Marketing Strategies for the Apple iPod

In 2001, Apple was virtually on the brink of extinction; its share of the PC market was still in a downward spiral, and the stock was selling for cash on hand—about $11 per share. Today, however, due largely to the gigantic success of the iPod digital music device, Apple is “the envy of the tech world, and the stock is trading at its highest level in four years.” (Walberg 2004 p. 1). Unfortunately, Apple’s computer shares continue to fall, making more sense to some to buy an iPod than to buy Apple stock. Merrill Lynch analyst Steven Milunovich believes that the success of the iPod can’t help but translate into somewhat higher Mac sales, allowing Apple to “gain small increments of PC share…Even half a point of market share is about $1 billion in sales.” (Fried 2004 p. 3).

Apple has a very exclusive history and background, and for the majority of its two decades, it has “led the desktop computer industry in introducing new technology, features, and designs later adopted in a wider market. But its reluctance to license its operating system to other manufacturers enabled Microsoft to achieve near-ubiquity by licensing its rival Windows software to hardware makers across the industry, such as Dell, HP, and Sony—reducing Mac’s market share to a single digit by the mid-1990s.” (Borland 2004 p. 2). The iPod represents one of the most significant exceptions to the “Apple-only mantra.” (Borland 2004 p. 2). First Apple released an iPod that could actually be used with Windows computers, then released the iTunes jukebox software and song store for Windows. Apple is even creating tools that will allow HP programmers to “tweak” the iTunes music software to enable them to work with features of Microsoft’s Media Center, an action that has caused great irritation to Microsoft, it allows Microsoft users to access Apple’s iTunes music store from windows applications. (Borland 2004 p. 3).

So what exactly are the reasons for the phenomenal success of the Apple iPod? Industry experts feel that the number one reason iPod is such a huge success is that the music industry is heavily backing the iPod. For those who may have missed it, iTunes is a solid supporter of the iPod. Consumers routinely go to iTunes to download literally millions of songs from virtually every known artist for a reasonable price of 99 cents per tune. (Walberg 2004 p. 2). This had made iTunes, just like the iPod, the world’s leading source of online music.

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The second reason Apple’s iPod has had such success is that management has built “an entire suite of add-ons designed solely for the iPod. These add-ons bring higher profit margins than the core product, and they help to establish brand loyalty.” (Walberg 2004 p. 3). The general idea behind add-ons is that once a consumer invests in headphones, speakers, carrying cases, and other such items, they are much more reluctant to switch to a competing, non-compatible product. The add-ons for the iPod are literally booming, and this market is worth some $2 billion dollars all by itself. New iPod owners spend roughly $150 each on add-ons. “They buy things such as rubbery cases, fancy stereo connectors, iPod-specific speaker systems, and alarm clocks, white headphones, and even iPod-themed baby clothing. Some designer iPod cases cost as much as the iPod itself…CEO Steve Jobs recently said that there are more than 1,000 accessories for the iPod.” (Kahney 2006 p. 4). The add-on idea sure seems to be working!

We have truly become an “iPod Nation.” Writing for Newsweek, Steve Levy notes that on nearly every block in New York City one can observe someone with white headphones on. Another person interviewed in London notes the same phenomenon. On college campuses, the numbers seem even higher—nearly two out of three students seem to be wearing the trademark earphones. (Levy 2005 p. 1). This particular consumer product has become something much more: “an icon, a pet, a status indicator, and an indispensable part of one’s life. To more than three million owners, iPods not only give constant access to their entire collection of songs and CD’s, but membership into an implicit society that’s transforming the way music will be consumed in the future.” (Levy 2005 p. 1).

To some, the iPod has become something akin to a cult. Consider that even the President of the United States and the Queen of England own iPods, making the iPod’s appeal pretty much universal. Since the player’s introduction in October 2001, over 30 million iPods have been sold, and “every three months Apple sells almost twice as many iPods as it did during the three months that came before.” (Kahney 2005 p. 1). In this particular market niche, Apple enjoys what Microsoft enjoys with its pc—domination of the market to the tune of 75 percent worldwide. In October of 2004, Apple announced that its profits for the prior quarter were a net of $106 million, compared to $44 million just twelve months before. (Apple 2004 p. 1).

