Ethics and marketing – a case study about Apple Inc.

Introduction

Apple Inc., headquartered in Cupertino (USA), is a producer of mobile communication devices and personal computing hardware. It is the first company in history that reached a 1,5 trillion USD stock capitalization (Axon, 2020). Because of its economic and technological influence, its actions are microscopically analyzed by all stakeholders (Harris, 2015, p.21) – Apple is one of the pillars of 3rd and 4th industrial revolution (Schwab et al., 2018) and the company has navigated several long-standing ethical problems in its 44 year history – pricing discrrimination, anti-competitive behaviour and the use of sweatshop labour to name a few.  

Processes or operations in the IT industry are relatively new and businesses cannot foresee long-term consequences of their strategic choices – a deontological framework alone (Harris, 2015, p.28) is not sufficient to analyze ethical dilemmas. For example – Steve Jobs banned Adobe Flash technology from iOs devices which would later be evidenced as the starting point of unnecessary ecosystem demise (Haslam, 2019). Additional examples are AirBnb’s influence over housing prices (Barron et al. 2019) or datacenters effects on the level of carbon dioxide in Earth’s atmosphere (Oberhaus. 2019).

IT industry is facing additional modern concerns such as privacy issues or planned device obsolescence where Apple has been standing on both sides of the fence – either working with governments and NGOs to reduce ethical misconduct (Apple Website, 2020) or directly inducing moral wrongdoings (Nash, 2018). 

Analysis – Target Market & Pricing

Apple’s marketing mix is based around uniquely designed high-quality products. This philosophy is reflected on product packaging, minimalistic advertising and prices which could go up to 1,500 USD for new iPhone models.

One of the target marketing strategies include temple-like stores that invite a religious following (Laskow et al., 2015). This opens up a first ethical question – are Apple fans socially vulnerable consumers (Harris, 2015, p.53) that are buying anything that company serves in a cult-like fashion? Research from Robles-Anderson (2015) states that Apple stores are intentionally built like churches to improve individualistic and collective reasoning around the Apple brand.

Additionally, Apple Release Days, a series of events that promote new products, are organized around the same tokens as pilgrimage holidays or similar religious gatherings. This strategy is legalistic (Stage 2) by Reidenbach and Robin’s model of corporate development (Harris, 2015, p.36), but comes at a cost of wealthier consumers buying expensive hardware that they probably not need and excluded poor consumers that can’t afford high quality iPhones at all (Bell, 2015).

Cult-like following and extreme prices exclude possible users and poor consumers that could benefit from privacy-aware and secure Apple products. For instance, Apple’s dedication and stance to maximize its users’ privacy (and security) is seen in various solutions such as no-backdoor policy (Morrison, 2020). Android users, an 85.4% of global mobile user base (IDC, 2020), are excluded from this high-end solutions and are prone to privacy and security related Android issues (Eddy, 2019). 

Apple started to remedy consumer exclusion and the action has placed them not only in “responsive”, but in an “emerging ethical” (stage 4) model of corporate behaviour. Their newest strategy includes an offering for iPhones with an approachable price-specification set – a 4th approach by Alwitt (Harris, 2015, p.57). Company claims that the practice of offering 399 USD iPhone will become a permanent one (Sullivan. 2020) making the iPhone accessible to most consumers. 

On the other hand, company was involved in time-based pricing discrimination (Harris, 2015, p.73) – forcing early-adopters who waited long lines to pay full iPhone price, while allowing major discounts two weeks later after the launch (Hafner et al., 2007). Those occurrences stopped in the coming years and Apple has a predictive iPhone launch and pricing schedule. A topic that we will discuss in the next section.

Analysis – iPhone Product and planned obsolescence

By Kotler’s classification of products, iPhones are of high immediate satisfaction and long run consumer welfare (Harris, 2015, p.60). As such, they should be used over many years to give it’s customers best “run for the money” and long-term peace of mind. Indirectly – long-term iPhone usage reduces waste and the need to recycle electrical materials. 

Apple is launching new iPhone models on a yearly basis and this strategy has been inline with publishing system updates that are available for both old and new iPhone models. IT industry welcomes constant system updates and this is a wise engineering, security and ethical practice. But Apple has been silent about using system updates to decrease older iPhones technical capabilities – hidden planned obsolescence of iPhone products is an ethical problem for which the company has received criticism from consumers and governments (Clover, 2017).

In short,  users reported a shorter battery life once they applied a new system update. Some users also reported a decreased performance i.e. slower booting-up of the device and underperformance of camera operations after system upgrade.

These technical problems are in contrast with the long-term usage plan for most users. Apple knew about hidden planned obsolescence, but the company’s stance was that they need to optimize operating systems for newer devices  – without detailing the specifics of how these optimizations would affect older devices. This is the opposite of utilitarian ethics framework (Harris, 2015, p.27)  i.e. new system updates improve the quality of the product, but for a smaller subset of users. If we use a deontological framework – categorical imperative, then optimizing system updates for newer models is a rational policy by Apple. 

