Apple doesn't have enough iPads and iPhone 4s to meet consumer demand, doesn't know when it will, and doesn't know how many more it needs. And, no, it didn't create an artificial shortage of either device to hype up a buzz storm. "We do not purposely create a shortage for buzz," Apple COO Tim Cook to analysts and reporters …
They said the same thing about the Wii
The idea that restricting supply somehow increases demand is utter bunk fueled by a complete lack of understanding of economics. Every consumer who walks into an Apple store wanting to buy an iPad and walks out without one is a customer who might go across the street and buy a netbook, or might wait for an Android tablet, or might change his mind altogether and spend his disposable income something else entirely.
It's a lost opportunity, not a marketing strategy.
It could be plausible that more customers would spring for a purchase at a higher price if they believe the product has limited availability.
The mere perception of low supply could justify paying more than one otherwise would. Two people might go into a dealership and both want the same car, they may be more inclined to pay more than if the dealer had enough for both of them.
I don't know if this is the case or not, but it's a different perspective.
Maybe it does not increase demand directly. IANAE, but I remember reading somewhere ("Superfreakonomics", maybe) that artificial scarcity of a product is a common and well known (in economist circles, at least) way of increasing the "value" of things. The price, at least. Something that is always sold out must be good, right? (thinks hoi polloi) It sure gets the product in the news. Flood the market and the value goes down -- and so goes public interest and therefore profit. Sure, it might make a few inpatient folks give up and buy something else or nothing at all -- although I seriously doubt that someone with their mind set into buying an iPad would think "oh, I'll just get a netbook instead". And I love my netbook and would not buy an iPad (at least not at current price and being the first version of the thing). But most folks just get in line, place the order and go home wait for their toy -- which will fell like the best ever, since it was so "hard" to get.
I mean, who would be silly enough to believe Apple did not foresee the success of the iPhone 4!? The iPad, I'd be more willing to believe, since it was a "new concept" (a giant iPod Touch, will people fall for it? my girlfriend did and she and her daughter love the thing). But given the 3 years of iPhone history, they sure knew what was coming.
The problem is, no one has made a tablet with the same user experience.
People WILL wait on these products as they are aware of the simplicity and elegance, they are not tweakers like us.
I think this is a great thing, and will push the market into an interesting new situation.
Can I tempt you with some cheese to go with your whine?
I was seeing a lot of the points you were making, although not totally agreeing with them, when you started making some REALLY idiotic suggestions about Apple being able to accurately predict iPhone sales in the first few months on a month to month basis. Don't you have the time to take your head out of your arse and study manufacturing and engineering slightly rather than a desk-job?
Then you spoil it even further by making unsubstantiated and vague comments about quality, even throwing a dig in about having to make an appointment to speak to a SPECIALIST in store!
Idiots and Money
spring to mind
What a crock of lies..
And yet it makes "news" (aka free advertising) again.
Hands up who believes Apple's b*llwinkle? Next they'll be telling us there is no issue with the new iphone... ;o)
Jobs: "I have an idea on how to make more money... Let's, you know, *not* sell anything!!!"
"It'll be great, I tell you! People will line out to, er, *not* buy our products! And the demand will be so large, and the less we sell, the more demand there will be! So, let's NOT SELL ANYTHING! Woo-hoo! Moneh!!"
The answer? Easy!
The Apple has changed from being an exotic only product range to exotic AND mainstream.
I am waiting...
...for a lenovo U1. Sadly it is looking like it might well ship with Duke Nukem Forever preinstalled...
In the context of this article, no one said that restricting supply increases demand- though it can lead to free publicity.
It actually goes like this:
Production lines and tooling are flippin' expensive. Building more production capacity than you need can lose you huge amounts of money, instead of turning over a modest profit. Demand varies throughout the year (think "back to school / Christmas). Money is often spent at less busy times of the year to artificially increase demand, since this allows for a smoother output over the year. As the man said, 'over-demand is not an problem'.
You seem to imply that there is an 'opportunity', a 'window', and on that point I agree- strike whilst the iron is hot. In consumer electronics this is know as targeting the 'First Adopters' - those consumers who will pay above the odds to have a product before everyone else does (example: original iPhone was $600 for a few months before being reduced to $400 after just a few months, although a $100 refund was given to the first adopters, the rebate being allowed by the profit being made and demanded by more strategic PR considerations). However, investing heavily in order to meet what may turn out to be a spike in demand is foolish, unless it buys you, for example, a larger market share that you can then exploit at your leisure (as can happen in the video game console market).
For maximum profit, you want as few machines to make your product as possible, operating for as long as is possible. Some situations, such as war, dictate that you build as many machines to make you as much product, such as guns, as is possible in as short a time-scale as is possible- but this will decrease profit (for the country as a whole, obviously individual arms manuscript can and do do very well).
Lots of people have lost money by investing it to meet (over) ambitious expectations of demand, thinking they can become very rich. Don't be greedy and you will probably make enough money to be comfortable. : D
famousringo, you are incorrect in your assumption of machine quantity to output. Apple does not buy machines to build product. They contract all builds out to 3rd parties. Apple only orders X number of product. It's up to the 3rd party to decide how to create output and how to do production. If Apple wanted to make more than enough product, they could order it. There's plenty of 3rd party manufactures to meet Apple demand any day.
The output is purely governed by Apple's orders. They are kept low in order to get press on "selling out". This makes them look good artificially.
Way to simplistic
Unless you're suggesting that there is huge dormant production capacity just sat waiting for Jobs to click his fingers, this doesn't hold water.
Capacity will have been bought to meet a demand figure (which may or may not have been conservative) and bringing on fresh capacity overnight just isn't possible in the real world.
