When Steve Jobs, CEO of Apple Computer, first introduced the iPod in October 2001, it was received with scepticism. The digital music player was considered only marketable to a small, tech-savvy group of individuals, and the high price (starting at US$399) (Product development costs) made failure seem inevitable. The downloading of songs to the hard disk of a computer required a Mac computer, and the iPod was not usable on a standard PC.
But Steve Jobs proved critics wrong. Three years later, iPod’s success has been unmatched by any other digital music product in the world. Over 2 million have been sold internationally and it has shot Apple Computer back into the mainstream market, long dominated by Microsoft’s Windows.
The iPod has changed the market for digital music and the consumer demographics. The iPod gives consumers the freedom to control their environment and choose music that fits their mood. Digital music is cool with iPod’s stylish design. (Market needs and wants)
With its success in the United States, Apple did not lose time capitalising on overseas potential. Introducing the iPod in Europe through its existing Mac dealerships, the sales rapidly rose despite of high price tags. Japan was also penetrated through strong dealers already available. By March 2004, international sales of the iPod amounted to 43% of revenues, and the company posted a quarterly profit of US$46 million, tripling profit from the year before. (Regional Economic Agreements)
Meanwhile, Apple is not standing still. Pressured by technological development and competitive imitation, the iPod has been continuously upgraded with increased capacity of storing songs. Simultaneously prices for the original units are coming down (Leverage scale economies). Targeting the huge Windows market, and also to pre-empt competition, in 2003 Apple developed a model that work with PCs. However, Apple also faced a strong competitor, Sony who released its NW-HD1 Walkman in Japan, USA and Europe in July 2004.
Typical of the high tech industry, Apple has begun releasing new models, including the mini iPod, which is about as small as a credit card and holds about 1000 songs. To overcome the copyright infringement problems of downloading songs, the company launched the iTunes Music Store, which allows people to legally download one song at a time off the Internet for US$0.99. Apple has also launched promotional alliances offering free downloads – such as Sprite buyers getting a number code for one free song.
This story illustrates that a high tech product such as iPod naturally has what it is called a “global market”. This type of product is often developed in a leading market, and in order to stay competitive, aspects such as innovation and new product development are crucial and have to be continuous. Because of global competition, it becomes important to expand quickly into international markets.
It is crucial for any organization to understand the phenomenon of ‘Global Marketing and Integration’ in order to achieve global success. Global Marketing has two prerequisites. It involves an organization standardizing their marketing programs by allowing marketing efforts to seamlessly operate across country borders. Standardization ensures products, promotions, price and channel structure cooperate together to increase opportunity and effectively meet the needs of global customers. Secondly it involves coordination across markets by eliminating cost inefficiencies and reduce duplicate business efforts of their national/regional divisions. On the other hand Global Integration involves playing a role in many different world markets that are relevant to the business. Integrating firm operations means some markets use the resources of others to achieve success.
The five driving forces which have led to the rising relevance of global marketing and integration for Apple’s Ipod include, international dealership agreements and world economic trends, global market needs and wants, leverage opportunities; resource utilization, technology and product development costs.
Studies have suggested that International dealership agreements work as a catalyst for global marketing and integration. In relation to the case study and relevant articles, it is clear that Apple’s existing Mac dealerships in 2001 in Europe; United Kingdom, Canada, Germany, France and Asia; South Korea and Japan made it easy for the Ipod to seep into the European and Asian markets. International dealership agreements resulted in no market entry barriers in the emergence of IPod and led to the standardization in product, price and promotion throughout different regions. One example of this can be seen from the fact that these dealerships allowed Apple to maintain the price for Ipod at $399. This standardization of prices for Ipod across all Apple’s dealers is a true phenomenon of global marketing and integration. Similarly IPod’s global integrated marketing can also be attributed to the world economic trends of that time. Studies suggests that China, Japan, Korea, Germany, United Kindgdom and Canada were either on par or had a better GDP growth than US from 2001 till 2005. This sheer economic growth in these countries created global market opportunities for Apple’s Ipod as the rising GDP per capita meant that more and more people can afford to purchase the Ipod at the standardized price of $399. Hence beneficial economic trend of rising income levels in such countries meant that Apple had little pressure to adopt a different price for each region, resulting in effective global marketing. Evidence is mounting that consumer needs and wants around the world are converging today as never before which in turn creates an opportunity for global marketing. In relation to the case, Ipod’s success in its global integrated marketing can be attributed to the freedom it allowed consumers to choose music that fits their mood together with its stylish and portable design. The iPod's design is aesthetically appealing, making use of high-quality materials like stainless steel. It is represented by the sleek lines, curved edges with the less conventional white colour, providing a sense of user-friendliness. The iPod's simple interface was optimized for music playing. The "fun" scroll wheel let users easily move through large lists of music, and the device's pocket-sized ergonomics had rounded corners and was generally comfortable to use. Not only that, IPod allowed users to store songs of their choice, not full albums or CD’s like a conventional Walkman. Such operational easiness together with its appealing nature of portability made it an innovative device suitable for the masses. The small and sleek body of IPod, made it possible to be carried everywhere without any havoc. For example, the iPod was very practical for commuters to keep with them on their way from home to their