Today, living in the globalized world full of cutting-edge technologies, innovations and venture investments, we witness the emergence of the knowledge-based “new economy”. The “new economy”, driven by the implementation of new technologies, constantly gives a rise to high-skilled and well-paid professions in our society. Consequently, such countries as the US and Japan, and European states today are 100 times richer on average than Haiti, Ethiopia and Nepal, mainly because the former have enhanced their economy over the last 100 years whereas the latter have not.
During the last decades, rapid developments in science and technology have had a crucial impact on our economy, social and cultural life, and even the way we live. Success of the companies that use cutting-edge information technologies, aside from the fact that they are amazingly innovative and brilliantly managed, is based on what might be called “libertarian” (empowering end-users) as well as “egalitarian” (with equal opportunities for all) appeal of their products and services. In order to shed the light on the core implications and consequences that may appear during the implementation of innovative business models that use cutting-edge technologies, given paper will scrutinize the business models deployed by such marketing giants as Apple and Nike.
The Business Models Used by Apple and Nike
Apple is an American multinational technology company and a fierce competitor in a variety of high-tech industries ranging from personal computers to mobile payment systems. Due to the fact that the company persistently pushes the boundaries of innovation, it has achieved unprecedented success in the new digital market.
Owing to its co-founder Steve Jobs, product functionality, technological capabilities and elegant simplicity of Apple’s design have become the company’s strategic priorities, which resulted in a string of groundbreaking products that have made Apple one of the world’s most valuable brands.
Nike is one of the world’s largest suppliers of sports footwear and athletic apparel for men, women and children, who has been leading technological development in the industry for nearly 40 years. Focusing its efforts on new markets penetration, company’s highly qualified and experienced engineers constantly develop innovative solutions tailored to customers’ demands. Even though all Nike footwear and apparel is manufactured by external contractors, the company has developed a successful business model that completely reorganized traditional shoe manufacturing value chain (McCracken, 2005).
The value chain is a set of activities that an organization carries out to create a value for its customers. This particular concept was developed in 1985 by Michael Porter, the professor at the Institute for Strategy and Competitiveness, based at Harvard Business School, in his book “Competitive Advantage”. According to Porter, the knowledge about how a company creates its product’s value is absolutely necessary for anyone who eagers to enhance the competitive strategy of his enterprise (Trefis Team, 2013).
The professor has stated that every business model has five core value chain activities that determine costs and affect profits that allow every company examine all of its business activities and their relationship. Moreover, these activities can give a company the ability to create value, which eventually will exceed the cost of providing its good or service to customers. These steps include the following:
- Inbound logistics are the activities connected to receiving, warehousing and distributing raw materials (inputs) internally.
Nike: Advantages of Nike’s inner logistics system include exceptionally low production costs, bulk purchase of the majority of raw materials, reduced inventory risk, focus on product’s design, marketing and developing new technologies (Sustainability Business, 2015).
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Apple: The company uses the services of hundreds of suppliers around the globe and maintains a highly sophisticated supply-chain management. Moreover, Apple’s story shows that supply chains result not only in costs, but also can fundamentally contribute to company’s success and facilitate the processes of value chain development toward more rigorous standards or engage in the more complex contractual arrangements.
- Operations are the activities that transform inputs into products or services, which are sold to customers afterwards. Nike and Apple are vivid examples of companies, which prefer outsourcing services not only for the short-term purposes such as the minimization of direct costs, but also for significantly lowering the long-term capital investments and enhancing companies’ key competencies. Additional reason for these companies’ success is the fact that they outsource services in order to concentrate their efforts on the performance of companies’ principal activities. In general, outsourced services grant the companies the possibility to diversify their operational risks and transfer unwanted management issues onto contractors, thereby ensuring the flexibility required to produce sufficient quantity of products without a fear of large manufacturing costs (Lindic, 2015).
Nike: Nike focuses its efforts on design and marketing, while outsources manufacturing services through a number of low-cost suppliers. Among their key features are: widespread adoption and implementation of outsourcing services in manufacturing and assembling, ensuring constant attention to technological innovation and quality control of the products manufactured by outsourcing contractors (McDaniel, 2010).
