Apple takes cue from Bob Dylan to broaden its appeal, and enters retailing

September 15, 2003

BY MICHAEL KRAUSS

Bob Dylan wanted to write songs and change the world. Back in 1965, he belonged to the world of folk music, a world more intellectual than mainstream. Rock ’n’ roll was still Elvis Presley and early Beatles. Dylan had a marketing problem. If he was going to appeal to the emerging mass culture, he would have to cross over.

In July of 1965, Dylan shocked the music world when he went onstage at the Newport Folk Festival in Newport, R.I. Accompanied by the Paul Butterfield Blues Band, Dylan brandished an electric Fender guitar. The rest is music history. He was booed for the electric guitar sound, but in the end, Dylan’s shift broadened his appeal far beyond the niche market of folk music. He went on to appeal to an entire generation of music listeners.

Like Bob Dylan, technology impresario and Apple Computer Corp. founder and CEO Steve Jobs has a marketing problem. Traditionally his products, like Dylan’s early songs, appealed to a narrow market segment. Cupertino, Calif.-based Apple traditionally focused on an early adopter, counterculture-oriented technology consumer.

Apple positioned on innovation. Apple led with leading-edge design. Apple appealed to the education market. Apple has always been hip and cool, more of the thinking man’s machine.

To my way of thinking, Jobs’ products, like Dylan’s early music, was too intellectual, too elite. Apple users were a loyal but narrow target audience like the folkies at Newport back in July of ’65. Apple has long been a market factor, but they’ve never commanded the leader’s share.

So how do you broaden your appeal to a larger audience without sacrificing your values or losing your traditional brand equity? The challenge that faced Dylan now faces Jobs. He’s addressed the issue by making his products more compatible with other technologies. He’s continued to introduce breakthrough products and capabilities like the new iPod music player and iTunes Music Store. And, he’s never lost his flair for product design. Yet something else has emerged from Apple’s headquarters. Dylan may have gone electric, but Jobs has gone retail, in a big way.

In the past two years, Apple has opened 62 company-owned and operated retail stores, including stores in high-traffic locations in New York, Chicago and Los Angles (with a major opening planned for Tokyo).

“We opened our first retail store in May 2001,” reports Apple spokeswoman, Jane Rauckhorst. Speaking in true Apple vernacular she adds, “We wanted to reach the other 95%--the people who weren’t purchasing Apple products.”

Market research told Apple executives that many computer buyers weren’t considering Apple. No more. “Placing retail stores in highly trafficked areas has been an effective way to reach millions of people and make them aware of Apple products,” Rauckhorst says.

Unlike Dylan’s fans at Newport, no one’s booing. In fact, buyers are scooping up Jobs’ products at impressive rates.

“At the two-year mark last May, the stores have done $650 million in business,” says Rauckhorst, who compares her achievement favorably with the Old Navy stores that took four years to generate $1 billion in sales. “We’re definitely on a strong pace.”

And the stores are drawing in new customers, not cannibalizing sales from alternative channels. “Fifty percent of the customers who bought at our retail stores were not previous Apple customers,” she says. “It’s definitely been effective in terms of reaching a new audience.”

It’s a penetration strategy and it’s working. It’s helping sell iPods (which just crossed the 1 million mark) and it’s helping popularize iTunes.

Who’s idea was it to go retail? Certainly Steve Jobs should earn a haiku for the move, though a closer look will correlate Apple’s successful entry into retail with the January 2000 arrival of Ron Johnson as senior vice president of retail reporting to Jobs. Johnson, the former head of merchandising at Target stores, led the development of Apple’s retail strategy, oversaw the pilot launch of the first two stores in McLean, Va., and Glendale, Calif., and he’s at the helm today of the entire store program.

While the Harvard MBA Johnson is the field general, walking into the Apple store on North Michigan Avenue in Chicago the experience feels totally Jobs-like. The store’s heart and soul is vintage Apple: bright, simple, clean, stone floors, glass staircase; abundant, accessible products, with a friendly cheerful, well-trained, courteous sales staff. The emphasis is on education and service. The store is gorgeous. It sparkles and has tremendous curb appeal.

“We spent a long time here at Apple headquarters looking at other retailers (and) looking at the ideal way to set up an ideal store for Apple,” says Rauckhorst. “We built a mock store near the corporate campus and experimented with different retail concepts.”
“As you walk in there’s a consistent design. You’ve got the home section on the left and the pro section on the right. Then you’ve got sections devoted to music, movies and photography; our digital lifestyle segments. Those sections reflect the products and the applications we think people are most interested in,” she says.

“Every store has a Mac Genius Bar. For the high-profile stores, the genius (a technology expert or help desk) is on the second floor,” Rauckhorst says. “The glass staircase was put in the middle of the first floor to attract people’s attention and to get them to the second floor (typically a difficult task in retailing).” There are also a variety of innovative training programs intended to welcome new-to-computing users. And the retail staff is clearly well-trained to represent Apple and their brand.

I visited the Chicago store unannounced the other day. Tom Summers, the store manager, was selling a new Power Mac G5 to a customer who appeared to be buying her first computer. He didn’t know I was in line behind her. The buyer seemed nervous and kept thanking Summers, apparently completing the purchase and then stopping to ask more questions. Summers never showed a bit of anxiety, pique or impatience. (I would have lost my cool.) He stayed with the customer an additional 15 minutes politely answering her questions and successfully closing the sale.

The only thing I couldn’t recall from my visit to the store was the background music. Was there any playing? I just don’t remember though I have a request. Steve Jobs, could you occasionally play Bob Dylan in the stores? It seems only fitting since you’re both world-shaping marketing minstrels. I’d like to hear “Tangled Up In Blue,” though I think that’s an IBM number. On second thought, you can pick the song.

Michael Krauss is a fellow with DiamondCluster International in Chicago. He can be reached at michael.krauss@diamondcluster.com or news@ama.org.