Strategy Assignment

Scenario analysis for Apple Watch and

Apple Pay

Submitted by:
Akshay Garg
Section B
15P066
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Table of Contents
Page No.

Introduction about APPLE

Apple Watch : The product
Apple Watch : The market facts
Apple watch : SWOT analysis
Apple Watch : Recommendations
Apple Pay : The product
Apple pay : The market facts
Apple Pay : SWOT analysis
Apple Pay : Recommendations
List of References

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An introduction about APPLE

Apple is one name of which almost every educated person in the world has
heard of. In todays world Apples name coincides with technology, quality
and innovation. Apple products like Macintosh pcs and laptops, Ipod , Ipad
etc have become common accessories for the todays young and old
generation.
Apple designs, develops, and sells consumer electronics, computer software,
and online services. Its hardware products include iPhone, iPad tablet
computer, Mac personal computer, iPod portable media player and Apple
Watch
smartwatch.
Apple's
consumer
software
includes
OS
X and iOS operating systems, iTunes media player, Safari web browser and
iLife and iWork creativity and productivity suites. Its online services
include iTunes Store, iOS App Store and Mac App Store and iCloud.
Apple is the world's largest information technology company by revenue, the
world's largest technology company by total assets and the world's secondlargest mobile phone manufacturer. The company employs 115,000
permanent full-time employees as of July 2015 and maintains 453 retail
stores in sixteen countries as of March 2015; it operates the online Apple
Store and iTunes Store, the latter of which is the world's largest music
retailer.
With such a history of bringing world class products, coming out with
disruptive innovations Apple has created a different name for itself in the
industry. Steve Jobs left behind a legacy that will be difficult to match. Now
Tim Cook, the present CEO of Apple Inc. has to take this company forward
and take care that Apple maintains its competitive advantage. Apple Watch
was the first product launched under Tim Cooks leadership. In this report the
future scenario of Apple Watch and Apple Pay has been discussed.

APPLE WATCH
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The Product
Apple watch is a smartwatch developed by Apple Inc. Other than the basic
function of telling time,it incorporates different other functionalities like
making or receiving phone calls, constant internet connectivity, receiving
notifications from different applications, digital wallet, listening to music and
other activities which a user could find only in a smartphone few years back.
It comes in two sizes 38mm and 42mm; and the device is available in four
variants: Apple Watch Sport, Apple Watch, Apple Watch Herms, and Apple
Watch Edition. They are priced in the range of $349 to $17000.

Some facts and figures about the market

According to Strategy Analytics, 8.1 million smartwatches were

shipped worldwide in 4th quarter of 2015
According to IDC, smartwatches shipment figures will reach a total of
34.3 million units in 2016, up from 21.3 million units in 2015. By 2019,
total shipments will rise to 88.3 million units with a five year CAGR of
42.8%
In a market research report titled World Smartwatch Market Opportunities and Forecasts, 2013 2020 , North America is the
highest revenue generating region for smartwatches, generating
nearly 1/3rd of the market revenue in 2013
According to the same report, in near future the growth of the
smartwatch market will be driven by the Asian region with China being
the focus

For the first time in the 4 th quarter of 2015, the number of

smartwatches shipped were more than the number of Swiss watches
shipped
According to a report by Juniper Research, the shipments of Apple
watch were 52% of global smartwatch shipments in 2015, though they
only launched in April 2015.
According to the same report, the shipments of Android Wear
comprised less than 10% of sales in 2015.

SWOT ANALYSIS for Apple Smartwatch

Strengths:
1) The product is coming with different models giving customers choices
to make from different designs. Also the product is ranged from $349
to $17000, which helps Apple to cover users of different income groups
from the middle and higher middle class to the luxury segment also.
2) The products aesthetics have been taken care of by providing different
coloured straps to match the dress one wears. Thus the watch does not seem
out of place.

3) The brand name and the reputation of Apple goes with Apple Watch
and the tribe Apple has created comes advantageously for Apple as it
will always find users.
4) The technology used is world class and most innovative as hardware
and software are easily connected giving ample connectivity. The
watch easily syncs with iphone for all notifications, emails and calling.
5) The watch is easy to wear and reduces dependency on phone.
Weaknesses:
1) The screen size is an issue.With only 1.5 inch screen some users might
find it difficult to use the smartphone functions which are provided
other than the basic function of time telling.
2) Most of the smart features can be used only if you have an Iphone to
sync with your Apple Smartwatch. As the number of users using
Android and Windows phone is large they will find this innovative
product of limited use to them and will not buy it.
3) The prices may be an issue to Apple as the users might find it
infeasible to buy a watch with limited smart features for the same price
in which they can buy a smartphone with complete set of smart
features. This problem will mostly occur in Asian markets.
Threats:
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1) Cannibalization by other products: The market for watch can be

