Network effects and the Iphone 7: Perceived Demand
The IPhone 7 and 7 plus were released on September 16th, 2016, around the same time as previous iPhones. Much like its predecessors, the iPhone 7 saw high demand in the first few weeks, comparable to that of the iPhone 6. Stores ran out of stock in many areas of the world, and prospects looked good for the new release. However, new sources suggest that iPhone sales may have peaked earlier than expected. KGI Securities analyst Ming-Chi Kuo claims that overall iPhone shipments have peaked, and shipment forecasts will be revised downward due to decreased demand.
The decreased demand comes as a surprise to many, for iPhones have historically been very well-received by the market. In fact, stores all around the nation have sold out of the iPhone 7, and in many areas during the first week, it was near-impossible to buy one in stores. In retrospect, it may be easy to understand the rapid decline from booming demand to a demand shortage in the context of network effects and product network effects.
According to KGI securities analyst Ming-Chi Kuo, the reason behind the iPhone 7 selling out in-stores is not completely due to its high demand, but also is attributed to its low stocks. Apple intentionally limited the supply of the phone in certain stores. Perhaps this is due to a sense of caution, but more likely, it is due to Apple’s desire to create the impression that the iPhone 7 is high in demand. The phenomenon of selling-out in stores spreads through news outlets and other sources and creates the impression that the iPhone is a desirable product. As we learned in class, if people believe that there is a higher fraction of the population using the product than there actually is, then there is upwards pressure on the product and more people continue to buy it.
Whether this tactic has worked in Apple’s favor is too early to tell. It certainly seems as though sales are dropping, but smaller shipments are not necessarily indicative of lower sales. Apple’s maneuver may very well have been the push they needed to cut into Android’s share of the market.
Source: http://bgr.com/2016/11/15/iphone-7-sales-figures-kgi/