An Ad Age Special Report


An Innovative Company Changes Consumers' Lives

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SAN FRANCISCO ( -- Any given Tuesday in New York's meat-packing district, 200 chic geeks converge for iPod DJ parties. On the other side of the Atlantic,
Photo: AP
Apple CEO Steve Jobs on stage with a gigantic version of the product that epitomizes his company's design and marketing saavy: the iPod.
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their British brethren swarm to club nights armed with iPods.

Off the coast of South America, 65-year-old Jeanne Capurro returns to the luxury liner Seabourn Pride after a side trip to Iguazu Falls, sets up her Apple G4 laptop in the ship's lounge and presents a slide show of her day to fellow passengers. "I just love my Apple," she says.

In Maine, student Hannah Coleman, 12, turns in a biography project complete with 8-minute video and photo presentations, created on an Apple presented free of charge by Steve Jobs in mid-2002 to every 7th and 8th grader in the state. Mr. Jobs "explained to us it's not about the technology, it's about what people can do with it," says her father, John Coleman.

Embodying a lifestyle
That's exactly it. The genius of Apple is that its brand has come to embody a lifestyle. In a tech business where two or three giants have become global dominators, still-the-underdog Apple resonates with consumers across generations and international boundaries.

Everywhere you look businesspeople and students parade their sleek titanium Powerbooks; computer geeks and tech pundits enthuse about the incredible speed of the new G5; and iPod users -- from hip teens to middle-aged suits -- nod to one another on the street as if they're in a secret club. (Apple expects to sell out its entire inventory of iPods this Christmas.)

As if that were not enough, Apple is also striking a chord with music industry executives, potentially giving the troubled business a new lease on life, with its iTunes software that creates a new model for making money from downloadable songs.

Focusing on consumers
From a seemingly innate understanding of how to woo users with design, through a stand-out retail strategy to its ability to reach people with grassroots marketing techniques, Apple has proved itself a great marketer. It has achieved incredible levels of brand loyalty and created an army of evangelist users not because of its great advertising -- though certainly its print

Apple's elegant Macintosh G4 Titanium laptops are status symbols among students as well as professionals in the entertainment and media industries.
and TV work was among the best in 2003 -- but because it focuses, in everything it does, on the consumer. That's why Apple is Advertising Age's 2003 Marketer of the Year.

Apple's marketing genius centers on iconic CEO Steve Jobs, according to venture capitalist Mark Kvamme, a partner at Sequoia Capital and onetime ad man who worked on the Apple Newton, an early personal digital assistant that flopped. "He doesn't listen to what customers want today. He says, 'This is what customers are going to want tomorrow,' " Mr. Kvamme says.

Lee Clow, chairman of Omnicom Group's TBWA Worldwide, and Mr. Jobs' longtime partner in building Apple marketing, sees the genius as emanating from Mr. Jobs' prime goal, "to make great things that could change people's lives." Mr. Clow says Mr. Jobs combines that determination with innate marketing instincts.

"Steve just understands what he wants the brand to be. He has a very rigorous view of Apple's tone of voice and the way it talks with people -- it's not exotic. It's very human, very accessible," says Mr. Clow, 60, who worked on Apple's breakthrough "1984" spot.

Not only that, the energy vortex that is Mr. Jobs is "is incredibly hands-on everything," says Mr. Clow. Most Tuesdays, Mr. Jobs leads a marketing session in a Cupertino, Calif. headquarters conference room filled with new product. In attendance from the agency is Mr. Clow; James Vincent, TBWA/Chiat/Day account director on Apple; and Duncan Milner, creative director. Apple attendees include a public relations representative and a designer. Sitting in the same spot Mr. Jobs placed it six years go is the first Emmy

Apple's Macintosh G5 is the fastest personal computer in the world.
awarded to a commercial, Apple's "Crazy Ones" spot, which kicked off Mr. Jobs' return to the company in 1997.

Heated marketing sessions
Sometimes if pressed for time, Mr. Jobs drinks one of his "juice concoctions" for lunch, says Mr. Clow. Otherwise, the only things served up are the agency's ideas. "We bring things we've invented to the table," says Mr. Clow, where Mr. Jobs "rejects them, messes with them." Some sessions are heated, particularly when "we want to push the envelope," says Mr. Clow. One such case was Apple's iPod outdoor and TV campaign using bright colored backgrounds instead of Apple's regular white hue. "We all understood strategically that iPod is a window for the whole world to come to an Apple product," says Mr. Clow.

At the moment, Apple has sold more than a reported 17 million songs through its iTunes Music Store, although each 99-cent sale drops merely a dime into the kitty, almost a loss leader intended to build a new generation of Apple enthusiasts and to induce sales of the more profitable iPod.

By most accounts, iPod holds the largest share of the fragmented portable digital music player market. Although that share hovers in the range of 20% to 30%, Mr. Clow is optimistic Apple can maintain its leadership position, despite the upcoming onslaught from players that include Wal-Mart, Microsoft and others. "First of all, we were first," says Mr. Clow, adding iPod and iTunes are the only "holistic" music solutions.