Apple: Understanding its own manufacturing limitations, Apple outsources over 70 percent of its manufacturing components and key marketing elements. Moreover, the vast majority of Apple’s hardware products is outsourced by the companies located primarily in Asia.
- Outbound logistics are the activities required to deliver a finished product or service to the customer. Moreover, delivering services to customers accurately and on time is of paramount importance for a company to achieve maximum productivity and consumer retention.
Nike: The company strives to minimize production volumes while maximizing the sales growth rate (Zook, 2011). Therefore, Nike constantly focuses on the smart solutions development for its logistic operations and new ideas implementation in order to achieve their key objectives of not shipping either empty volumes or more than necessary.
Apple: In order to optimize its business activities and increase incomes, Apple widely uses a variety of direct and indirect distribution channels such as online stores, retail stores and direct sales. Thus, Apple continues improving its distribution capacities by expanding the number of its own retail stores worldwide in order to ensure higher sales volumes. Moreover, having its offices in a few geographic locations including North America, Europe and Asia, the company significantly reduces numerous local service delivery units that it must deploy and, therefore, creates an additional competitive advantage.
- Marketing and sales are the activities associated with persuading clients to purchase from you instead of your competitors.
Nike: Since Nike is able to concentrate more on the enhancement of consumer product qualities through constant integration of design and technological innovations, the company has gained a sustainable competitive advantage over its competitors. In addition, the company experiences ongoing success due to the good reputation and high recognition of its brand on the market (Edwards, 2014). Opposite to such rival companies as Reebok, which both designs and manufactures products, Nike constantly focuses its efforts on such value chain elements as marketing and designing. For instance, during Nike’s PR campaign with Michael Jordan promoting usability and functionality of Nike footwear designs, the celebrity has earned more than the annual wages of all Nike workers in Malaysia (Kaplinsky, 2001).
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Apple: Due to significant expenditures on advertising, public relations, implementation of aggressive marketing strategies and offering a diversity of products online, Apple’s products are known all over the world.
- Service activities are related to maintenance and enhancement of the product value once it has been purchased.
Nike: In today’s dynamic markets, quality of services is the most significant factor that defines the product value. Thus, Nike has managed to create such a superior customer value by evolving unique designs of apparel and footwear and consistently maintaining the product quality and availability of prices.
Apple: The company is well-known for its exceptional quality of customer services during all three stages: pre-purchase, purchase and post-purchase. Moreover, Apple has its own stores in major cities all around the world, where everyone can use its products to ascertain company’s quality. Moreover, even Apple’s staff is comprised of young people, who are ready to demonstrate their knowledge about the product features and capabilities.
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Apart from the listed value chain elements that have an indisputable impact on the companies’ further success, their brands are also fundamentally important for general profitability. Hence, the most precious assets of Apple and Nike are their brands – intangible assets that have taken on the importance in strategic terms.
A well-known brand builds customer trust and has a potential for higher profitability within any industry. Brand’s influence may be explained with the kind of confidence it expresses (McCracken, 2005).
Hence, by applying a “long tail” strategy Apple ensures technical accessibility and implements corporate dignity, independence, integration and equal technological opportunity. For example, company’s App Store. The revenues from a particular App Store are significantly higher than of any other business unit since there are no costs apart from the infrastructure to support the e-store (Anderson, 2006). For instance, Apple’s App Store generates approximately $150 million per year.
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Therefore, due to increased competition in the modern economic environment, building a sustainable competitive advantage is highly important. Every day more and more companies develop their business strategies trying to achieve competitive advantage and dominate the market. Thus, based on the analysis of the business models used by Apple and Nike, if company eagers to succeed in the new global economy, it has to focus its efforts on those elements of the value chain that have the biggest potential to expand.
The business models used by Apple and Nike also imply outsourcing services in order to optimize overall business performance and increase revenues. Moreover, examples of Nike footwear production and Apple’s App Store demonstrate the necessity of using the “long tail” business approach.