Editor’s note: This article was first published in October 2017, and its advertising spend figures and comparisons with Samsung are from 2017.
Sometimes a decision can look irrational or stupid at the moment it’s made, but the people who made it may have known it was one of the smartest decisions anyone could have taken.
Personally, I’m not sure whether the decision Apple made 20 years ago triggered the company’s extraordinary success, or whether it’s the reason Steve Jobs’s company ended up “eating Samsung for breakfast”. But Scott Galloway, author of The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google, seems certain that it was the main reason for Apple’s explosive growth compared with Samsung.
What was that decision, why was it crazy, and why did it end up being the best business decision the company ever made?
When the winds of change blow, the main advice usually given to entrepreneurs is precisely not to sail against the wind, but to adapt to the new era and let the old one go. Twenty years ago, Apple took steps to commit to a channel whose future was to disappear.
Most people would say the best decision Apple made to add shareholder value was launching a phone, and it’s true that, according to Scott Galloway, the iPhone generates more operating profit than any product in history.
But the iPhone’s price, specifically, wouldn’t be justified without its brand value, its halo. What did Apple do differently to make people willing to pay for that brand?
(See: 11 Steve Jobs quotes that will go down in business history)
Contrary to what you might think, it wasn’t advertising, because Samsung spends twice as much on advertising as Apple. And Samsung also spends twice as much as Apple on online advertising. So where does Apple invest what it doesn’t spend on advertising?
The answer is that 20 years ago Apple decided to invest heavily in physical stores, which for its loyal users are less shops than temples where they can worship and touch the company’s products. Between $5 billion and $6 billion of capital has gone into this traditional channel, while other companies in the sector, Samsung included, have preferred to focus on online advertising and save on physical stores.
Apple is a company where the end customer can still, if they wish, physically handle the product at the original seller’s point of sale.
For Scott Galloway, this is the biggest value-creating decision in modern business history.
Even so, as I said at the start, other factors would need to be studied.
Featured image: Blake Patterson, CC BY 2.0, via Flickr.