Real ethical problems were not technical implementations, but communication towards consumers. Apple has a legal right to plan and implement system updates in a frequency that the company seems fit. But it also has a legal obligation to communicate end-of-life expectancy or system degradation. Investigations found out that Apple implemented system update practices for a long time, but they didn’t surface it until users became alarmed. Consequently, French and US governments have fined Apple Inc. for unethical business practices for a total of 525 million dollars (Papadopoulos, 2020). Apple did pay the fines, but didn’t stop implementing these kinds of system updates. The company has made user interface changes on the iPhone operating system so that users know when their iPhone is operating in a limited capacity.

iOs battery settings screen after system updates. The user interface gives you warnings that your battery life is coming to an end and that you should replace it. The cost of replacement is 69 USD or included with your AppleCare+ warranty, if you have any (Apple Web, 2020). Both options represent additional cost on top of already expensive devices.

In this particular case, Apple has been amoral (stage 1) as it hid the truth from consumers, but then it has become responsive (stage 3) ethical company by modifying its practices and paying damages towards consumers (while still holding on to its software updates practices)

Yearly iPhone release cycle is a reflection of the mobile devices market and Apple is not alone in these dynamics (UNEP, 2019). Battle between Huawei, Samsung, and Apple has an effect on increased pollution, recycling electrical waste problems and pressures to maximize efficiency of the supply chain  – which leads us to the last part of analysis.

Analysis – Distribution (supply chain management)

Foxconn, the biggest employer in China, has been Apple’s partner for many of its product lines. Foxconn implements aggressive cost management practices which benefits Apple’s strategy to reduce expenditures.

The partnership is intertwined with many continuous ethical dilemmas such as low wages, unbearable operating conditions, constant overtime usage and over-pressured working atmosphere. Simultaneously, Apple has been one of the most profitable companies in the world and a manufacturer that has the largest profit margin on a sold device. During 2018, it received 87% of all the industry profits while selling 18% of global mobile devices. (Seitz, 2018)

Foxconn-Apple situation has not happened overnight – first reported problems involved a 2009 suicide case involving a worker reporting the loss of an iPhone 4 model. Researchers from Telegraph (Topping, 2009) found evidence that the worker has been beaten by security guards before committing suicide. Problems continued during 2010 where several suicides occurred due to poor working conditions and low pay. Foxconn addressed these measures, but only on the surface – hiring a PR company Burson-Marsteller and installing a series of protective nets so that workers could not leap from a building where iPhones are made.

Foxconn management showed lack of ethical understanding as it did not firstly resolve the underlying basis of repeated suicides – low wages. In these cases, Foxconn has been amoral (stage 1) while Apple has been legalistic (stage 2) i.e. Apple did not directly influence Foxconn management and wages practices. Apple’s approach on Foxconn problems started to change at the same time Tim Cook took over the role of Apple CEO on August 24, 2011 (Fiegerman, 2016).

Apple has introduced departments and teams specialized in auditing vendors and all workforce problems in its supply chain. Company has a dedicated supplier responsibility team that oversees vendors actions and efforts in maximizing benefits for its workforce (Apple Web, 2020).

Supplier responsibility team publishes yearly public reports with a clear benchmark on their suppliers grades and accomplishments. Apple went a step further and has introduced frequent checks and audits, primarily towards it’s main supplier Foxconn, but also towards its vast network of supply chain partners. This action by Apple has been neecesery due to aforementioned suicide cases, but also from overall Foxconn workforce negligence. In this case, Apple has been responsive at first (stage 3) and then emerging ethical (stage 4) company due to its systematic long-term solutions. Possible actions that could place Apple into ethical stance (stage 5) will be presented in the last section of this document.

Suggested actions

Apple has demonstrated its willingness to tackle ethical problems – either through empowering special teams devoted to auditing suppliers or working with it’s vendors in improving the production environment. Company also addresses pricing discrimination on a marketing mix strategy level by introducing cheaper and more accessible iPhone models. Their resolution of planned product obsolescence has been responsive, but the company did not change its system update practices. Listed evidence in the analysis section show that Apple proactively managed most ethical dilemmas and that the solutions were not a one-time PR “stunt”. 

There are a couple of solutions and actions that Apple could additionally take to become a truly ethical (stage 5) company.

