Tuesday, January 8, 2019

Latticework of mental models and Apple

Latticeworks of-mental models can be created and used for many purposes. For example, creating decision making systems, designing strategies, and analysing businesses. In this text, I will show you how you can analyse Apple as a business. I will mostly go through intangible assets of the business. I will not analyse any numbers, only products, services, and how they are sold or how people perceive them.

Apple is one of the most successful companies in the world. You can use the latticework of mental models to understand the past, the present and the future of the business. I am not going through all the mental models that have an effect on Apple. In reality, the amount of models is bigger than what I will represent. You cannot have a business of that magnitude without many models working into the same direction. Many psychological tendencies have an effect on Apple´s brand. Some of the tendencies have a bigger effect on the brand than others. Apple sells most of its products for consumers. Their perceptions of Apple and its products are the most important factors in its success. Technical superiority is not required. Only the perception of the technical superiority consumers have about the products and services matters. The moment when technical superiority mattered was after it launched the touch display for an iPhone and the next few years after. The next important moment comes when the next disruption in its devices becomes real.

About the products, name and the logo of the company

Apple has a simple range of products. It has only few product groups. The most important ones are theiPhones, iPads and the MACs. Small capital letter ”i” in the product names is for the internet. When it is used in the spoken language, it has an ego enhancing effect. People love the word ”I”. They might not be happy that other people use it, but they love it when it comes to them. It is hard to find a better word in a product name. All the names should be as simple and short as possible. Product name has an ideal length which is not more than seven letters or two syllables. Apple´s product groups have shorter lengths. They are also easily understandable and don´t have many meanings. This is true especially for the iPhones and iPads.

Apple´s product prices are high. Customers need to have the perceptions about the products and services that are equal to the prices. The product design and their packaging need to look better than their competitors´ products. All the products need to look expensive. One way to have a better perception about the price is to sell products with metallic colors. The image of the components used in the products need to be excellent. Higher prices are highlighting the association between the high quality and the products. People have a better perception about the expensive products, because they value the increased effort they needed to have to afford it. High price also helps people to highlight their status among their peers. Luxury image improves the pricing power of the company. Sales margins become higher.

Many other psychological tendencies have an effect on the perception about Apple´s products. Steve Jobs is one of the heroes of the creative people. Many of them see him as an ultimate hero of the beautiful product design and great advertising campaigns. He used his authority by introducing new products himself. Some authorities are worth more when they are dead. It is hard to say whether this is true about him or not. The most popular products have higher sales figures, because they have created an enormous amount of social proof. When the social proof is created, it sells more because it creates a self-reinforcing feedback loop, in which new customers have an effect on their social circle and this circle gets bigger and bigger and more customers will join this movement. It also creates more customer satisfaction, because people see their improving status among their social circles.

Jobs gave the name ”Apple” for his company. It is simple with five letters and one syllable. The less syllables and letters you have, the simpler the name. Big groups of people associate the name ”Apple” for a forbidden fruit. This associates the name with scarcity. The company´s logo, in which somebody has bitten a part of the Apple reinforces this association. The product line is simple. They have three main lines. Many other companies have much more. Power laws, especially Pareto´s law have an effect on it. Profits and turnover are distributed unevenly. For example, iPhones produce more than 50% of the sales and profits. Apple also has an app store, in which it uses the leverage of other people´s efforts. App developers can sell their products only through the app store and the company takes some of their profits by only upkeeping the app store.

Inversion, what Apple shouldn´t do

Apple´s success is unbelievable. Most of the time, it doesn´t have to do anything to sell its products and services. It has inertia. It moves to the same direction without any extra push needed. To continue this kind of success, they have to be careful in doing something. By using inversion, Apple have to think what it shouldn´t do in the future. Apple´s brand is based on the luxury image. It cannot start selling cheap, ugly and/or cheap-looking products. Their designs need to stay beautiful, so does their packaging. The techical level of the products cannot be too far behind the competitors´ products. All the product names, their user interfaces, and designs need to stay simple. It cannot let its competitors copy its product names and technology patents. It has to protect them with war-like efforts. It has to protect everything that makes the company unique.

Remember that you have to use figures to analyse a company. And you need some specialized mental models like the economies of scale.

Until next week,

-TT

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