Apple: An overview on the company’s distribution strategies

3 An overview on the company’s distribution strategies

Apple sells its products worldwide through its on-line stores, its retail stores, its
direct sales force and third-party wholesalers, and value added resellers. Historically
the company was used to rely on a network of authorized dealers that served both
consumer and business customers and that provided customer care as well. They
tried to make sure that resellers were highly committed, well trained and focused on
sale. They wanted to provide an high quality service and were always very selective
and avoided mass market retailer, like Wal-Mart and Target.

During the ‘90s Apple begun to sell also through large retail chains and reached
agreements with Sears and CompUSA, two large outlet chains. There was the need to
get an higher visibility and the success of products like iPod, suggested a more mass
oriented approach. However the exposure they got was low and the service level
terrible. Moreover, staff in the outlet had an incentive to steer customers towards
Toshiba and HP products because these companies adopted a very aggressive
incentive strategy and paid a large bonus for every PC sold.

Apple decided to try with store-within-store concept. They built dedicated stands
within shops, with large posters, marketing materials and displayed computers that
were served by retailer’s staff. It didn’t work. Once again the salesmen were not
trained, nor motivated and Apple’s small product range didn’t received enough
exposure. When the company decided to use its own staff things improved
dramatically.

3-1 Distribution strategy

In 1997 Apple ventured in a completely new field: on-line sales. It was the first time
Apple sold directly to its customers. The On-line store offered the full product range,
with a vast choice of third party accessories and built-to-order capabilities, following
the path first pioneered by Dell. The good implementation and customization
capabilities determined its success.

The great response from well tailored sale services pushed Apple to take one the
biggest bet of its history: the decision to enter the retail business.
In 2000 were unveiled plans to build a chain of Directly Operated Stores, under the
supervision of Ron Johnson, a former vice-president of retail at Target and a veteran
in the retail industry. The first shop was opened May 19, 2001 in Virginia and
nowadays 230 shops are operative and in 2007 about 20% of global sales were
generated through DOSs.

In 2004 the whole distribution was restructured: the authorized dealers, known as
Apple Center or Apple Dealer become Apple Premium Reseller, a customized shop
highly committed to sell Apple products owned and operated under license by third
party operators; sales agreement with CompUSA were scrapped and a new
agreement with Best Buy was done that will lead to the creation of dedicated spaces
with 200 shops; agreements with Sears were renegotiated and Mac sales were
allowed only in selected spaces in shop with high affluence volume. At the same
time iPods, peripherals and accessories were distributed to wide variety of shops,
from small corner store, to music shops, to big brick-and-mortar supermarkets. For
the latest product entered in the catalogue, the iPhone, Apple signed exclusive
agreements with leading carriers in every country served and the device is sold
exclusively through the retail network of the phone operator.

Points of sale not directly operated by Apple are sourced through third party
wholesalers but it is possible, for any computer dealer who buys more than $2
million worth of Apple product a year, to buy equipment directly from Apple, rather
than through a distributor. This strategy was devised in order to reduce the markup
added by distributors: Apple applies a 3% discount for dealers who choose to buy
products directly from the manufacturer.