Apple is one of the most diversified companies in the world. Although it started off as Apple Computers, the company changed to Apple Inc. in 2007 in line with its new lines of products and services. Nevertheless, Apple has been engaged in related diversification as its main business strategy. According to Gamble et al. (2021), related diversification involves the development of a business strategy that is beyond a firm’s current markets and products but within the organization’s value network or capabilities. Most recently, Apple announced the launch of a credit card highlighting the company’s intention to further diversify its business model towards the service sector ("Introducing Apple Card, a new kind of credit card created by Apple", 2020). The credit card, which is known as the Apple Card, has a user interface showing customers the place and amount of purchases of every transaction ("Introducing Apple Card, a new kind of credit card created by Apple", 2020) . Also, the card breaks down customer purchases into different subcategories, including shopping, food, and entertainment. The introduction of Apple Card was a related diversification as it was within the Apple’s value network and capabilities even though it was beyond the firm’s existing markets and products (Johnson et al., 2006).
Companies engage in diversification strategies for the main purpose of spreading their risks across different industries to maximize the shareholder value (Gamble et al., 2021). Nevertheless, a successful diversification move must pass the three tests of building shareholder value, which includes the attractiveness test, cost of entry test, and the better off test (Gamble et al., 2021). The introduction of Apple Card is critical to Apple’s success and growth as it will strengthen the company’s service business in the wake of the falling iPhone sales. It is evident that Apple Card meets all the three tests of building shareholder value if the company’s 2019 revenue growth in the service business is something to go by.
Delegate your assignment to our experts and they will do the rest.
The iPhone has been one of the most lucrative businesses for Apple in the last decade. However, several factors have led to the global decline of iPhones in recent times. For instance, the unpredictability of the iPhone’s upgrade cycle affects its sales as customers might want to hold on to their old devices rather than dispose them for new upgrades. Besides, the sales for most hardware devices such as the iPhones tend to be seasonal with their sales peaking during the holiday season. The diversification towards the service sector, particularly the credit card business, which is unaffected by seasonality would ensure a steady recurring revenues throughout the year. Thus, the credit card business passes the attractiveness test (Gamble et al., 2021). Second, the cost of entry is less and does not affect the company’s revenue since Apple Card is built into the Apple Wallet app on iPhone. According to Gamble et al. (2021), diversification into a new business line must offer the potential for the existing business as well as the new business to perform together under a single corporate umbrella (156). Thus, Apple Card passed the better-off test as it is built into Apple Wallet app on iPhone, implying that it is “complementary” to the iPhone ( Salter & Weinhold, 1981). Besides, Apple Card transforms the entire credit card experience as it provides a new level of customer privacy and simplifies the credit card application process, which would be Apple Card’s competitive advantage over the traditional credit cards.
Conclusion
In summary, Apple’s entry into the credit card business symbolizes the company’s focus on strengthening its presence in the service business. The move maximizes shareholder value as it passes all the three tests of building shareholder value.
References
Gamble, J., Peteraf, M., & Thompson, A. (2021). Essentials of Strategic Management (7 th ed.). McGraw-Hill. Chapter 8.
Introducing Apple Card, a new kind of credit card created by Apple. (2020, September 16). Apple. https://www.apple.com/newsroom/2019/03/introducing-apple-card-a-new-kind-of-credit-card-created-by-apple/
Salter, M. & Weinhold, W. (1981, January). “Choosing Compatible Acquisitions.” Harvard Business Review . https://hbr.org/1981/01/choosing-compatible-acquisitions