The iPod’s phenomenal impact was one few could have foreseen. Back in the “old days” you had a stack of LP’s piled up in your room, but you only played the half-dozen or so at the front with any regularity. The iPod’s amazing storage capacity—the ability to hold literally tens of thousands of tracks—offers literally a lifetime worth of music in one small hand-held gadget. The iPod offers several ways to categorize and play your music as well. You can play your songs by year, by genre, by keywords, or you can merely shuffle and see what your iPod comes up with. (Kahney 2006 p. 4).

So just what are some of the more memorable marketing techniques of Apple when selling their iPod? Well, on August 3, 2006, Apple announced it would be teaming up with Ford Motor Company, General Motors, and Mazda to “deliver seamless iPod integration across the majority of their brands and models, making it easy for iPod users to enjoy and control their iPod’s high-quality sound through their car’s stereo system.” (Cupertino 2006 p. 1). Over 70 percent of the 2007 model US automobiles will offer iPod integration—truly staggering numbers. Beyond integration into vehicles, Apple intends to team up with Air France, Continental, Delta, Emirates, KLM, and United Airlines in their quest to offer passengers iPod seat connections, as well as iPod seat connections which would allow passengers to charge their iPods during flights. (Cupertino 2006 p. 2). A further innovation in marketing strategies has the Apple company teaming up with upscale hotels to offer in-room iPods, loaded with as many as 2,000 songs each. In Dream, a Manhattan four-star hotel, the music players come with special cables that plug into the Bose speakers in each room. Of course, the Crescent, located in Beverly Hills, noted they had to ad an antitheft measure to the iPods by encasing them in Lucite and anchoring them to the desks in each room, as well as having each customer sign a contract agreement that requires the return of the iPod or having their credit cards billed. (Cupertino 2006 p. 3). Apparently an in-room iPod has become something akin to mint on the pillow; albeit a rather upscale expensive mint.

Further marketing strategies include the iPod being integrated into the design of the BMW and the Mini, clothing, most notably Levis jeans, and furniture. Some Levis jeans come specially equipped with a holder in the pocket made especially for the user’s iPod to nestle in. Not that it was especially needed, but iPod received a shot in the arm when they were sent down tubes to the trapped Beaconsfield miners. In addition to President Bush and Queen Elizabeth, Tony Blair and the Pope own iPods, and it has been stated that MP Jackie Kelley “raised eyebrows by listening to one in Parliament.” (Dubecki 2006 p. 1).

As stated above, one of the reasons for the iPod’s phenomenal success has to do with iTunes. Nevertheless, backing away from their “when hell freezes over,” stance, in November 2003, Apple CEO Steve Jobs announced Apple’s plans to sell tunes to Windows users. During the year after that, Apple more than doubled the number of iPods it was selling, and while “The Mac maker won’t say how many of its songs or players are going to Windows users…it’s reasonable to think it’s a pretty good chunk, given the relative prevalence of PC’s (90-plus percent of the market, while Mac holds less than 5 percent.)” (Fried 2004 p. 1). Consider that more than 1.5 billion—yes, that’s billion—songs have been downloaded worldwide from iTunes, with about 1.5 million per month from Australia alone. (Dubecki 2006 p. 2).

The success of iTunes has been just as phenomenal as the sale of the iPod. iTunes holds a 70 percent share of the online downloadable music, with Napster coming in at only 11 percent, the next closest competitor. In 2004, approximately 1.3 million people per month were downloading songs from a legitimate online source. (Fried 2004 p. 3). The iTunes music store carries singles and albums and offers the albums and songs with explicit lyrics, many of which are not being sold at certain chains. Even the racy videos which are deemed unacceptable for showing on MTV can be seen at the iTunes Music Store.

What exactly do most users do with their beloved iPods? Of course, they listen to music—that’s a given. But they also store notes, email, digital photos, videos and even listen to the radio on their iPods. It is only the high-end iPods that allow the user to do more than listen to music, as the video-capable iPods have been around for just over a year. According to some statistics, video comprises just over 2% of the total amount of time spent with one’s iPod, and music, the solid standby, comprises the vast majority. (Mincy 2006 p. 1).