workplace and back. Furthemore, The iPod was compatible not only with the restricted world of Apple computers, but also with Windows (Microsoft) based computers. This meant that the IPod targeted each and every customer of Microsoft which holds a 90% market share of desktops in the world, ultimately providing for the needs and wants for the whole global market. Sleek design, portability, compatibility with windows and operational easiness met the global market needs which led to IPod’s successful global integrated marketing. Technology is truly “stateless”; there are no cultural boundaries limiting its application. Once a technology is developed, it soon becomes available virtually everywhere in the world. In relation to the case study, one reason behind IPod’s successful global reach was that it was technologically advanced than other music player in the market. According to Professor Levitt’s, communication revolution due to advanced technology is one of the reasons behind global marketing. IPod used 1.8” Toshiba hard drive technology, rather than the conventional flash memory facility which allows users to store more than 2000 songs of thier own choice as opposed to the conventional Walkman which played a selection of songs from cassettes and CD’s. By storing music songs onto its memory chips, the power-hogging hard drive allowed Ipod to shutdown during playback, which resulted in a battery life of ten hours compared to two hours of its competitors such as Sony’s Walkman (Brent 2001). Not only this but it could transfer digital files through firewire connectivity 12 times faster than normal USB connections and lastly comes up with an iTunes software, which allows easy transfer synchronisation of new files from the computer onto the iPod, playlists to be effortlessly created and most importantly overcome the copyright infringement problems of downloading songs as all the major record labels had licensed their music to iTunes. iTunes ability to overcome infringement problems brought the music labels to their side which eventually gained the attention of all consumers of music. It was the first time in the history of digital music players that a product had provided such advancement not only to consumers but also to the suppliers; record labels by providing copyright security through Itunes. The Ipods technology was 2 years ahead of every other digital product and it’s global marketing success was inevitable. The answer lies within Satellite dishes and globe spanning TV networks such as CNN and MTV which do not only provide coverage in America, but also in Europe, Asia and Africa. As such channels are seen in every part of the world, Ipod’s popularity in US quickly seeped into other major countries. Similarly, Ipod’s global reach can be attributed to the increasing overlap of advertising across countries boundaries around the world and the rising mobility of consumers which created opportunities for Apple to pursue pan-global product positioning’s. For example, Apple, created a single type of advertisement for the Ipod which focused on its design and portability. There is no surprise that the same advertisement was shown in major parts of the world, making Ipod’s marketing to be globally integrated. Another reason behind Ipod’s global reach is the technological factor of the Internet and World Wide Web. As John Quelch and Lisa Klein have noted, when a company establishes a site on the Internet, it automatically becomes global, at least in terms of its potential to reach global customers with information. During 2000 to 2005 Internet usage was heaviest in the United States which led to sheer informative and critical unintended advertisement for the Ipod by US consumers. As the online population is 2.2 billion and everything is accessible, it wasn;t surprising that the rising popularity of the iPod in US, reached to other countries with heavy internet usage such as China, Japan, Korea and Europe. The pressure for globalization is intense when new products require major investments and long periods of development time. Coming to the Ipod, things did not start so sweet, for Apple. After its initial development, Apple launched the iPod on the market in October 2001 - right after the September 11 events, and subsequent Wall St. turmoil. The iPod launch did not seem to make any significant impact in the marketplace. Infact, according to the case study and few financial and marketing experts reviews, the ipod for the first 3 years was a terrible flop, whose sales were not covering even the research and development costs. It is of no surprise that that the R & D and product development costs of the Ipod amounted to more than 1 billion dollars. In the first 3 years (Oct 2001-Sept 2003), iPod sales were lingering between 50,000-150,000 units per quarter, very far from their estimated 10-20 million units per quarter which will cover their product development costs. Hence, In the first 3 years the iPod sales were not even covering the product research & development costs. Apple realized Such major development costs for the Ipod can only be recovered in the global marketplace, because no single national market such as US is likely to be large enough to support investments of a major size. This initiated a strong purge from Apple to sign Mac dealerships in China, Singapore, Australia, UAE and India in 2004. This strategy was to indulge in marketing their product globally, in order to increase their market share and in turn cover their product development costs. Hence these high R&D costs were one driving force behind Ipod’s integrated marketing at a global scale. A global company possesses the unique opportunity to develop leverage. In the context of global marketing, leverage means some type of advantage that a company enjoys by virtue of the fact that it has experience in more than one country. In other words, leverage enables a company to expend less time, less effort, or less money. A major strength of the global company is its ability to scan the entire world to identify people, money, and raw materials that will enable it to compete most effectively in world markets. In relation to the case study, one major success factor for the Ipod was that its selling cost went down. This true because when Apple introduced the second generation Ipod’s In 2004, they were 25% cheaper than the first generation ones. The reason behind the fact is from 2004 the iPods were manufactured and assembled in China by a company named Inventec. The reason behind Ipod’s decreased price for its new model was that the labor costs and raw material costs were 8 times cheaper in china than US which resulted in 25% to 30% decrease In manufacturing costs for a single Ipod. In order to lower the selling price, Apple manufactured it’s Ipods in China which led to a globally marketed product and in turn a successful one.