Scott Galloway, professor of marketing at NYU Stern and the author of “The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google” explains the one decision Apple made which, called crazy and outrageous at the time, turned out to be the key reason for their explosive growth over Samsung. Following is a transcript of the video.
Scott Galloway: Apple made this crazy irrational decision 20 years ago to forward integrate into the medium that was supposedly going away.
So if you were to ask people what one decision created more shareholder value than any one decision in the history of business, most people would say Apple’s decision to launch a phone. And I believe that they would get the brand right but the decision wrong. The iPhone is an incredible device creating more profits than any item in history.
But the thing carrying the Apple to the largest margins, margins that are somewhere in between Hermès and Ferrari in terms of operating margin, is its brand equity or its halo. Now, what did they do differently to establish this unbelievable resonance as a brand? Samsung, their closest competitor spends double on advertising. They also spend double on online advertising. So where has Apple reinvested that capital?
Apple made this crazy irrational decision 20 years ago to forward integrate into the medium that was supposedly going away. Stores. And they have somewhere between five and six billion dollars in store leases now on their balance sheet and have reallocated capital out of traditional broadcast media, which is declining every day in effectiveness, into the store where people still make physical contact if you will. They still consummate the relationship with the brand at the point of purchase.
So you have this temple to the brand which is this unbelievable experience called an Apple Store, and then you have this very mediocre experience called an AT&T or Verizon connect your phone experience for Samsung and the other Android players. The biggest value-creating decision in the history of modern decision: Apple’s crazy decision to forward integrate into stores.
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