Demandand Supply Model
Demandand Supply Model
Organizationsuse different strategies and incentives to maintain theircompetitiveness as well as profitability. Strategies (such as productdifferentiation) are used when the company operates in a highlycompetitive industry, which creates the need to give customers aunique experience (Dirisu, Iyiola & Ibidunni, 2013). Incentives(such as a high salary, bonus, and stock options) are mainly appliedwhen the company intends to attract an experienced workforce andretain it for a longer time. This paper will analyze AppleIncorporation, which is a U.S. based company listed in S&P 500.Apple Incorporation was founded in 1976 and its headquarters arelocated in Cupertino in the state of California. Apple operates inthe technology industry and focuses on production of computerhardware, consumer electronics, computer software, and digitaldistribution.
Thetype of strategies that a given company adopts determines itscompetitiveness. In the case of Apple Incorporation, the managementhas been using three major strategies to enhance the company’scompetitiveness. The first strategy is product differentiation, whichinvolves the production of unique products that are attractive to thetarget consumers (Nielson, 2014). Product design is considered as thehallmark of Apple’s differentiation strategy. Productdifferentiation helps an organization in creating value by developingtop-notch products that stimulate demand and maintain reasonablesales (Dirisu, Iyiola & Ibidunni, 2013). High sales help thecompany recover the amount spent on research and development, whichin turn leads to sustained profitability of the organization. Forexample, there were no other electronic products in the market thatintegrated a lot of features when the iPhone and iPod were launched.Apple applies the design principle to ensure that the outlook andfeatures of its products are unique. By combining smart design withhigh quality, Apple Incorporation is able to get brand loyalty sinceits products provide a unique experience to its customers, whichcannot be obtained from competitors’ products.
Thesecond strategy is premium pricing, which involve setting of theproduct prices high compared to similar products in the market. AppleIncorporation has been using this strategy, which is also known as askimming approach to market its electronic products at a high price(Nielson, 2014). Under the skimming strategy, the prize of a givenproduct diminishes with time since early users have alreadyexperienced it. The company then launches a similar product withadded features and presents it in the market at a premium price. Theskimming strategy helps Apple reach early adapters or users who areless sensitive to products’ prices. Early users comprise thecategory of consumers who understand the value of a given product,and make the purchasing decisions because they need the productsirrespective of its price. Moreover, premium pricing is a uniquestrategy that Apple has been using to distinguish its products fromothers that are placed on the market by competitors. This strategyhas also helped Apple continue marking higher margins and profitsthan its competitors.
Thethird strategy used at Apple is quantum, which involves thedevelopment of approaches that are relatively difficult to imitate.Quantum strategy is confirmed at Apple by the management’s abilityto balance between serial innovation and intense efficiency(Heracleous, 2015). Incremental innovation has been the backbone ofApple’s quantum strategy. For example, the recruitment of Cook fromCompaq was intended to streamline the manufacturing process,distribution operations, and the supply chain. Cook managed torationalize Apple’s warehouse for its finished products, reducedsuppliers to 24 from 100 in order to enhance the company’sbargaining power, and introduced the just-in-time system by requiringsuppliers to establish their plants close to Apple stores(Heracleous, 2015). These measures increased Apple’s efficiency,reduced the cost of production, and expanded the margin, therebyenhancing the company’s competitiveness.
Roleof prices and other incentives
Appleincorporation uses the market competitive basic salary and stockoption as the key incentives to attract and retain its topexecutives. For example, Apple’s CEO, Tim Cook, is one of the topexecutives who receive the highest compensation in the world. Cookreceives a basic salary of about $ 9.22 million annually, while thechief finance officer earns about $ 4.5 million annually(International Business Machines, 2016). In 2014, Cook’s cash paywas divided into a basic salary of about $ 1.8 million, a bonus ofapproximately $ 6.7 million, and security of about $ 699,133 (Melby,2015). Paying the top executives a basic salary that the competitorscannot afford helps Apple retain its talented executives, thusenhancing its competitiveness in the long-run. In addition, a highbasic salary motivates the top executives, who are the keydeterminants of the company’s performance.
Apartfrom the basic salary, Apple Incorporation has a stock option for itsexecutives, which has been reviewed to match it with the company’sperformance. For example, the management divided the stock priceperformance into three portions depending on the performance of othercompanies in S&P 500. The stock option for the top executivesremains the same when performance is in the top third portion(Lowenson, 2013). The stock award is reduced by a quarter if theprice performance drops to the middle and by half if performancedrops to the bottom third. Linking the stock award with theorganization`s stock price performance introduces a motivationalaspect since the company’s executives are required to work harderin order to avoid losing part of their compensation.
However,the stock award is optional and the CEO may choose to take a cashpayment or a combination of stock and cash. For an instant, the CEOdid not take a stock option in 2014, and decided to take a basicsalary of $ 9.22 million and is expected to receive a stock awardworth $ 536 million in the next six years (Lowenson, 2013). The mainobjective of using different alternatives to compensate the topexecutives is the fact that different people are motivated bydifferent factors. For example, some top executives may feelmotivated by cash payments, others by stock awards, or a combinationof cash and stock awards. The main benefit of stock option is toattract experienced and talented employees, make them feel that theyown the organization, and retain them in order to maintain thecompetitiveness of the organization.
AppleIncorporation has maintained its competitive advantage usingdifferent strategies and incentives. Some of the key strategies thatApple has been using include premium pricing, productdifferentiation, and quantum strategy. However, differentiation,which is achieved through superior deigns is the major strategy thatApple uses to distinguish its brands from those of its competitors.In addition, market competitive salaries and stock options havehelped Apple attract experienced executives and retain them.
Dirisu,I., Iyiola, O. & Ibidunni, O. (2013). Product differentiation: Atool of competitive advantage and optimal organizational performance.EuropeanScientific Journal,9 (34), 258-281.
Heracleous,L. (2015). Quantumstrategy at Apple Incorporation.Coventry: University of Warwick.
InternationalBusiness Machines (2016). Apple Inc. Salary.com.Retrieved January 17, 2016, fromhttp://www1.salary.com/APPLE-INC-Executive-Salaries.html
Lowenson,J. (2013, June 21). Apple ties CEO bonus to stock performance. CBSInteractive Inc.retrieved January 17, 2016, fromhttp://www.cnet.com/news/are-extreme-sports-junkies-still-in-love-with-gopro/
Melby,C. (2015, April 17). Apple’s Tim Cook is steel at $ 65 million inpay. BloombergBusiness.Retrieved January 17, 2016, fromhttp://www.bloomberg.com/news/articles/2015-04-17/tim-cook-s-65-million-pay-is-best-deal-among-top-paid-u-s-ceos
Nielson,S. (2014, February 7). Apple’s premium pricing strategy and productdifferentiation. YahooFinance.Retrieved January 17, 2016, fromhttps://www.yahoo.com/tech/s/apple-premium-pricing-strategy-product-191247308.html