Let's say that you're right in thinking that there are plenty of 3rd parties just itching to build iPads for Steve. They then need to tool up for the job, source parts (again that will have been sourced and further down the chain, produced) to those same forecast demand figures and skill up what manual workforce is needed to produce them.
I reckon 3-6 months - assuming that the company owners were actually sitting with an empty order book waiting for Jobs to be their Mr. Macawber. As it is, I imagine they're busy building stuff for other customers so that stretches out the time line even further.
In summary, yes, output is governed by Apple's orders but to suggest that order can be placed today and fulfilled tomorrow is just plain wrong.
I can't see any company with an eye on being around for more than 12 months betting the farm on any product launch, the risk to the company of understocking is so much smaller than the risk of overstocking goods no-one wants to buy (I wonder how many newtons are still on inventory?).
For my money, where Apple succeeds is in turning logical sensible business practice into marketing gloss - spin as it may be, it's actually the safe option for them.
The famous example being Acorn, building up huge stocks of machines for the christmas AFTER the home computer boom ended destroyed the company.
Ahh yes, the good old Acorn Electron saga :)
That would be the time that Acorn stocked up using anecdotal figures without getting signed orders from WH Smith and John Menzies IIRC. Idiots!
Cheers YAAC, I'm going to have to get one of my Elks out now and have a bit of a time-warp...
Apple keeps customer supply low on purpose.
Apple, the experts at marketing spin, keep the supply of products just at the edge of what demand is in order to keep "our supply is running out!" stories alive.
If you believe they really can't keep up, you are a sucker acording to J.P. Barnum.
*Ahem*, PT Barnum.
supply and demand
Let's take two scenarios:
1. Apple have more iPad's in stock than they actually sell, the cost of stocking the devices is expensive.
2. Apple have less iPad's in stock than they actually sell, the cost of stocking the devices is lowest.
Now, Apple have to forecast demand, which for a new device in a new market is pretty hard. I know, all the hype and shit, but still, you have to find the spot between both of the above, ideally, and that is almost impossible. For the iPhone, are they really selling that many more than before? Is the trend not settling? I do not know, I have not followed the sales numbers, mainly because I do not care.... but any company wants to avoid having tons of goods it can't get rid of quickly enough and it is very tricky to predict demand. Besides, I guess their investors would not be happy if Apple maintained a supply shortage ... we are not in a Socialist economy, are we?
Now that they offer a free case with the iPhone 4 the demand is probably even higher.
Flap flap, oink oink!
Come on! You have teams of people combing forums and market researchers gathering customer and potentional customer data, left, right and centre! FFS, TESCO know how many bog rolls I have bought over the last two years on their nasty little customer database, you can't tell me some tech giant that's been in the business of information processing for 30 years can't make some rough guess to within 250,000, how many units they will need to shift in any given country?
Breaking news, just in....
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Apple launch a new iPhone with insufficient stock to meet demand
Quote "We do not purposely create a shortage for buzz,"
Yeah! I believe in fairies too!!
The semiconductor industry does not have enough capacity.
I have worked in the industry for about thirty years. When the downturn started a lot of the fabs were closed and the senior employees were laid off to save money. Everybody is trying to ramp up. Part of the problems is the equipment suppliers laid off a lot of people too. And they are have trouble getting the parts and support to the manufacturers which is causing even more of a lag time.
I believe that Apple is having trouble getting parts to manufacture their products.
Mine is the one with the fab suit in it.
It works for De Beers
"The idea that restricting supply somehow increases demand is utter bunk fueled by a complete lack of understanding of economics. Every consumer who walks into an Apple store wanting to buy an iPad and walks out without one is a customer who might go across the street and buy a netbook"
It works for De Beers. People could buy other gems or artificial diamonds, but they don't. And, a more appropriate comparison to Apple, it works for fashion houses.
Poor Foxconn workers
"Well, Cook may not being working "around the clock" himself, but the workers in the Shenzhen, China mega-factories of Apple's main assembler, Foxconn, most certainly are — at least when they're not constrained by a shortage of parts."
Or the odd suicide every few weeks.
I can't believe people could have to work in conditions like that to produce iphones and ipads for the biggest tech company in the world (not in terms of profit)
Suicides? Don't worry we'll put a net up and give them a slight pay increase
I'm sure Apple would like to forecast 100% accurately. They can't - no-one can. They have a choice to be optimistic or pessimistic. As has been pointed out above, from a cash-flow perspective, under-forecasting is better, but only within a narrow margin. If that has the happy side-effect of creating a demand-driven buzz, so much the better.
'Always leave 'em wanting more' - first rule of James-Brown-onomics
Well I will have to admit I was really looking forward to the IPAD I had ordered.
After getting it I was supremely disappointed for a variety of reasons.
The keyboard is a PITA to use (stylus or no stylus).
The readability is average I would say. This may have to do with my eyesight than with the product.
The hidden prerequisite of 10.5 was the the worst mistake Apple made. Not all of us are in a position to upgrade the OS. All the media print and video ads just said MACOSX. I will admit that way down in several layers of online information it did say 10.5 however the advertising is incorrect in my opinion.
The damn thing came with essentially no instructions and one had to guess how to get everything hooked up. The small fine print of the 3X4 paper in such a small font made the document useless unless you go out and buy a magnifying glass (another $15 hidden cost).
Even after reading it one was still lost. I was lucky to have a friend that was able to second guess Apple. I would have returned it if he hadn't come to my aid.
After a month of using it, I do not care for it. This is probably my issue but the thing is just too damn small and like I said above the key board is useless.
I still have not bought a single book or app as the 10.5 requirement makes it not worth firing up 10.5 just for this.
The $900+ (US) just went down the toilet.
NEVER again will I buy another piece of Apple hardware.
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