Supply chain – suggested actions:

• Current supply chain audits are performed by third party consultants, but Apple does not reveal their name and precise audit methodology. Apple’s leadership could manage audits from transparent parties such as the International Trade Union and clearly publicize findings. Some investigations state that Apple actions are only driven by public relations and not as a real care for its Foxconn workforce – hiring independent auditors could remedy those issues. (Linchuan Qiu, 2017)
• Apple and Foxconn should allow transparent and clear unionization of their workforce. For instance, workers demanded a monthly paycheck of 650 USD while reports found out that Foxconn has organized fake union teams that undermined these wage increase efforts. (Boersma, Clark, 2018)
• Foxconn and Apple should immediately stop illegal activity such as extensive overtime work. Only systematic and legalistic approaches to work load will benefit the workforce in the long-run
• Apple should observe how other mobile phone manufacturers produce devices. For instance, Fairphone has brought positive ethical changes to the mobile device industry such as replaceable batteries, non breaking system updates and workforce benefits that match the highest working standards. Fairphone is assembled in Hi-P (Suzhou, eastern China), a factory that is also an Apple supplier. Hi-P Workers state that working for Fairphone is better and more rewarding than working for Apple assembly line (Linchuan Qiu, 2017)
• Evenly distributing financial resources among all elements of the supply chain could also lead to improving the quality of work and workforce environments, but this is an encompassing financial management decision that needs to take global mobile device market needs and competition dynamics into account. Apple’s current profits and market valuation, as presented in earlier sections, shows that the company has a valid 207 billion USD cash-cushion (!) to engage listed solutions with direct monetary influx. (Feuer, 2020)

Pricing discrimination – suggested actions

• Implementing AppleCare+ with higher end iPhone models. Users that buy a 1.500 USD iPhone should not be charged 69 USD extra for wanting to replace their batteries
• Redesigning iPhone so that the batteries are replaceable by users. Apple has been vehement about its product design and not allowing battery replacement is one of those strategies. Apple should re-think this policy and allow battery replacements on some models.
• Versioned system updates so that older iPhones receive different system updates than newer iPhones. Currently, new iOS system is pushed towards all consumers. Some iPhone owners can abort system updates, but only for a limited time. Solution would be to have different versions of system updates – optimized for every iPhone model specifically.

Apple has a good chance of becoming a truly ethical (stage 5) company if they choose to implement some of these solutions. At least there are no shortages of financial resources. Long term ethical choices should lead to stable profits and high quality solutions (an assumption) that could benefit Apple and serve as a lighthouse for the IT ecosystem as a whole.

References

Apple Inc. Web, 2020, People come first. In everything we do. Available at

https://www.apple.com/supplier-responsibility/

Axon Samuel, 2020, Apple is now worth 1.5 trillion dollars, available at https://arstechnica.com/gadgets/2020/06/today-apple-became-the-first-us-company-worth-1-5-trillion/ 

Barron Kyle, Kung Edward and Proserpio Davide, 2019, Research: When Airbnb Listings in a City Increase, So Do Rent Prices, available at https://hbr.org/2019/04/research-when-airbnb-listings-in-a-city-increase-so-do-rent-prices 

BBC Web, 2020, Apple settles iPhone slowdown case for $500m, available at  https://www.bbc.com/news/technology-51706635 

Bell Killian, 2015, Is there a class divide between iPhone and Android?, available at https://www.cultofmac.com/398525/is-there-a-class-divide-between-iphone-and-android/ 

Boersma Martijn, Clark Thomas 2018, Apple, the $1 trillion company searching for its soul, available at  https://theconversation.com/apple-the-1-trillion-company-searching-for-its-soul-101030 

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Clover Juli, 2017, Apple Addresses Alleged Throttling of iPhones With Degraded Batteries, available at  https://www.macrumors.com/2017/12/20/apple-addresses-iphone-throttling-degraded-battery/ 

Eddy Max, 2019, SecurityWatch: Android vs. iOS, Which Is More Secure?,  available at  https://www.pcmag.com/opinions/securitywatch-android-vs-ios-which-is-more-secure 

Feuer Will, 2020, Apple now has $207.06 billion in cash on hand, up slightly from last quarter, available at  https://www.cnbc.com/2020/01/28/apple-q1-2019-cash-hoard-heres-how-much-cash-apple-has-on-hand.html

Fiegerman Seth, 2016, Apple under Tim Cook: More socially responsible, less visionary, available at 

https://money.cnn.com/2016/08/24/technology/apple-tim-cook-five-years/

Hafner Katie and Stone Brad, 2007 IPhone Owners Crying Foul Over Price Cut, available at https://www.nytimes.com/2007/09/07/technology/07apple.html 

Harris Fionna (2015), B324 Block 2 Ethics and Marketing, Milton Keynes, The Open University.

Haslam Oliver, 2019, Steve Jobs and his 2010 ‘thoughts on flash’ show why Apple still misses him, available at https://www.imore.com/steve-jobs-and-his-thoughts-flash-show-why-apple-still-misses-him 

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https://hbr.org/2020/03/a-guide-to-managing-your-newly-remote-workers

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https://www.atlasobscura.com/articles/we-asked-a-cultural-historian-are-apple-stores-the-new-temples

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Oberhaus Daniel, 2019, Amazon, Google, Microsoft: Here’s Who Has the Greenest Cloud, available at  https://www.wired.com/story/amazon-google-microsoft-green-clouds-and-hyperscale-data-centers/ 

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https://interestingengineering.com/apple-to-pay-up-to-500-million-over-intentionally-slowing-down-phones (not available any more)

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