iPad Mini: More Pricing Thoughts

Hola Todos!

As I mentioned in the last post on this topic, I was very surprised Apple went for the $329 price point for the entry-level iPad Mini – it was too high I thought. Beth Quartel asked a question in the last post:

Dr. Dan-o,

I do agree with you that the price is too high, but maybe part of Apple’s decision was they didn’t want the mini-iPad to cannibalize sales from the larger iPad? Based on the pricing decision, I think they were only looking inward rather than looking at the competitive marketplace.

Beth – you, me and everyone on the planet except those who have the company names Amazon, Google, Motorola, Samsung, or Microsoft on their business cards thought Apple priced the iPad Mini too high.  Here’s my thoughts from the last 24 hours as I have tried to think of every logical reason why Apple aimed so high price-wise for the iPad Mini.

-Cannibalization is clearly one argument.  Not only could the Mini cannibalize some of the $399 and $499 iPad sales, it also has the potential to eat into some of the new iPod Touch sales at $299.  That said, Apple has never been shy about cannibalization as long as it was Apple eating into Apple’s sales and not some other competitor.

-The Asian supply chain is also another plausible argument.  It is well known, that Apple was having problems sourcing and manufacturing the iPad Mini so I doubt the retail channel numbers are has high as Apple wanted them to be.  One way to limit demand is to raise price.

-Related to this, the Apple faithful tend to be agnostic when it comes to price and Apple could move a number of units to the diehards for the first 6 to 12 months on the market.  When that demand dries up, Apple could drop price to increase demand for those who have been sitting on the sidelines.

-The higher price (and therefore higher margins) will help with the initial R & D costs with first time development of the new product.  Manufacturing of scale effects will kick in with iPad Mini 2 and we will see a lower price.

-Apple could also have numbers and forecasts indicating that the tablet marketplace – particularly the smaller 7-inch segment of the marketplace – will not grow as fast as most analysts think over the next 12 months.  Why not take a better margin at $329 with lower volume and then be ready with supply chain issues remedied and economies of scale kicked in?

-In today’s 4th quarter earnings call, we were not surprised that the pricing of the iPad Mini was one of the earliest questions.  In response, CFO Peter Oppenheimer towed the standard Apple line listing the “profound” difference in quality between the Mini and the competition, stating its “more expensive to build,” and finally, “gross margin is significantly below” corporate average – adding “hoping to become more efficient.” Nothing new in those comments.

Not that any of the items listed above are mutually exclusive but if there was Asian supply chain problems, no economies of scale (e.g., margins are lower now), competition was very weak (e.g., at least 12 months away from something good), and a certain percentage of the Apple faithful will buy something new at a fairly high price, Apple could decide to be very conservative with pricing the iPad Mini the first go around.  Moreover, this is very Apple thing to do this – remember the first iPhone started at $499.

Mark my words – the price of the Mini will drop by this time next year – either $279 or $299.  In addition, the price will drop to at least $249 for the iPod Touch as well as this product shares many of the same parts as the iPhone 5; more supply chain/economies of scale issues worked out by then.

The competition has a whole year to breathe as Apple gave them 12 months to figure out their next chess move.  Personally, if I were in the Apple war room, I would have advocated to go in for the kill – go for the jugular – margins be dammed.  At $249, there would be no competition to talk about for 2013 Christmas season. (Well perhaps Amazon – Bezos lives on razor thin margins).

Something to think about today…

Best

Dr. Dan-o

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

 

 

 

 

 

iPad Mini: Apple Messed up the Pricing

Hola Todos!

So much had been leaked about the iPad mini, that the only real mystery yesterday was how much was it going to cost? True, true, we were not sure what the name was going to be but the price was the key piece of information that was unknown.

When Phil Schiller announced it at the keynote yesterday (90 second version here – full-length version here), I could not believe my eyes and the first thought that popped into my head was that Apple blew it.

