by Merlin Hernandez

The US Appeals Court yesterday overturned the injunction granted to Apple that prevented the sale of Samsung’s Galaxy SIII in the US amidst charges of IP infringement. This comes as no surprise since similar lawsuits by Apple in the UK and Germany were struck down in the lower courts. While I would not go so far as to say that the case was frivolous, any astute observer might surmise that all the brouhaha was more about keeping the Galaxy SIII out of the market until the launch of the iPhone 5. The entry of the Galaxy SIII in the international market was met with record-breaking sales. Apple would be well aware that US consumers can access the Samsung product through any number of websites based outside of the US. There is really no way to keep the competing product out of the market in the long term. The injunction did not bar Samsung from advertising the Galaxy SIII in the US and ads for the phone stimulated intense interest among US consumers. There is also a lucrative, long-standing relationship between the two phone giants where Samsung manufactures many of the components for Apple products. The relationship may not be cast in bronze but any fracturing could seriously derail strategic goals and timelines for both companies. Neither company would want that.

In the contemporary technosphere, OEMs like Apple, for whom innovation has been the primary differentiation strategy, have only a small window of market opportunity to recoup their R&D investment before the competition catches up. Tactics, legal and otherwise, to forestall market entry by a competitor have become par for the course – part of the corporate obligation. Apple, however, is aware that the time window is becoming narrower and they cannot rely purely on innovation to drive growth. This is already the mature phase of the smart phone life cycle where declining revenues and decreasing customer loyalty are to be expected along with sharpened competitive tactics. The issue is no longer about increasing market share – there are now too many players in the field and supply is outstripping demand driving prices down while the cost of getting the message across amidst the noise is eroding the gains from market expansion. Apple is actually opting out of the intense competitive landscape with its increased marketing and branding spend, drastic cost cuts to increase margins, and price wars.

But value creation and customer loyalty will drive market retention and repeat buying of product and upgrades. In other words, the strategy is go deep, not wide. Apple’s new emphasis on value creation through a hyper-responsive customer service culture intensifies the customer relationship in a different kind of demand orientation that is less concerned with market forces and more reliant on customer intimacy. Apple has re-defined its value map to offer a superior service product in conjunction with cutting edge technology. This will provide the traction to extend the market lead for Apple’s new product beyond the competitive entry of the Galaxy SIII which is positioned right up there next to the iPhone 5.

With Samsung’s earlier launch in the international trade, the lawsuit gave Apple a head-start in the domestic market as retailers, even in e-commerce, adopted a wait-and-see posture. The Appeals Court decision saw a slump in Apple stock, closing at $630 down from $646 yesterday but it was an overall roller coaster day with the Dow closing down 19 points. Apple stock did get a major boost after the lower court victory against Samsung last August so this dip might just be a leveling off of the stock.

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