20 years ago, Apple made this crazy, irrational decision, to forward integrate in a medium that was supposedly going away.
Professor of Marketing, at New York University (NYU) Stern Business School, and the author of “The Four: The hidden DNA of Amazon, Apply, Facebook, and Google”, Scott Galloway explains the reason why Apple has such a loyal customer base, and the decision that made Apple outsmart its competitors.
Galloway, while speaking to Business Insider says, “if you were to ask people what one decision created more shareholder value than any one decision in the history of business, most people would say Apple’s decision to launch a phone. To that, I would say that they got the brand right, but the wrong decision”.
The iPhone is an incredible device creating more profits than any item in history. But the thing carrying Apple to the largest margins, margins that are somewhere in between Hermes and Ferrari in terms of operating margins, is its brand equity or its halo.
Now, what did they do differently to establish this unbelievable resonance as a brand? Samsung, their closest competitor spends double on advertising. They also spend double on online advertising. So where has Apple reinvested that capital?
Apple made this decision to forward integrate in a medium that was supposedly going away – Stores.
Now, the company has somewhere between five and six billion dollars in store leases now on its balance sheet and has reallocated capital out of traditional broadcast media, which is declining every day in effectiveness, into the store where people still make physical contact if you will. They still consummate the relationship with the brand at the point of purchase. So you have this temple to the brand which is this unbelievable experience called an Apple Store and then you have this very mediocre experience called an AT&T or Verizon connect-your-phone-experience for Samsung and other major Android players.
The biggest value-creating decision in the history of modern decisions is thus Apple’s crazy decision to forward integrate into stores.