DISCUSSION NO: 1 WHY DO YOU THINK APPLE FORAYED INTO RETAILING DESPITE BEING MAD

E AWARE OF THE RISKS? WHAT DO YOU THINK APPLE COULD HAVE DONE TO AVOID THE CHANN
EL CONFLICT? SUGGEST MEASURES THAT CAN BE TAKEN BY APPLE TO RESOLVE THE CONFLICT
AND INCREASE ITS MARKET SHARE?
Apple was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne on April 1, 197
6, to develop and sell personal computers.It was incorporated as Apple Computer,
Inc. on January 3, 1977, and was renamed as Apple Inc. on January 9, 2007, to r
eflect its shifted focus toward consumer electronics. Apple (NASDAQ: AAPL) joine
d the Dow Jones Industrial Average on March 19, 2015
In 2001, Apple Computer Inc. (Apple) forayed in retailing as part of its initiat
ive to increase its brand awareness and showcase its Macintosh computers and ope
rating system. Since then, the retail stores functioned towards increasing the v
isibility of its products as well as disseminating product knowledge through one
-to-one customer interaction. In May 2006, Apple introduced its 147th retail out
let in New York and its retail strategy evolved from the traditional store-front
sales approach towards a techno-equivalent of the neighborhood bar , where people co
uld visit, meet friends, learn and have an enjoyable time.
During the fourth quarter of 2000, the online stores contributed to around 1/3rd
of Apple's revenues, a 13% increase over the previous year's figure during the
same quarter. In early 2001, several Apple resellers saw a fall in their first
quarter revenues. This happened because most of the customers were buying from
Apple's online stores rather than from the resellers. This is because, customer
s were able to customize their purchase on-line.
It was during the same time, that Apple announced about discontinuation of its p
artnership with some resellers feeling that they may not be providing the buying
experience that Apple wants.
Most importantly, Apple aimed at increasing it's computer market share of 5% in
the U.S and create a 'brand awareness'. For this purpose, they started opening
retail stores. First retail store was opened in a suburb of Washington DC and th
is was followed by opening number of stores in U.S. They started making lot of p
rofits. The opening of stores and resultant reported profits alienated its resel
lers. Many resellers sued Apple alleging malpractices, fraud e.t.c. Few of the r
esellers even shut down. Despite all this, Apple continued its expansion and fo
cussed on opening more stores.
Channel Conflict
Channel conflict occurs when manufacturers (brands) disintermediate their channe
l partners, such as distributors, retailers, dealers, and sales representatives,
by selling their products directly to consumers through general marketing metho
ds and/or over the Internet. When the company gets into direct selling, it crea
tes a threat for the reseller because, they become resellers direct competitor.
In 2003, an Apple reseller, Tom Santos, filed a lawsuit against Apple Computers
Inc. . The court case alleged Apple of showing undue preference to its own Apple
retail and online stores. The lawsuit claimed that Apple Computers was neglecti
ng Apple reseller stores while shipping new goods. Many believed the suit was a
result of Apple s deteriorating relationship with some of its dealers
Apple was also accused for adopting unethical business practices. The legal batt
le criticized Apple s intention to divert sales to its own stores. Dealers claimed

that Apple used discriminatory pricing to undercut dealers, selling products be

low cost in order to get customers away from independent stores. Many other rese
llers joined the legal proceedings. Till June 2005, the plaintiffs awaited the a
llotting of a trial date at the Superior Court of the county of Santa Clara, Cal
ifornia. Over the years Apple has succeeded not because of its first-to-market s
trategy but because it has been able to reach customers with clever products, cl
ever marketing, and smart distribution. Apple though claims that its intent with
its retail stores program is to make the market bigger, rather limit its existi
ng channel.
Exclusivity of products - I think it's important to maintain an exclusiveness in
the product. Apple could have probably offered something unique that the resell
ers couldn't have offered.
Product Giveaways- Every Customer loves gifts and give aways. May be giving away
accessories to the customers would have added value to the consumer's purchase.
Apple did offer gift cards with its purchase. This even though, Apple is selli
ng the product in the same price as it resellers does, they are giving more valu
e to the customers for their purchase.
Collaboration - Apple should have encouraged and practiced a collaborative appro
ach ensuring that both resellers and the Apple stores would have been able to re
main successful. Effective communication, effecting dealer training e.t.c. are
few of the things that should happen.
New Products like lime iBook laptops were available only at apple online store.
In 1999 online store started selling products like iMac and powerbook laptop be
fore they were stocked with resellers. Only few copies of Mac OS x 10.1 CDs to r
esellers while stocking its own store with no. of free copies. This should have
been ideally avoided while treating resellers at par with its own stores.
To resolve these conflicts and increase their market share at the same time, I b
elieve Apple should have done the following1. Apple Management should have periodical meetings with resellers to listen and
resolve their complaints.
2. Apple should start a department to resolve resller's complaints.
3. Santos had stated with proofs that Apple missbilled in more than 1000 cases.
Apple should rectify it's faulty accounting system and should have an efficient
Quality Management system in place to counter it.
4. Salesman from resellers end should be provided sufficient training and brand
awareness must be created.