Tag Archives: iPad

Apple staying the course: Dr. Dan-o eats some of his own “Claim Chowder”

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Hola Todos!

Apple did have a big day yesterday as they did in fact, “have a lot to cover” (full event here).  You will not have to search far or wide to find to review today somewhere in the blogosphere (what the analysts are saying here).  I was happy to see an iPad Mini w/Retina screen.  Changing the iPad branding to “Air” was unexpected, but overall, we did not see a new product line debut.  Sometime in the near future (i.e., 12 to 18 months), we’re going to need to see something truly new from the executives in Cupertino.

That said, it is time for me to eat some of my own “Claim Chowder.” Claim chowder is when you eat your words (nod to John Gruber for coining the term).  Yesterday in the presentation, right after CEO Tim Cook stated that Apple sold 170 million iPads in 3 ½ years, he threw up some 2010 claim chowder from journalists such as, “It’s not going to revolutionize anything, it’s not going to replace netbooks” OR “Anyone who thinks it’s a game changer is a tool.”

Exactly at this time last year, I said, “Apple messed up the pricing” as I thought $329 was way too high.  In a later post, I tried to see it more from Apple’s perspective and gave a number of reasons, (i.e., R & D costs, supply chain constrains, a new form factor, etc) to why Apple priced the Mini where they did.  However, the Claim Chowder did not stop there.  In the same post, I later said, “Mark my words, the price of the Mini will drop by this time next year – either $279 or $299.”  I guess I thought I was going to be hungry in October 2013.

The only thing is truly said right last year was the axiom “You price what the market will bear.”  Although Apple does not break out sales of the larger iPad from the Mini, we know that the Mini sold very well in the past 12 months.  Moreover, competition is nowhere close to offering the quality – nor the free software (please don’t underestimate this folks, all that updated new iLife and iWorks software is a BIG BIG deal) making the Mini a fine package.  I’m not saying it’s the cheapest package, but Car and Driver magazine has been calling the BMW 3-Series one of their “10 Best” for 22 straight years – if you want the best, you going to have to pay for it.

Something to think about today…

Best regards,

Dr. Dan-o

 

Daniel M. Ladik, Ph.D.,

 

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

 

 

iPad Mini: More Pricing Thoughts

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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

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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

 

 

 

How High Will Apple’s Stock Go? Dr. Dan-o in Yahoo Finance

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Hola Todos!

A journalist asked me the other day about Apple’s rising stock price and why are buyers willing to pay such a high price for Apple’s stock. The article was post on Yahoo Finance yesterday (click here).  To put it into perspective, since February 14th when Apple CEO Tim Cook came to New York City to speak at the Golman Sachs Technology Conference (click here), Apple’s stock is up over 22%, has hit 27 new highs in 31 trading days, gained nearly $110 in the 31 trading days and its market cap has grown by more than $104 billion (click here).  What’s amazing is that $104 billion is equivalent to approximately one Amazon in market cap. WOW!

My full comments to the journalist are below including Dr. Dan-o “isms” such as “you price what the market will bear” and “consumer’s are voting with their lets.”

 

Best regards

Dr. Dan-o

 

 

 

My name is Daniel M. Ladik and I am as Associate Professor of Marketing in the Stillman School of Business at Seton Hall University.  Your request was forwarded to me as my main areas of teaching and research expertise include marketing strategy and social media/Web 2.0, as well as, personal selling and sales management.  I blog at www.dignuggetville.com.  I am also an Apple aficionado – see previous Apple comments in Forbes Magazine (click here).

When I read your request, two thoughts popped into my head.  First, the most fundamental axiom in marketing theory when it comes to pricing is “You price where the market will bear.” In other words, one should set the price of a product or service at the price where the buyers believe the deal is worth taking.  Toyota does a good job in this area with their Prius cars while GM did not with their comparable Volt car that recently halted production because too many Volts are sitting on dealership lots. The Volt should be a $25,000 car (after the $7,500 government incentive).

