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Avoiding the "Commodity Trap": How Apple Stays Ahead of the Competition

Posted Jan 29, 2010 10:14am EST by Peter Gorenstein
Related: AAPL, VGT, QQQQ, RIMM, MSFT, T
If history is any guide, Apple's dominance may soon hit a snag. CEO Steve Jobs recently announced the company was poised to rake in $50 billion in annual revenues, a milestone that is more often an obstacle not a launching pad. IBM, Dell, Hewlett-Packard have all stumbled after hitting this impressive mark, as Dow Jones reports.

Richard D'Aveni, professor of strategic management at Dartmouth's Tuck School, thinks it won't be an issue for almighty Apple because they are keenly aware of the pitfalls that lay ahead.

Avoiding the "commodity trap."

In what's probably the most commoditized industry in the world – technology – Apple continues to avoid what D'Aveni calls the commodity trap and maintains brand equity more than 30 years after the company's founding.

How do they do it?

D'Aveni, author of Beating the Commodity Trap, says Apple has not fallen victim to two of the most common traps: proliferation and escalation.

Proliferation, as he defines it, is when rival businesses offer discounted products with additions that challenge and fragment the dominance of a brand.

Apple avoids this trap "by revolutionizing a market when it gets there," he says. Citing the iPhone's effect on the smartphone market.

Escalation happens when lower-cost products are rolled out with snazzy new perks, offering consumers greater benefits for lower prices…and inspiring an endless volley of one-upmanship.

Apple stays ahead by "always leading the competitors with the next generation." D'Aveni recognizes "just as they reach the precipices of price competition, it morphs." Hence, the iPod becomes the iPhone and iTouch, which then lead to the creation of the iPad.

D'Aveni believes innovation is so ingrained in Apple's culture he's confident they can succeed with or without Steve Jobs at the helm.