This was an excellent opportunity for Apple to go for the jugular and practically wipe out the 7-inch tablet competition.  I didn’t think Apple had to match the $199 price point – – $249 is still close enough to make anyone think twice about spending $200 bucks and trading off that much product quality and performance.  Even $299 would have psychologically kept the price under $300 bucks therefore being more of a threat to competition.  At $329, Google, Nook and Amazon breathed A LOT deeper yesterday, as they know they still have some breathing room at the entry-level price point.

As I say in class, the #1 rule in pricing is “Price what the market will bear” meaning the marketplace should determine how high or how low something should be priced to potential buyers.  Apple made a clear decision to forgo volume for margin and chose to ignore the marketplace for the most part, therefore aiming for lower volume with higher margin.  While that practice has been the traditional modus operandi at Apple, Apple has made exceptions in the past in marketplaces where volume/growth is exceptional (read=smartphones) and the marketplace pushed Apple to price more to market levels.

Perhaps the table market is not ready to explode and scale and Apple still thinks they have another 12 to 18 months to suck up fatter margins before some additional economies of scale kicks in.  I will be stunned if the entry price was NOT under $300 bucks this time next year when the market is gowning substantially faster.

Finally, I’m sure there were a lot of cash strapped school districts that were disappointed yesterday.  In essence, the entry price point did not get much better for them to be able to swap books for iPads. As usual, Philip Elmer-DeWitt of the Apple 2.0 blog is on top of this.  He posted two excellent columns in the past 24 hours; (1) illustrating the radical drop in Apple’s stock right after the price announcement and (2) the analysts’ reactions/comments to iPad mini and its high price point.  I’m looking forward to Apple’s earnings call on Thursday because I know CEO Time Cook will field a lot of questions (if not the first question) on why Apple picked the $329 price point.

Something to think about today…

Best regards,

Dr. Dan-o

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

 

 

 

Social and TV: Coming of Age

Hola Todos!

I have been blurting about social TV in class for some time now but to my surprise, there has been few solid articles addressing the topic.  Thankfully, Mike Mikho of Big Fuel in NYC did a nice thought piece in Advertising Age that provides a number of nuggets such as: “Consider social as an amplification tool for a TV-heavy marketing plan and plug it into a media-mix model” and “Broadcast marketers are starting to create engaging, sharable content to leverage the long-term benefits of social, and social marketers are working more closely with broadcast teams to amplify reach and drive calls to action.

Something interesting to check out today…

Best regards,

Dr. Dan-o

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

 

 

 

 

MAKE Your New Years Resolution Stick! – Update: October Edition

Hola Todos!

It’s been a while since I’ve posted an update on my new years resolutions.  The lack of new updates – I’d say – is an indication to how hard it’s to stay on top of your goals and to keep important goals in the forefront.  There’s less than a quarter of the year left so here’s an update on my Big 5:

#1 – Focus & Simplify – of all the goals, this one has been the hardest.  As the year progressed, many, many, MANY things get thrown your way to push you off course.  Most of them are tasks you did not plan for in advance and most of them are tasks you did not want to be involved with in the first place.

That said, life happens and you can’t avoid unexpected stuff.  The last 3 to 4 months has had a lot of unexpected stuff.  In my eyes, the most limited resource we have is time and I always go back, regardless of how deep my to–do list is, and set those Big Rocks First.  If the Big Rocks to not get done, it really doesn’t matter what else gets accomplished.

#2 – I need 2 academic research articles published this year – As an untenured Seton Hall professor, I need a minimum of three academic articles to be reviewed for tenure.   I’m happy to say that I wrapped up article #2 as I received an acceptance letter from a journal in mid-September.  That leaves me one short with 12 months to go – which is not a whole lot of time in the academic world.  I do have one other article in the review process and I have a second article that will be sent into the review process before the end of this semester.  As I was telling a colleague yesterday, I have two horses to in the race and I need one of them to break the tape but October 1st 2013.

#3 – Run the Broad Street Run – I did run the 10 Mile Broad Street Run in May.  It wasn’t pretty but I finished.  More importantly, I’ve stayed in shape playing in a men’s soccer pick up league, which is a lot of fun.  I think the challenge is what to do over the winter.  In preparing for Broad Street, I broke my treadmill in March. I have a few more weeks for soccer so I’m going to have to address this issue sometime in the near future.  It’s not a Big Rock at the moment.

