Channel Conflict at Apple

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Case Details:

Case Code : MKTG108
Case Length : 19 Pages
Period : 1976-2005
Pub Date : 2005
Teaching Note :Not Available
Organization : Apple Computer, Inc.
Industry : Computers
Countries : United States of America

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Our strategy isn't to put our resellers out of business, but to work side by side with them."

- CEO Steve Jobs, during the launch of Apple's retail stores in May 2001.¹

"We love Apple's innovative products! Our case is a matter of business ethics and simply doing the right thing!"

- Opening lines on the website started by Apple resellers to document the channel conflict.²

Introduction

Until the mid-seventies, computers were considered as just business-related equipment. This perception changed after Apple Computer, Inc. (Apple) launched its computers for personal use in 1976. Since then the company leveraged on its strong innovation capabilities not only to endure difficult times but also to grow.

Its main strength was its revolutionary products that were backed by loyal fans, and hundreds of authorized resellers. In fact, the resellers played a huge part in promoting Apple's iPod, launched in October 2001. When Apple started its online store in 1997, the resellers feared that it would eat into their business.

In May 2001, Apple opened its first retail store in a suburb of Washington D.C., and went on to open several other such stores across the US. In 2003, Tom Santos, an Apple reseller, filed a lawsuit against the company accusing it of showing unfair preference to its own retail and online stores while ignoring reseller stores during the shipment of new goods.

He also accused the company of following unethical business practices with an intention to divert sales to its own stores. A number of other resellers also joined him subsequently. As of June 2005, the plaintiffs were waiting for the allocation of a trial date at the Superior Court of the county of Santa Clara, California.

The Dawn of Apple

Apple was founded on April 1, 1976, by Steve Paul Jobs (Jobs) and Steve Wozniak (Wozniak) in Jobs' garage. Jobs and Wozniak were introduced to each other by a common friend Bill Fernandez in 1971.

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1] Dennis Sellers, "Apple retail stores aimed to grow Mac market share," www.macworld.com, May 15, 2001.

2] www.TellOnApple.org.