Why Apple CEO Tim Cook sees cannibalization as a huge opportunity

“Our base philosophy is to never fear cannibalization. If we do, somebody else will just cannibalize it and so we never fear it.” That’s Apple CEO Tim Cook for you telling investors why he is unfazed by the iPads cannibalizing Mac sales and the iPad mini, in turn cannibalizing iPad sales. While other companies would generally ensure that its latest products don’t cannibalize existing product lines by omitting certain features or pricing them in a way that users automatically choose the product that gives them better margins at the cost of the user’s experience. Apple, on the other hand, seems to be always on the look out for such products and almost forces cannibalization of product segments, much before its time. The mantra being cannibalization is inevitable, might as well do it.

Apple could have continued to keep selling the iPad with Retina Display during the holiday season and could have done without an iPad mini. But it launched one nevertheless and earnings figures released by Apple show that the iPad mini was probably the most popular iPad. Cook mentioned during the call that Apple could have sold even more iPads but couldn’t manufacture enough iPad minis. The iPad mini has a lower ASP and lured many consumers who would have anyway bought a more expensive iPad had the iPad mini not existed.

Other companies usually cut corners to keep some margins and lower the price of the product too, implying indirectly that to get the best experience users will have to buy their most expensive product. Apple wants people to get the best experience when they pick up any Apple product, be it the $49 iPod Shuffle or the $2,799 MacBook Pro with a Retina Display.

“I think the other thing for us maybe not for others, but for us is if somebody buys an iPad mini or an iPad and it’s their first Apple product, we had great experience through the years of knowing that when somebody buys their first Apple product that a percentage of these people wind up buying another type of Apple product. And so if you remember we had termed the halo effect for some time with the iPod, with the Mac, we are very confident that, that will happen and we are seeing some evidence of that on the iPad as well. And so I see cannibalization as a huge opportunity,” Cook explained.

Another key reason for Apple actually being happy about the iPad cannibalizing the Mac business is its market share in both the segments. While Microsoft dominates the PC industry, Apple literally owns the tablet business. With PC sales shrinking and if PC’s are being replaced by tablets, it is only good news for Apple.

“We know that iPad will cannibalize some Macs but that doesn’t worry us. On iPad, in particular, we have the mother of all opportunities here, because the Windows market is much, much larger than the Mac market is. And I think it is clear that it’s already cannibalizing some and I think there is a tremendous amount of an opportunity there.” Cook said during the earnings call.

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