cannibalized by better iPhone, iPod etc. as the watch does not contain
any unique feature which is not offered by other Apple devices. The
product can be easily made by other manufactures with slight
variations as no disruptive technology is used in making it.
2) Apple claims that this product of theirs will make users lest dependent
on their smartphones but some users may find it as an additional
burden of notifications.
3) Watches that can offer integration of Android OS with Apples iOS will
come as a threat to Apple watches.
4) With competitors like Tag Huer entering smartwatch market and a
number of Android wears available from technology companies like LG,
Sony, Motorola which come with 2 advantages: they are cheaper when
compared to Apple Watch and also they dont have the dependency on
iphone for syncing and provide number if smart features; Apple Watch
is fated to face tough competition in the coming years.
Opportunities:
1) As discussed above the smartwatch market is growing steadily with a
forecasted CAGR of 42.8%.
2) With the number of people buying smartphones increasing ever, the no.
of people buying Apple phones will also increase and thus more Apple
watches will have Apple phones to sync with.
3) With more people becoming fitness freaks the fitness band feature will
come in handy in increasing the sales of Apple Watch.
4) As discussed above the sales of smartwatches has taken over the sales
of Swiss watches so this suggest that people will more and more see
smartwatches as substitutes of Swiss watches and smartwatch sales
will increase.

Recommendations
1) The problem of price has to be dealt with gradually. As Apple has done
in the past- gradually decreasing prices to make its products more in
reach for masses, it has to do the same for Apple Watch also because
Asian market is huge and to taper this market price sensitivity of this
market cannot be neglected.
2) Also Tim Cook should lay more stress on R&D because one major
problem is sync with the iphones. If the number of features can be
increased which dont require this sync, then the dependency can be
decreased and hence sales can increase.
3) Coming up with more versions, more aesthetically different designs will
provide users with more choices which are different and are differently
priced. As always seen in the past, introducing variants of a paroduct
increases the user acceptance and popularity of the product.
4) R&D should be done to come up with features which are not present in
any other product available in the market. This differentiation will
provide more core competence to Apples product.
5) Apple can think of collaborating with leading reputed watchmakers to
amalgamate their disruptive technologies with their reputation, class
and brand image and come up with something which is technologically
advanced and aesthetically classy at the same time.

APPLE PAY
The Product/Service
Apple Pay is a mobile payment and digital wallet service by Apple Inc. that
lets users make payments using the iPhone 6, 6 Plus, and later, Apple Watchcompatible devices (iPhone 5 and later models), iPad Air 2, iPad Pro and iPad
Mini 3 and later. Apple Pay does not require Apple Pay-specific contactless
payment terminals, and can work with existing contactless terminals.
Instead of saving the Debit/Credit card numbers being stored, the Apple Pay
generates a unique Device Account Number, which is encrypted and securely
stored in the Secure Element chip. This makes purchase possible even in
Flight Mode as internet connectivity is not required in case of payment
terminals. The Apple Pay has a two part security, the first being the users
fingerprint and second the Secure Element. This makes the data safe from
software hacks and also hardware attacks as the chip can sense tampering
and shut down. While making a transaction, the unique Device Account
Number is transmitted along with a dynamic security.
Some facts and figures about the mobile payment market
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According to Juniper Research, the number of mobile wallets using

contactless technology will reach 200 million by end of 2016, up by
100% from 2014
According to Markets and Markets, the global turnover for contactless
payments in 2014 was $4.9 billion and is estimated to rise to $10
billion by 2018
According to Berg Insight, the number of POS terminals will grow at an
average rate of 28% and by 2019, the number of POS terminals will be
75 million
Contactless payments are used in various industries like transport and
logistics, retail trade, IT, Telecom, government, banking and financial
services etc.
According to Deloitte, at the end of 2015, 5% of smartphone and NFC
users made contactless transactions at POS at least once a month
According to ITG, by December 2014, 1.7% of all digital payments in
US were made through Apple Pay
In 2015, over 1billion contactless purchases were done in UK, which is
about 10% of all digital transactions

SWOT Analysis for Apple Pay

Strengths:
1) The service makes payment simple and saves time because in POS the
device has to be held near the NFC reader and followed by fingerprint
validation but through Apple Pay for in-app purchases only fingerprint
is required.
2) Apple Pay doesnt compromise the credit card/debit card details and
data is not stored in software which again adds to the security. More
private and secure transaction is possible because it does not store or
track shoppers transaction pattern. Retailers also dont get the details
of customers.
3) Retailers and shoppers are not charged any fees for using this service
4) Payment Networks like Visa, MasterCard, American Express and
Discover are part of the new ecosystem. Apple is using the existing
rails for transacting and also for certain new services.

