Brands in the News

Apple and the Power of Differentiation

28 Mar , 2012  

You can learn a lot about marketing strategy by studying Apple. Perhaps the most important point is this: be different.

The folks at Apple clearly understand the power of differentiation. They are masters at both creating it and destroying it.

Apple does a phenomenal job creating products and services that are unique and special. The Apple brand is so strong that even when competitors catch up in terms of product performance, people still think Apple is different and unique. This is why Apple is able to set high prices and command remarkable margins.

It is also becoming clear that Apple is gifted at ensuring that its suppliers don’t have meaningful differentiation. This presumably helps Apple drive down costs; the company isn’t overly dependent on a particular supplier.

One of the surprising things about the latest iPad is that there are multiple suppliers for the same component. For example, when research firm UBM took apart the new iPad, it found displays from Samsung, LG and another company. Chips were similarly sourced from multiple suppliers.

The Wall Street Journal ran an interesting article on the study. You can read it here.

Apple’s secretive culture makes it particularly difficult for suppliers to differentiate; it is hard for them to know where they stand relative to other firms. It is also difficult for them to promote their unique products.

Apple employees are similarly challenged. Since the company releases very little information, employees have a limited opportunity to build their own personal brand. This gives them relatively little leverage when it comes to negotiating.

What happens when you create products that are different and special, while at the same time ensuring that your suppliers are not able to differentiate?

You become the most valuable company in the world.


4 Responses

  1. http://electzgharta09.com says:

    Many Thanks for writing Apple and the Power of Differentiation « Building Strong Brands, I just actually had
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  2. Brian says:

    Can you expand a bit on how this article fits in with your Apple post from August 25 2011?

    • Tim Calkins says:

      Brian—Ouch. I’ve been hoping that August 2011 post would fade away. Good thing I’m not a portfolio manager!

      I continue to wonder how long Apple’s momentum will continue. Clearly the company is doing fabuously well and China provides a great growth opportunity. With Apple’s ability to drive differention while reducing costs, profits should keep building.

      The core challenge is still there, however: Apple has to continue to bring forth a stream of brilliant new products. It will be very hard to keep this up.

      If you didn’t take my advice and sell back in August (a good move, by the way) then I’d sell now.

      Tim

  3. PStrategy says:

    Grat post. Thanks for writing about the sourcing side of the story.

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