Section 1: Synopsis of the Case and Purpose Statement
This case summarizes the rise and stumbling and rise of Apple Computer, the brainchild of Steve Jobs and Steve Wozniak. These two students who lived in Palo Alto created an alternative operating system for a hard disc that used a graphical interface rather than the text-only DOS system that had been invented by an also-ran named Bill Gates.
Jobs and Wozniak had a vision that the growth of the personal computers would herald a new industry, and they wanted to be one of the leaders of that industry. And, in fact, during the late 1970s, Apple owned the personal computer market with its Apple I and Apple II. Apple's first full year of official business was 1978, and according to the case study (p. 675) "the company organized a distribution network through independent distributors. This distribution contributed greatly to the increase of sales."
By 1980, the personal computer was changing from a fad to a fact, and Apple was the primary market mover. However, as the case points out, one of the dangers of "owning" a market is that there are lots of others who don't want you to own it. This case study reflects the hazards of a competitive pricing strategy that is targeted to value-conscious consumers. Pricing strategy decisions were to position Apple as the best bargain by pegging it against IBM and other DOS-based PCs.
Profitability in the computer industry initially relies on price competition and since all companies in the industry offer basically the same thing, and price is often the only barrier to purchase. The case study also suggests that Apple failed to realize that demand, especially in a new market, is both elastic and inelastic. It is inelastic in that it the computer is a product that many people and organizations need, so there is a built in societal solidity.
It is elastic in that computer companies are very price competitive, and the perceived...