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…
Associate Professor of Marketing
Stillman School of Business
Seton Hall University