Gray market is where branded original products are diverted from authorized distribution channels and distributed through other channels. I will examine the dynamics of the iPhone gray market and its effects on Apple.
Reasons for the gray market:
1. Apple's marketing team for the iPhone, did an excellent job in promoting the iPhone prior to launch. Rather than making it available widely to the journalists to try out, they controlled its exposure prior to launch in the typical Apple secretive approach to new product announcements. Significant consumer interest was generated prior to launch of the iPhone. The iPhone sold out of most stores within 4 days.
2. The iPhone was first released in the United States on June 29th 2007. Subsequently, Apple released the iPhone in other countries in a phased manner. Apple has not yet released the iPhone worldwide.
3. The Apple iPhone was launched exclusively on AT&T Wireless networks. AT&T holds exclusive distribution rights to the iPhone for 5 years. That meant that users with existing cell phones on non AT&T networks had to switch to AT&T if they wanted to use an iPhone. In 2007, Verizon Wireless led the US wireless data market share, with 17% followed by AT&T at 16%. AT&T was not the wireless carrier of choice for many consumers who would want to use an iPhone.
In summary very high demand, limited or no availability in specific geographic regions and unnattractive bundling of the iPhone with AT&T wireless were the primary reasons for the growth of the iPhone gray market.
The iPhone gray market:
There are two areas where the iPhone gray market has thrived. One is the selling of iPhones at a premium on online auction sites and the other is the unlocking of the iPhone. The unlocking has also resulted in an explosion of demand for the iPhone globally, enabling gray markets in countries where it has not been officially launched. The unlocking of the iPhone is possible through software or hardware hacks. While the initial hacks were difficult to implement for all but the most tech savvy users, they have increasingly become simpler.
Why doesn't Apple do anything?
The primary reason is that it simply cant do much to stop the gray market forces. Apple does release software updates that render hacks useless, however the hackers soon find new ways to hack the iPhone. It also voids the warranty of the iPhone if it has been hacked, but it is trivial to reset an iPhone that has been hacked through software so that the hack is undetectable. Also, hacking the iPhone is not illegal. Hence Apple or At&t really does not have any legal recourse to go after the hackers. Another possible reason is that Apple isn't really losing out too much due to the gray market. The real loser is At&t which definitely had to pay a premium to Apple for exclusivity. While Apple does make some money whenever an iPhone user starts a new contract with At&t, it is not much compared to the profit made by Apple on selling the iPhone itself.
Sources:
http://www.businessweek.com/technology/content/feb2008/tc20080211_152894_page_2.htm
http://www.newsfactor.com/story.xhtml?story_id=0320000140IO
Tuesday, February 26, 2008
Tuesday, February 19, 2008
Lessons from Marlboro Monday
Synopsis:
The tobacco industry in the 90's was seeing the private label brands of cigarettes grabbing market share from premium labels due to its lower price for similar quality. The market leading brand was Philip Morris' Marlboro brand, which suffered the most. Michael Miles, the then CEO of Philip Morris was forced to take action as Marlboro was Philip Morris' "cash cow", and he was also facing drop in market share across the board in other premium brands like Kraft and Maxwell House coffee. On Friday April 2 1993, Miles announced a 20% price cut for Marlboro. in addition it also announced various cost cutting measures and increased expenditure on advertising. This was to cost Philip Morris 40% of their pre-tax profits. The price cut launched a price war with other competitors also dropping prices. On the following monday, which later came to be known as Marlboro Monday, investors triggered a selloff of tobacco manufacturers' shares across the board. Investors extrapolated that there could be similar price cutting for premium brands in other consumer product categories, resulting in a sell off of stock of most consumer product manufacturers. One explanation could be that since Philip Morris also manufactured other consumer products like cheese and coffee, investors felt that it may announce price cuts in those categories as well.
Lessons Learnt:
In retrospect, Miles took the correct decision because within a year, Marlboro had surpassed its highest ever market share and profits were again on the rise. However, could he have avoided Marlboro monday? Probably not if he had to turn the brand around. Marlboro monday made it clear that there was low investor confidence in the management's ability to turn it around. They seemed like desparate measures that could be too late.
the larger issue of dropping market share of Marlboro also needs to be looked at. While being marketed as a premium brand, there was not enough product differentiation from the private labels. the high price of premium brands in general and Marlboro in particular was not justified in the minds of the people. the other approach Miles could have taken is to invest in R&D to come up with a new Marlboro cigarette that was better than the private label cigarettes.
