Second Strategy Post

As I look around the classrooms during lecture, I notice that the most common brand of laptop I see is an Apple. I have always been curious of this fact, and now after reading the case about Apple I've tried to think about why this is from a strategic perspective.

Apple MacBooks are usually at least $200-$300 more expensive than their PC counterparts, so there must be SOMETHING that inspires consumers to bite the bullet and pay a premium.

If you look at the hardware, you'll notice that there's not much difference in the brands used. In fact, in my cheap PC laptop, the hard drive is a higher quality than the default hard drives in comparable MacBooks. Looking at the other parts of hardware, nothing in Macbooks is notably superior to your average PC laptop.

If that's the case, then why are people willing to pay a premium? The answer lies in all of the parts of the computer that are visible to the eye. Apple has made sure that they have superiority in all of the pieces of a laptop that you can visually compare. The first thing you notice about Macbooks is how sleek the case is: a uni-body fully aluminum enclosure. The thing just screams quality. Also, the screens on Macbooks are extremely bright and vivid. When you look at a Macbook with the brightness turned up, it's almost like you're staring into heaven itself. Finally, the operating system (OSX) on Macs is built from the ground up on flashiness. While OSX may lack some functionality of Windows and other operating systems, it looks darn good.

This strategy makes perfect sense: the vast majority of prospective laptop owners are not going to go online and look up every part of a laptop to see what gives them the best bang for their buck, instead they're going to go to a retail store and look at laptops in person. What are they going to be attracted to when they get to the store: a cheap looking plastic laptop with an overly-shiny screen, or a sleek looking laptop with a metal case with a vivid display? Assuming they can afford it, they're going to splurge on the nicer looking laptop.

This is a genius strategy by Apple: while the metal case, nice screen, and an in-house operating system may be slightly more expensive, it sure doesn't cost Apple $300 per Macbook.

The big question this leaves me with is this: why have companies not applied this strategy to other industries? Imagine a car that has a flashy exterior, a high-tech interior, and sounds like a million bucks. Now throw in the internal parts of a higher-end Honda Civic, and you've got an above average car on the inside that looks like it should cost 50 grand! Sell it for a couple thousand more than a Civic, and you're making a huge margin. OK, maybe the car industry isn't the perfect example, but I'm sure there's countless industries out there that could benefit from the Macbook model.

First Strategy Post

Both of my parents started off their careers as travel agents, so I thought that it would be interesting to apply the Porter's Five Forces model to that industry to see what Porter would currently think of the travel agent industry. My mom is actually still working as a travel agent, but has significantly changed her strategy since the beginning of her career, and I'd like to analyze how her strategy shift interacts with this model.

The threat of the entry of new competitors.

The threat of entry is currently pretty high, since it doesn't take much to get into the industry. All you really need is a license for software to allow you to book flights/cruises/hotels, a place to work from, and a computer. Compared to other industries, the cost of capital is extremely cheap. However, demand for travel agents is pretty low, so the biggest entry barrier is a client base. Many clients have personal relationships with their current agents, so it's hard to "steal" clients from existing agencies unless you already have a personal relationship. And who are we kidding: everyone knows that the demand for travel agents is at an all time low, so realistically there's not much threat of new competitors.

The threat of substitute products or services.

This is what really hurt the industry. Once airlines allowed for the booking of flights online, travel agent demand dropped like a rock. It's almost always cheaper to book flights online, and you avoid having to pay the middleman: who could say no to that? As technology continues to take over the world, I can see many more substitutes in the future as well.

The bargaining power of customers.

Clients in this industry have ungodly amounts of power, since at any time they can just hop online and price compare against what their agent is telling them. If the price is cheaper online, they have seemingly no incentive to stay with the agent. Plus, travel agents are dying for more clients, so if a client threatened to switch to another agent, the current agent would do all they could to keep the client.

The bargaining power of suppliers.

Suppliers of travel agents consist of airlines, cruise, and hotel companies. These aren't your typical suppliers, since they don't actually sell any goods to travel agents. They just simply give travel agents the ability to book reservations on flights/ships/rooms. However, the suppliers also give this ability directly to the customers as well. This makes for a pretty crummy situation for travel agents, as they must compete against their own suppliers! This, in addition to the fact that travel agents literally cannot bargain at all with suppliers, gives all the power to the suppliers.

The intensity of competitive rivalry.

As mentioned before, travel agents are not only competing with other travel agents; they are also competing with their own suppliers. Also, there is extremely limited room for travel agents to have sustainable competitive advantages.

Looking at the industry from this perspective makes it seem extremely bleak. Why would someone choose to stay in an industry where the buyers AND the suppliers have all the power? This has got to be a lose-lose situation no matter how you look at it, right? Well, not exactly. My mom has actually had the happiest and most profitable years of her career in the post-internet world. She simply shifted her target from everyone seeking travel to upper-class travelers looking to spend vast amounts of cash.

My parents started their own travel agency in the mid 80s, a time when business was great. As the industry started to spiral downwards because of internet sales, my dad had the insight to sell the agency before things started to get too bad. However, my mom really enjoyed being a travel agent, and had no intentions of changing her career. She put a desk with a computer in the corner of my dad's store, and told some of her former clients that she would still be willing do book their trips. In the recent years, the majority of her clients have switched to buying tickets online, but all of her upper-class clients have stayed with her and they actually have been spending more and more money on vacations as they get older and have more free time.

Thanks to these remaining clients booking vacations costing sometimes over $20,000, her profit margin is exponentially higher than it was in the early days. These well-to-do clients require a lot of research and communication to plan their vacations, but my mom finds it more enjoyable than booking hundreds of flights every week for low profit. Her business is currently booming; in fact, when potential clients come to her wanting her business, she has to turn them away since she already has as much business as she can handle!

What I get from this story is that while this model definitely has merit in saying that the travel agent industry is an abysmal industry, if there's enough demand in a particular niche of the industry, it can still be worthwhile to invest in.