Weaknesses:
1) NFC terminals represent only an estimated 10 percent of all point-ofsale payment terminals and NFC-enabled terminals cost a retailer
$500 or more
2) This service can only be used with a handful of Apple devices; as a
result of this the penetration of Apple Pay is pretty low even within the
Apple device owners.
3) The service is only available in the US and UK
4) The service does not support online purchases. So, if anyone who is not
buying from app or retail outlets, he/she wont be able to use Apple
Pay
Threats:
1) There lies competition from the likes of other noncontact payment
services like the Android Pay or the Samsung Pay. As the number of
android users is much more than iOS users, this can be a huge threat.
2) The banks like JPMC and RBS have also come up with their own
noncontact payment cards which will also compete with Apple Pay
3) The share of transaction price between the stakeholders i.e service
providers and banks is not clear which might pose a serious issue in
the future.
4) Apple Pay isn't being accepted by three major retailers, Walmart,
Target and Best Buy, which are committed to the competing CurrentC
mobile-payment scheme from the Merchant Customer Exchange (MCX)
group. Apple also has yet to integrate loyalty cards into its system.
5) People still sometimes dont want to leave their physical wallets so this
is an inherent threat to the Apple Pay service.

Opportunities:
1) With more and more people going for cashless transaction there lies
huge market for such services.
2) The service is present only in US and UK mostly, thus h uge market is left to
be explored like major parts of Europe, Latin America and Asia where
Apple will find huge no. of customers.
3) Apple Pay if available on browser based shopping on devices like
laptops, tablets and smartphones will help increase the use of Apple
Pay and thus more revenues.
4) With more and more people going for Apple products like iphones
apple pay will find more users and this service can also be provided on
Apple Watches which will further help gain more users and revenues.
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Recommendations
1) Apple Pay should be made available on browser shopping also so that
more number of users can use the service and more revenues can be
generated.
2) Apple should keep the service free for initial years so that people who
dont want to lose their physical wallets find some incentive for using
this service.
3) Apple Pay should be launched in markets other than US and UK also
where there lies a huge market potential as Apple is popular and Apple
services are perceived as reliable throughout the world.
4) Apple should concentrate on bringing more and more number of
retailers to use its service and try to negotiate deals with big retailers
like Walmart,Tesco etc.
5) Tim Cook should concentrate on making more and more types of Apple
devices compatible with Apple Pay so that increasing user penetration
of users into Apple devices can be cashed in.
6) Tim Cook will have to negotiate deals with leading banks of the world
so that the banks use their services and come as stakeholders to Apple
not as a competitors like we have RBS pay.

Word count 2480

List of References
https://en.wikipedia.org/wiki/Apple_Inc.
http://www.imore.com/apple-watch
https://en.wikipedia.org/wiki/Apple_Watch
https://www.alliedmarketresearch.com/smartwatch-market
http://www.marketwatch.com/story/apple-watch-makes-smartwatches-bigger-thanswiss-watches-2016-02-19
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http://www.prnewswire.com/news-releases/strategy-analytics-apple-watch-captures74-percent-global-smartwatch-marketshare-in-q3-2015-300167891.html
http://techcrunch.com/2016/01/13/apple-watch-scooped-up-over-half-thesmartwatch-market-in-2015/
http://www.juniperresearch.com/press/press-releases/apple-watch-claims-over-50-of2015-smartwatch
http://www.cnet.com/products/apple-watch/
http://www.idc.com/getdoc.jsp?containerId=prUS40846515
https://en.wikipedia.org/wiki/Apple_Pay
http://www.webopedia.com/TERM/A/apple-pay.html
http://www.cnet.com/news/everything-you-want-to-know-about-apple-pay/
http://fortune.com/2015/09/07/contactless-payments-growth/
http://json.tv/en/ict_telecom_analytics_view/global-contactless-payments-market
http://www.theguardian.com/money/2016/feb/26/contactless-cards-purchasesspending
http://www.practicalecommerce.com/articles/74067-Explaining-Apple-Pay-Pros-Cons
http://investcorrectly.com/20150529/opportunities-challenges-apple-pay-apple-incnasdaqaapl/

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