unique blend of traditional and nontraditional elements. However, at the core, Apple has figured out how to attract and retain customers, to generate an enormous amount of word of mouth and brand appeal, and to build a business model, channel structure, and moat that give it a powerful competitive advantage. Votes for the next award will occur during the February-2013 CMO Survey. Can anyone take the crown from Apple?
- Stefan Thomke and Barbara Feinberg (2010), “Design Thinking and Innovation at Apple,” Harvard Business School case 9-609-066.
- Luc Wathieu (2010), “Apple Stores,” Harvard Business School case 9-502-063.
- David B. Yoffie and Renee Kim (2011) “Apple in 2010,” Harvard Business School case 9-710-467.