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Demand Is the Alpha Dog, Not Supply

{complink 379|Apple Inc.} didn't invent either the smartphone or the tablet PC. It just created such hot demand for its iPhones and iPads that customers now know every upgrade comes with a “limited supply” tag.

On Thursday, I visited a mall on the outskirts of Chicago, and a store attendant told me no outlet in the US had the newly introduced iPhone 4S in stock. It's a problem Apple rivals must wish they could experience, even if only in their dreams. How does Apple do it? I offer this simple explanation: Apple creates a need (demand) for its products, and then it meets that need (supply). Its rivals, on the other hand, manufacture (supply) their products and then go in search of buyers (demand).

Dean Kamen, founder of DEKA Research and Development Corp., helped me reach that understanding with a presentation at the annual executive meeting of the Electronic Components Industry Association in Chicago this week. Kamen, an inventor with hundreds of patents to his credit, said this while talking about getting students interested in technology careers: “It's not about supply and demand. It's about demand and supply. We create demand for technology superstars and get the supply of engineering graduates.”

It's a simple theory, but it works for Apple. The company didn't care that smartphones existed before it introduced the iPhone in 2007, and it didn't doubt that it would be able to sell its phones once they were manufactured. That's because the smartphone suppliers at the time — Nokia and Sony Ericsson — were doing such a shoddy job of creating demand for their products. If you think I am being unfair to its rivals, please tell me if the term “smartphone” was as ubiquitous in 2007 as it is today.

What did Apple do? It created a product for which demand was guaranteed; for millions worldwide, the iPhone was a must-have. Once the demand had been assured, Apple got contractors to make (supply) the iPhone. The strategy worked so well that Apple repeated it with iTunes and with the iPad tablet, another market segment that had been around forever. Today, nobody remembers that other tablets preceded the iPad. Again, Apple created demand for its product and then had {complink 2125|Foxconn Electronics Inc.} make millions of units. And again, the result was a huge sellout.

By contrast, both {complink 2376|Hewlett-Packard Co.} and {complink 4644|Research In Motion Ltd. (RIM)} found out consumers were buying a class of products called tablets and asked contractors to make some. That essentially was how we got the TouchPad from HP and the BlackBerry PlayBook from RIM. They made the products, supplied them to retailers, and waited for demand to pour in. It didn't. The TouchPad bombed. HP pulled it and exited the sector, and demand for the PlayBook cratered. (See: RIM Needs to Dump the PlayBook.)

Recently, RIM announced in a blog post that it would delay the launch of version 2.0 of its BlackBerry PlayBook operating system to February 2012. This sentence from the blog is instructive:

As much as we'd love to have it in your hands today, we've made the difficult decision to wait to launch BlackBerry PlayBook OS 2.0 until we are confident we have fully met the expectations of our developers, enterprise customers and end-users.

Does this mean RIM finally understands that it needs to have a product with somewhat assured demand before assuring supply? I hope so.

Another product launch, this time from Nokia, underlines the importance of creating demand before guaranteeing supply. This week, the company introduced its first Windows OS-based smartphone, the Lumia 710. It didn't make me feel illuminated, but one analyst felt completely different. Here's what Saverio Romeo of {complink 9171|Frost & Sullivan} had to say in an email about the Lumia and Nokia's overall strategy:

The Nokia Lumia is not just a Windows phone. It brings together some key Nokia technologies such as location, the design tradition of Nokia, the software from Nokia ecosystem and Mango from Microsoft. I had what I wanted; a clear strategy on the future directions of Nokia. On one side, there is a strong focus on emerging markets where the future opportunities of the mobile industry lie. On the other side, there is a decisive move into the smart mobile device battleground in the developed world with the clear intention to be back and as big as in the past.

I hope Nokia now gets that winning in the electronics market is all about demand and supply, rather than supply and demand.

23 comments on “Demand Is the Alpha Dog, Not Supply

  1. Houngbo_Hospice
    October 28, 2011

    Apple has been able to create demand with good products that most of its competitors have not been able to match yet. The day Apple's products won't be “innovative” again, demand will decrease for sure. We are still waiting for the iPhone or the iPad killers from other manufacturers. Until then Apple products will still sell like hot cake. 

  2. Houngbo_Hospice
    October 28, 2011

    “Samsung Electronics has overtaken Apple to become the world’s largest seller of smartphones as shipments rose 40 per cent in the third quarter, shaking off legal wrangling between the two companies over technology patents.” reports Song Jung  today in his blog Samsung beats Apple in mobile stake.

    It seems that Apple's conpetitors are enjoying the “Demand Is the Alpha Dog” paradigm as well. 

  3. Ms. Daisy
    October 28, 2011

    @Hospice you said it best. Good products that are user friendly create the demand that competitors try to match. The latter also benefit from the demand the trailblazers created too.

  4. prabhakar_deosthali
    October 29, 2011

    Apart from having good products that will have the assured demand , the company also need to have assured supply of quality components , in time, to meet the demand. If the timing is not matched then all that assured emand will wilt away and those prospective custmers will start looking at your competitor's products.

    So having a close knit supply network will guarantee the successful meeting of the demand.

  5. Anna Young
    October 29, 2011

    @Hospice_Houngbo, Its not surprising. I wouldn't expect Apple's competitors to just fold their arms and not seek a strategic move to not only catch up but compete with Apple.

