Saturday, March 12, 2011

The retail distribution strategy of Apple INC or No iPad for you

Economic theory states that in order for a sale to occur, there must be 3 factors: The seller must have product to sell and the buyer must be willing and able to purchase the product. I want an iPad 2. I have the money to purchase an iPad 2. But I do not have an iPad 2. And I'm unlikely to get one in the next week.

Why? Because Apple stores citywide(I'm in Las Vegas), are totally sold out. And the stores won't receive any more until Monday at the earliest. Now, I understand fully that demand for the iPad 2 would likely be at historically high levels for months on end, just like it did for the original. But this is different. When you know that based on prior history that the demand level at launch was be X, it's logical to imply that the demand for the next generation of the product will at least match X, market conditions being equal. So it's highly unlikely that the demand levels took Apple by surprise. From a manufacturing perspective, the factories in Shenzhen have been working 24/7 and Apple has locked up all the manufacturing capacity it needs. It also knows how to ship products in large volume.

Please let me make clear that I have no inside information about Apple, it's supply chain, or it's retail policies. Having said that, I think that the most plausible reason that Apple is delaying the roll out of the iPad is because they can. There exists a long and storied history of businesses that have flipped the script on the usual customer service dynamic. And have thrived in doing so. Basically, Apple has decided that they will sell these devices on their terms because they have a proven history that people will buy at whatever price Apple feels like selling. They have a product that people want and rather than sell them as fast as possible, they'd rather have a steady stream of profits. In other words, they'd rather have 3 or 4 very good quarters, than 1 fantastically amazing quarter, 2 very good quarters, and 1 ok quarter until the iPad 3 launches.(As an aside, Apple need not worry about the holday quarter. They'll do just fine without doing a new iPad until next year.) It's become akin to the Soup Nazi episode on Seinfeld.

While I can fully understand this logic in most places, this is Las Vegas. And they ran out a full 10 hours before the stores close. That means that for the next 10 hours people came in to the store, played with the demo iPad units, and fell in love with the product enough to buy it. How many scores of sales did they miss out on? This is a unique town. People come here from all over the planet to relax, have fun and do things they wouldn't dare at home. That's a major reason why I moved here. And yet, Apple, in their infinite wisdom decided to leave what could be tens or even hundreds of thousands of dollars on the table. There are few rules in sales, but one that is as old as time itself is you don't leave money on the table. Apple could've charged more for the iPad 2. Their policies would certainly indicate that was the goal. But Steve and friends instead decided to drastically limit the supply of their product, without the resultant increase in price. Why? Ultimately I don't know. But I do know it's very disheartening to go to the Apple store expecting to get a new iPad, only to have the young lady at the store say "No iPad for you!" And so there we leave this discussion. For now at least, no iPad for me. :(

If you like rants like this and would like them in slightly smaller doses, you can follow me on twitter. Thanks for reading, and feel free to comment.

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