#4 – Take a Deep Dive into Twitter – I am happy to say that there has been some progress on this front.  I have found a comfortable medium with Twitter and I do not feel the need to be on it 24/7 as its not email.  However, I do have some meaningful connections that happened because of Twitter so I’d say is been a good experience.  I have been doing more with Twitter lists to separate my stream as too many people just blurt and broadcast and I don’t need to see all of those tweets.  With Twitter lists, I do pay attention to a smaller set of people, which is much easier to manage.

#5 – Double my DigNuggetville Traffic – This is no question that my traffic is up compared to this time last year.  The upside of posting for a year is that older posts have picked up some Google-Juice and are consistently receiving daily hits.  I’m not sure I’m exactly double as I have to take a closer look but traffic is up and I’m happy.  Research articles are more important but one day, I will have more time to pump into traffic building strategies.

Thank you all for listening.  Please drop me a line if you have any thoughts and/or questions.

Best regards,

Dr. Dan-o

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

 

 

 

We Learn By Doing…

Hola Todos!

Being an educator, I am passionate about learning theory as I care deeply about student learning in my classroom.  I have an explicit teaching philosophy of which I have blogged about on DigNuggetville (see here and here).

In academic speak, the worldview articulated in my teaching philosophy is knowledge is constructed, not received.  Perhaps a simpler way to say the same thing is we learn by doing.

Yesterday, we had the pleasure of having Joseph Rafanelli, one of my former MBA students from Seton Hall University and Ticket Sales Manager, as well as Joe’s boss Bryan Iwicki, VP of Ticket Operations and Dave Marek, Sr. VP of Marketing for the Somerset Patriots baseball team in my social media class.

Earlier in the semester, the students were divided up into teams and over a four-week period, the teams were charged with developing five novel social media strategies to imbue participation with the Patriots fans.  So yesterday, the students get to meet Joe, Bryan and Dave in person to discuss their ideas – in person.  I’m all about nuggets (aka takeaways) and I hope that both the students and the Patriots executives got a nugget or two from the experience.

We learn by doing and the students didn’t just do some random assignment for their professor.  They did something real that they could add to their resume.  I’d like to say thanks to both the students and the Patriots team for their time and effort in this project.

Best regards

Dr. Dan-o,

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

 

Join the World’s Biggest Huddle: The Super Bowl is coming to NJ!

Hola Todos!

The 2014 Super Bowl will be played in Giants/Jets Met Life Stadium – the first cold weather Super Bowl in decades.  I’m happy to say I’ll be part of this event as I am a member of the Social Media Team for the Super Bowl Host Committee.  We had our first meeting in mid-September and we will have our next one towards the end of October.

I’ll have more to say about the Social Media Team as we progress but for now, please like our Facebook page, follow us on Twitter and check out the video on our YouTube channel.  How often do you see the Statue of Liberty with shoulder pads?

 

Best regards

Dr. Dan-o

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

 

 

The Legacy of Steve Jobs: One-Year Out…

Hola Todos!

Today marks the one-year anniversary of the passing of Steve Jobs and debating his legacy has been a hot topic this week.  Numerous media outlets have commented on the state of Apple since his passing and here’s a short list round-up:

How Steve Jobs’ Legacy has Changed, by Brandon Griggs of CNN

Apple’s Post-Steve Tipping Point, by David Goldman of CNN.money.com

How Apple has changed under Tim Cook, by Heather Kelly of CNN

Mapping A Path Out of Steve Jobs Shadow, by Brad Stone, Adam Satariano, and Peter Burrows of Business Week

A journalist contacted me earlier this week to reflect on Steve Jobs legacy.  The way I look at it, Mr. Jobs had many strengths, as well as, many weaknesses and the obvious accolades to Mr. Jobs’ legacy are the numerous products including the ground-breaking iMac, iPod, iPhone, and iPad from his second term at Apple.  However, I feel Steve Jobs had a much more profound impact than just those products and its hiding in plain sight; it is Apple Inc. itself.