    The theory of demand and supply strategy employed by Apple seems to be catching now, that even RIM and Nokia appeared to have integrated this in their marketing strategies. I hope it works for them too as it did Apple.

  6. Susan Fourtané
    October 29, 2011

    I watched the Nokia World with curiosity and expectation. It seemed pretty clear to me that Nokia has a new strategy that might work this time. Creating demand and supply afterwards sounds like the most logical decision, especially these days when consumers think twice before buying a new and expensive product. 

    Nokia seems to be more focused on supplying the youngest users in developing countries and has spent some time having close ups, creating demand. 

    -Susan

  7. Eldredge
    October 29, 2011

    I would add one more step. They have to create the product (assuring that the product is producable with acceptable quality), create the demand, and meet the supply.

  8. Susan Fourtané
    October 29, 2011

    Hi, HH 

    Exactly. I couldn't have said it better. 🙂 

    Apple products sell like hot cakes because they are not only innovative but also fast, with great features and reliable. At the end of the day, you are always happy with your investment on an Apple product. 

    -Susan 

  9. Backorder
    October 29, 2011

    Bolaji, you mention the strategy to create demand before supplying the product. I agree this sounds like a strong marketing manouver. But I am intrigued how a product company can create of identify clear and quantified demand before it actually decides to manufacture the product. What is it that Apple has been doing differently. Maybe, it was the Jobs effect where he presented every new product in the most charismatic way possible? How much did he have an impact on creating an exclusive demand for Apple?

     

  10. Ms. Daisy
    October 29, 2011

    I am of the opinion that the demand for products is often created by improvement in functionality and portability of existing appliances or by creation of a brand new product to meet a need in daily functioning of people in general. Either method ends with a new product that creates enthusiasm and the drive for demand for the product. A little charisma in the presentation of the product (hype!) fuels the enthusiasm for the product.

  11. Tim Votapka
    October 29, 2011

    I often advise clients to broaden their definition of the term “product.” In other words, everyone throughout the organization has a product to deliver; an order processes, an assembly completed, satisfied customers willing to refer others, etc. Having the proper surveying in place assures another key product – market intelligence. When you know what your customer base needs and wants, then you know how to create demand or reach whether you're the first to market or not.

  12. Taimoor Zubar
    October 30, 2011

    I think in the case of Apple, it wasn't so much innovation on Apple's part in the design of iPhone as was the influence of the brand name and the status symbol of owning and iPhone. Apple's innovation was restricted to touch screen, better display and a sleek design. What triggered the viral demand was when it became cool to own an iPhone and then on it became a must-have.

  13. Himanshugupta
    October 30, 2011

    @Tvotapka, Apple (or atleast Steve jobs) opted for a different approach for their products. Instead of finding out what consumer need through market research they have delivered products based on their guts. Now, i do not know what is the right strategy and how companies start a new product development. But on thing is sure: consumer is as confused in defining what they want.

  14. Himanshugupta
    October 30, 2011

    @TaimoorZ, i completely agree with your comments. Apple's products are as innovative as anyone else's (may be a bit different kind of innovative). But being cool associated with Apple products is a huge advantage. 

  15. Backorder
    October 30, 2011

    Agreed, TaimooZ. What I wonder though is why it suddently became cool to own an Apple device. It was indeed smart combination of new features but I fail to understand how it turned into something of an exclusive club, which everyone wanted to be part of. Similar was the blackberry fad too.

  16. Clairvoyant
    October 30, 2011

    Backorder, I think it has a lot to do with the marketing strategies Apple uses and the reaction of consumers towards Apple products.

  17. Tim Votapka
    October 30, 2011

    You're right. Apple's strategy has been different from just about any other device manufacturer. They certainly don't “leave it up to the consumer” either. Yet, how many times have we seen an Apple release that seemed to fit a need almost before it was expressed? That's what's always impressed me about the company's history.

  18. Backorder
    October 31, 2011

    It's interesting how the Apple design paradigm has endured over a generation of products right from iPod to Ipod touch, iPhone and now iPad. Similar innovative paradigms with Motorola of the Razr legacy and RIM's blackberry have exhausted their draw and are in urgent need of a revival. 

  19. Eldredge
    October 31, 2011

    I would agree – marketing the product is as much the genious of Apple as the design of teh product itself.

  20. Anne
    October 31, 2011

    The theory of Apple's operation is indeed theory of demand and supply.  Their brand personality is knowing what people needs, it's about simplicity and removal of complexity from people's lives, and also people driven product design.

  21. JADEN
    October 31, 2011

    Markets for new innovation products do not exist, they have to be created and defined, that's what Apple does. The company has to be creating the product and defining its market at the same time in the same process.  Apple has never been afraid of redefining its market, breaking through well-worn product convention, because it believes in creating and owning whole new markets, rather than competing in existing and crowded one.

  22. Barbara Jorgensen
    October 31, 2011

    It seems obvious once it is pointed out, but Apple's creation of its ecosystem–the iStore–for its products remains a brilliant move. Everyone is left to play catch-up. Now it is the apps for the iPhone. I'm not sure what the next demand-creator will be, but you can be srue Apple is already figuring it out.

  23. electronics862
    October 31, 2011

    Thanks for the post Bolaji. Apple always came up with certain goals where they met with out mistake. There products Iphone, Ipad are still the hot cakes in the market. Eventhough they have competetion from Samsung, Blackberry,HP, Sony ericson they still top the smartphone and Ipad market. Nobody yet reached the quality of apple products.

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