Boon to music business
Whether or not Apple reigns supreme in the entertainment business, the

Apple's iTune online music store is playing a major role in revolutionizing the music marketing business.
iTunes solution is a lifeline for the music business. "Steve Jobs put the music business on the right track," says Steve Berman, senior executive of marketing and sales at Interscope Geffen A&M Records, part of Vivendi Universal's Universal Music Group. The iTunes site itself is something of a marketing vehicle. "You want to position your artist for front page exposure" on the iTunes site, says Rob Souriall, vice president of marketing of Hollywood Records, a unit of Walt Disney Co. Apple currently does not charge for placement, but "you have to plead your case," he notes.

For Apple, marketing starts with product design, with Mr. Jobs continually upping the ante. "I wish other companies would take a page out of Steve Jobs' book," says Rich Silverstein, co-chairman of Omnicom Group's Goodby, Silverstein & Partners, San Francisco. He says his usual airplane ritual involves shining up his iPod on his shirt to the admiration of seatmates.

Another carefully designed element of Apple's marketing is public relations, where Mr. Jobs preens the Apple faithful and the media crowd, nurturing relationships with favored editors at magazine weeklies.

"From a public relations standpoint, it's hard to overstate the importance of Steve Jobs," says Jerry Swerling, director of public relations studies at University of Southern California's Annenberg School for Communication. "It's hard to imagine a successful Apple ... without him as the public face and champion of the brand."

Publicity machine
Mr. Jobs' publicity machine garnered more than 6,000 iPod and iTunes stories in major publications worldwide. That compares to paid media spending in the first eight months of 2003 of only $10 million on iTunes and $9 million on iPod, according to TNS Media Intelligence/CMR. Overall,

The iPod is also crucial as the first Apple product built for both the Macintosh and Microsoft Windows markets.
Apple's paid media spending was only $69 million in the first eight months of '03.

Apple also has begun to tap the equity of kindred brands, entering into promotions and marketing campaigns with Volkswagen of America, Pepsi-Cola North America and possibly McDonald's Corp. In these partnerships, Apple has allowed agencies such as VW shop Arnold Worldwide, Boston, to handle the "Pods unite" campaign.

"I wouldn't want to do McDonald's ads," Mr. Clow says of a percolating deal between Apple and McDonald's reportedly involving 1 billion tunes. "Part of the strategy with iPod is to make it everybody's music product and very young. The goal is not to make an Apple ad that talks about McDonald's."

In another budget-stretching move, Apple plans to accentuate its aura by tapping buzz marketing in a more organized fashion, with an internal group handling projects.

Andrew Andrew
At least one of its biggest buzz marketing campaigns is coming not from the company itself. In a club in Manhattan's meat-packing district, two DJ's, each with the first name of Andrew, conduct Tuesday night open iPod DJ parties with 200 or more in attendance. Those entering take a deli-counter-like number and between 20 and 50 clubbers a night are selected to design and play iPod fare. The pair of Andrews, going by the name Andrew Andrew and declining to give last names or indicate who is who during a phone interview, wear white lab coats and, in effect, conduct iPod seminars for clubbers.

Apple has spent $293 million in capital expenditures for a more direct way of fueling brand buzz through its chain of 73 retail stores -- some of them like New York's SoHo brand cathedral -- drawing almost 14 million visitors in fiscal year 2003, according to Apple.

"The reason for the stores is the more people who can touch an Apple product, and see what Apple can do, the greater

Photo: AP
Steve Jobs is the lynchpin of Apple's successful publicity campaigns.
the market share," says Mr. Clow, whose team helped in-house executives to design the stores. "The Apple store is the invitation, and it's going to be the growth."

Achilles' heel
Despite Mr. Jobs' brilliance, his Achilles' heel may be his management style. "Steve never figured out he needed professional management around him," says Roger Kay, vice president of client computing at researcher IDC. Mr. Jobs also has failed to have a "no" man who can help him distinguish between singles, doubles and home runs, says Richard Doherty, research director at researcher Envisioneering Group.

Mr. Jobs, as one former Chiat executive put it, is "a passionate guy who doesn't phrase himself in the most politically correct of ways." He has so much confidence in his own abilities, few dare challenge him, Mr. Clow says. "You have to be really smart to have the nerve to give him that kind of feedback," he says. "On certain days, I can give it."

While Apple has secured cult status, Mr. Clow notes Mr. Jobs has a competitive streak and is unlikely to be satisfied being the computer world's equivalent of Mercedes.

Apple this year toyed with a "switch" campaign. Its success in digital music has poised the niche player to do serious battle in the upcoming consumer electronics fight to be America's entertainment/information centerpiece, or "home media server" in tech talk.

Making mistakes
"The history of Apple is a long, complicated business story with a lot of mistakes made," particularly the decision to stick with a proprietary system for PCs that resulted in Microsoft's dominance, Mr. Clow says. "We won't make the same mistake."

~ ~ ~
Tobi Elkin, Hank Kim and T.L. Stanley contributed to this report.

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