Another lesson to be learnt is that management decisions in another industry can sometimes affect other unrelated industries. it would be very difficult to predict this beforehand. But one should be prepared for such an eventuality and address it. For e.g. the management of the other consumer product manufacturers should have calmed Wall Street by issuing statements.
Sources:
http://www.duke.edu/web/soc142/team11/globalvaluechain.htm
http://query.nytimes.com/gst/fullpage.html?res=9F0CE2DD113FF935A1575BC0A965958260
http://books.google.com/books?id=DGfyhDs88PgC&pg=PA21&lpg=PA21&dq=marlboro+monday&source=web&ots=ANa8NhGzwD&sig=3jo2QCpoHc9e4NyFAfyKoX8pi7U&hl=en#PPA20,M1
The tobacco industry in the 90's was seeing the private label brands of cigarettes grabbing market share from premium labels due to its lower price for similar quality. The market leading brand was Philip Morris' Marlboro brand, which suffered the most. Michael Miles, the then CEO of Philip Morris was forced to take action as Marlboro was Philip Morris' "cash cow", and he was also facing drop in market share across the board in other premium brands like Kraft and Maxwell House coffee. On Friday April 2 1993, Miles announced a 20% price cut for Marlboro. in addition it also announced various cost cutting measures and increased expenditure on advertising. This was to cost Philip Morris 40% of their pre-tax profits. The price cut launched a price war with other competitors also dropping prices. On the following monday, which later came to be known as Marlboro Monday, investors triggered a selloff of tobacco manufacturers' shares across the board. Investors extrapolated that there could be similar price cutting for premium brands in other consumer product categories, resulting in a sell off of stock of most consumer product manufacturers. One explanation could be that since Philip Morris also manufactured other consumer products like cheese and coffee, investors felt that it may announce price cuts in those categories as well.
Lessons Learnt:
In retrospect, Miles took the correct decision because within a year, Marlboro had surpassed its highest ever market share and profits were again on the rise. However, could he have avoided Marlboro monday? Probably not if he had to turn the brand around. Marlboro monday made it clear that there was low investor confidence in the management's ability to turn it around. They seemed like desparate measures that could be too late.
the larger issue of dropping market share of Marlboro also needs to be looked at. While being marketed as a premium brand, there was not enough product differentiation from the private labels. the high price of premium brands in general and Marlboro in particular was not justified in the minds of the people. the other approach Miles could have taken is to invest in R&D to come up with a new Marlboro cigarette that was better than the private label cigarettes.
Another lesson to be learnt is that management decisions in another industry can sometimes affect other unrelated industries. it would be very difficult to predict this beforehand. But one should be prepared for such an eventuality and address it. For e.g. the management of the other consumer product manufacturers should have calmed Wall Street by issuing statements.
Sources:
http://www.duke.edu/web/soc142/team11/globalvaluechain.htm
http://query.nytimes.com/gst/fullpage.html?res=9F0CE2DD113FF935A1575BC0A965958260
http://books.google.com/books?id=DGfyhDs88PgC&pg=PA21&lpg=PA21&dq=marlboro+monday&source=web&ots=ANa8NhGzwD&sig=3jo2QCpoHc9e4NyFAfyKoX8pi7U&hl=en#PPA20,M1
Tuesday, February 12, 2008
List POP and POD differences between brands
Pick anything. e.g. bottled water, makeup, aspirin,
www.knowledgebiz.org/business/downloads%5CABC%202006%20-%20Presentation%20Downloads%5CBrand_Advertising.ppt
I dunno what all of that means ... but I thot it was interesting to read ..
www.knowledgebiz.org/business/
I dunno what all of that means ... but I thot it was interesting to read ..
Tuesday, February 5, 2008
honest broker to share info betn companies
http://www.klinegroup.com/
companies share their info with a honest broker and HB tabulates and sends info to the group
companies share their info with a honest broker and HB tabulates and sends info to the group
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