Steve Jobs’ passion was creating revolutionary products that had the potential “to make a dent in the universe” but his passion to create a company that was built to last rivaled that of his focus on products.  The lessons from his ouster from Apple, the trials and tribulations from creating and running NeXT, and ultimately those experiences gleamed at Pixar, were imbued into the Apple we know today.  Think about this; by the mid-2000s Apple’s culture was so strong that the CEO took not one, not two but three medical leaves before stepping down and Apple did not miss a beat. How many companies can you think of that has a culture that strong?

Interestingly, although Steve Jobs created this culture, it was best articulated by current CEO Tim Cook in 2009, well before he knew he would replace Steve Jobs at CEO:

“We believe we are on the face of the Earth to make great products, and that’s not changing.  We are constantly focused on innovating.  We believe in the simple and not the complex.  We believe that we need to own and control the primary technologies behind the products that we make, and participate only in markets where we can make a significant contribution.  We believe in saying no to thousands of projects, so that we can really focus on the few that are truly important and meaningful to us.  We believe in deep collaboration and cross-pollination of our groups, which allow us to innovate in a way that others cannot.  And frankly, we don’t settle for anything less than excellence in every group in the company, and we have the self-honesty to admit when we’re wrong and the courage to change.  And I think, regardless of who is in the job, those values are so embedded in this company that Apple will do extremely well” (Isaacson 2011, pg. 488).

With Cook, Ive, Schiller, Forstall, Cue and team, Apple has the deepest bench in tech.   Moreover, this team has Jobs’ DNA described above in their blood and they will pass that passion on to future team members.

While we will talk about the products and gawk at the sales and margins of those products now, it’s the Apple of 2014 and beyond that will be most interesting to watch.  Apple always worked 18 to 36 months out on all their concrete plans.  The iPhone 4s, iPhone 5, new iPod Touch, new iPad, iBooks, the future iPad mini (probably next month), the future Apple TV box (probably early to mid 2013) and even the currently unpopular Siri and Apple Maps all have Steve Jobs’ finger prints all over them.

While I understand that CEO Tim Cook is often criticized that he is steering a ship that is still zooming along with the winds of Steve Jobs blowing on its back, however, I will not be surprised when Apple is still rolling out critically acclaimed and consumer loving products in 2014 and 2015 that have Cook and teams’ fingerprints all over them.  That’s the company Steve Jobs built and I hope there is a sufficient tribute to the man when they move into their circle-shaped, space-ship looking headquarters in a few years.

Something to think about today…

Best regards,

Dr. Dan-o

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

 

 

Who is the next Steve Jobs?

Hola Todos!

Well, I understand where this is coming from, however, its still baffles me every time I read a story trying to answer this question.  It’s a great headline and the purpose of this headline is to generate interest and therefore page views.  This week happens to be the 1-year anniversary of the passing of Steve Jobs and many business journalists are treating the opportunity as a means to stir up…something.

Dan Gross’s article on CNNmoney.com is the latest to run with this trope.  It’s a nice list of the usual suspects (Jeff Bezos, Mark Zuckerberg, Tim Cook, Jonathan Ive, & Elon Musk) as well as a few interesting choices (Marissa Mayer, Seth Priebatsch, a brief mention of Phil Schiller). I am somewhat surprised Jack Dorsey wasn’t on his list and I guess given the Apple Maps snafu, Scott Forstall (AKA Mini Steve) was also left off the list.

But to be honest and direct, these “lists” are bullshit.  Not because no one should ever be compared to Steve Jobs but because they are disingenuous to the other people on these lists.  Bezos, Zuckerberg, Musk, and many many other creative leaders not mentioned in these round ups are leaders and leaders lead.  They have their own goals and objectives, challenges and tribulations, and they do what is best for their firm. In other words, they are leaders in their own right and a comparison to others is a fruitless exercise.

Steve Jobs had many strengths, as well as, many weaknesses, and I doubt any of the leaders on these lists have “being more like Steve Jobs” on their “to-do” list when they get up this morning.

Something to think about today…

 

Best regards,

Dr. Dan-o

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University