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Latent Demand: Apple's Trillion Dollar Secret

September 27, 2012, 12:00 AM
Ipad

If Apple's growth continues on its current pace, The New York Times recently pointed out, the company will be worth $1 trillion on April 9, 2015 at 11am. Apple would be the first company ever to reach this valuation. 

According to Steve Carlotti, CEO of The Cambridge Group, Apple's success is due to the company's ability to "close the gap between the current product that’s bought and the ideal product that the consumer would like to use," a concept known as latent demand. 

What's the Big Idea? 

Carlotti outlines three types of demand:

Current demand: "If you look at the world today, that’s the demand that you see.  So you see people buying things, and that’s the demand that you see."  

Emerging demand: "What you can just start to see if you look at the world the right way. You’re still looking at what people are doing, but you can just start to see the trend.  

Latent demand: "The demand that you can’t yet see.  It is the gap between what the consumer wants, and what they use."

Here are some examples of products where there is latent demand: I want to eat bacon that is really good for me. I want a computer with a battery that lasts a long time. 

In other words, if the consumer is "hiring a product or a service to do a job for them," Carlotti says, "latent demand is the gap between the product they hire today and the product they would ideally like to hire.” And if you, as a company, can figure out how to close the gap between that current product that’s bought and the ideal product that the consumer would like to use, that is, in fact, the secret to growth."

In the video below, Carlotti shows how two Apple products -- iTunes and the iPad -- are a perfect illustration of latent demand. 

Watch the video here:

What's the Significance?

Napster represented the first time that "music was publically unbundled and curated."What iTunes proved, according to Carlotti, "is that the consumer was willing to pay for that. It didn’t need to be free, because the value that was created through unbundling and curating was high enough that consumers were actually willing to pay."

Carlotti also points to the iPad as "a great example of gaps within markets." He tells Big Think that Apple was able to find a gap in the market as a way of uncovering latent demand:

So you have the cellphone market on the one hand, you have the PC market on the other hand, and the iPad is a great example of something that exists in the gap in a market.  So there are dissatisfiers in both the cell phone market for many users, and in the PC market.  In the cellphone market, many users will say, “Well the screen is too small.  It’s hard to use.  It’s hard to read.  I can’t really watch video on it because the video’s very small.  And for a long time, there was this battle between the PC platform and the cellphone platform as to who was going to compete for video.  Enter iPad, which is a great example of finding the gap.  It’s sort of smartphone plus, at the same time it’s kind of PC minus.  And interestingly, if you watch consumers use their iPad, there are consumers who use their iPad a lot like a phone.  They search on it, they Skype on it, in Apple’s case they FaceTime on it.  But they use their iPad much like a phone.  It’s primarily a sort of data acquisition and communication device.  There are also consumers who use their iPad much more like a PC.  It’s a productivity device.  They’ve got a keyboard connected to it.  They’re actually very engaged in sort of the transmission and creation of content, much more so than they are in the portability and sort of communication element of it.

Image courtesy of Shutterstock

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