Last year at this same time, Richard Menta wrote that Holiday buyers, in the amount of 30%, were replacing older iPods. Statistics such as this show that when customers come back again and again, they are satisfied, and we all know that a satisfied customer is the single greatest asset for any business. (Menta 2005 p. 1). These repeat customers are either replacing a beloved, yet worn out iPod, or are simply adding another iPod to their collection. A year ago, Apple iPod had garnered 75.7% of the MP3 player purchased, with Sandisk following with a 4.7%, Hewlett Packard in third place with 2.8%, Iriver with 2.6%, and Creative Labs taking a dismal fifth place with a 2.3 % share of the market. It was estimated that some ten million iPods were sold last Christmas season—what does Christmas 2006 hold for the iPod? (Menta 2005 p. 2).

Well, that happens to be the 64 million dollar question of the season as Microsoft’s Zune has made its arrival onto the MP3 scene. Announced on September 17th of this year, Microsoft proudly introduced its own 30 GB Zune music player. The Zune’s major advantage over the solid-selling iPod lies in its wireless connectivity abilities. In its initial press release, Microsoft made this statement:

“Wireless Zune to Zune sharing lets consumers spontaneously share full-length sample tracks of select songs, homemade recordings, playlists or pictures with friends between Zune devices. Listen to the full track of any song you receive up to three times over three days. If you like a song you hear and want to buy it, you can flag it right on your device and easily purchase it from the Zune Marketplace.” (Howe 2006 p. 1)

Although this statement happens to be a far cry from the previous rumors of unlimited WIFI sharing, it will be interesting to see consumer reactions to this feature as well as seeing just how the Zune affects holiday sales of Apple’s iPod. (Howe 2006 p. 1). Only time will tell what portion of the market Zune will capture this Christmas season, but Apple execs hardly seem worried. For a company that has dominated the market since 2001, Microsoft will have to do something pretty spectacular in order to make even the slightest dent in the old faithful iPod.

Reference Pages:

1. Apple (October 13, 2004). Apple Reports Fourth Quarter Results. Retrieved November 27, 2006, from: http://www.apple.com/pr/library/2004/oct/13results.html
2. Borland, John. (January 23, 2004). iPod May Define New Era of Open Strategy. From CNET News, retrieved November 30, 2006, from: http://www.news.com/com/Apples+diplomatic+core/2009-1041_3-5144714.html
3. Cupertino, California. (August 3, 2006). Apple Teams Up… Retrieved November 28, 2006, from: http://www.apple.com/pr/library/2006/aug/03ipod.html
4. Dubecki, Larissa. (December 2, 2006). I listen, therefore iPod. From Technology, Retrieved November 29, 2006, from: http://www.theage.com.au/news/technology/i-listen-therefore-ipod/2006/12/01
5. Fried, Ina. (November 1, 2004). Apple Whistles a Happy iTunes. Retrieved November 29, 2006  from: http://www.news.com.com/2102-1041_3-5406671.html
6. Howe, Carl. (September 16, 2006) The iPod Wars: Apple Gearing Up to Be the Grinch That Steals Microsoft’s Christmas. Retrieved November 30, 2006, from: http://www.ce.seekingalpha.com/article/17020
7. Kahney, Leander. (2005). The Cult of iPod. Retrieved November 28, 2006, from: http://www.playlistmag.com/geatures/2005/11/02/cult/index.php
8. Levy, Steven. (July 26, 2005). iPod Nation/Talk Transcript. Retrieved November 29, 2006, from: http://www.msnbc.msn.com/id/5457434/site/newsweek/print/1/displaymode
9. Menta, Richard. (November 6, 2005). iPod Holiday Buyers: 30% Replacing Older iPods. From MP3, Retrieved November 29, 2006, from: http://www.mp3newswire.net/stories/5002/repeat.html
10. Mincy, Jeffrey (November 21, 2006). iPod Users: Lies, Damned Lies, And Statistics. Retrieved November 30, 2006, from: http://www.mac360.com/index.php/mac360/comments/ipod_users_lies_damned_lies.
11. Walberg, Robert. (November 4, 2004). How Far Can Apple Ride the iPod Craze? Retrieved November 29, 2006, from: http://www.moneycentral.msn.com/content/P94963.asp?Printer
12. Wilcox, Joe. (June 10, 2004). The iPod-iTunes Phenomenon. From MacNewsWorld, Retrieved December 1, 2006, from: http://www.macnewsworld.com/story/34352.html

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