Second, and not independent of the first, competition of comparable products have a major impact on price.  That said, for the months of October, November and December 2011, Apple sold 15 million iPads that accounted for 9.15 billion dollars or 20% of Apple’s revenue for the quarter.  The closest competitor, Amazon’s Kindle Fire priced $300 cheaper, sold less than 4 million units during this same time period. Even at $300 more, the iPad is a superior product in every way, shape or form than anything on the market.  By the way, the iPad also outsold more expensive PCs as HP, Dell, Acer nor Lenovo sold more units that iPad for the same three months.

Until competition can come close to the value equation (i.e., you get what you pay for) that iPad offers, Apple can command that premium price. You have to understand, what Apple pays to get the product made and how much margin per unit Apple earns is not relevant to consumers, just analysts. Consumers “vote” with their wallets and it does not appear price is hindering Apple in any way.  By the way, iPad 2 was already significantly better than any other tablet on the market and it is now $100 cheaper.  This was a smart move by Apple as it protects them even more from competition from below.

On a final note, pre-orders for the “new” iPad sold out worldwide in 2 days.  Apple can justify the prices of their products because the market believes they are worth every penny.

If there are any questions or clarifications on any of the thoughts above, please call my cell this afternoon or send me an email.

 

Best regards,

Dan-o

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

daniel.ladik@shu.edu

 

“New” iPad – iPad HD – iPad 3: Could Something else be in the Pipeline?

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Hola Todos!

The other day, I received the following email from a former Seton Hall MBA student Justin Hull asking about the branding of the “new” iPad.  Justin emailed:

 

“Hey Professor! I’m enjoying the blog, thanks for sending.

Question for you.  I was driving in this morning and heard something on the news about the “iPad 3” which made me think, candidly, that Apple maybe didn’t do as good a job branding this version as with the original and the iPad 2.  I’m still confused!  I think it’s the “New iPad” but there’s a lot of reference to the iPad 3 so what’s next, the iPad 3 or the iPad 4?  Maybe there could have been more clarity from Apple.

Thought you might have some good insight – Justin Hull”

 

Thanks for the nice note Justin and to be honest, I am a little surprised by the lack of clarity by Apple myself.  Apple never does anything on a whim as their maneuvers are planned out well in advance.  Without question, the “lack of clarity” on the branding was one of the most talked about issues the day of the launch of the “new” iPad.

Here’s a few thoughts: (1) perhaps Apple is reverting back to their past branding conventions.  We’re on the 2nd or 3rd version of the MacBook Air and it’s always been called the MacBook Air.  When the iPod first came out, later updates were just called iPod.  (2) The branding convention changed for iPod, however, when new versions arrived such as the Mini, Nano, Touch, etc arrived.  Could we be seeing a different iPad model in the near future (e.g., less than 12 months?)

I have been ranting in class all semester that Apple needs to have an iPad Lite or iPad mini or iPad cheap.  Not only do they need to protect themselves from the lower end of the market such as the Amazon Fire, but also – if Apple is serious about their digital textbook initiative (and we know they are), the cash-strapped school systems and their respective financially challenged parents’ need a lower-end iPad to use for those digital textbook.

Yes I was happy to see iPad 2 stick around at $100 less than previously but at the same time, Apple traditional expands their product lines (both lower and high price points) around the three-year mark as they did with iPod. They did it with iPhone and we now have 3GS (free with a 2 year contract), iPhone ($99 with a 2 year contract), and iPhone 4S ($199 with a 2 year contract).

Finally, Apple is on a two-year major update cycle with both iPhone and iPad with an evolutionary step in between.  That said, iPhone 4S was an evolutionary step and the “new” iPad was an evolutionary step.  If Apple stays to convention (which I believe they will do), we will see a revolutionary new iPhone this year sometime around September with it going on sale in October.  At the same time, we should also see a revolutionary new iPad or iPads) in March 2013.

The most logical response for Apple confusing us now is they are setting us up for what’s coming in the future.

Thanks again for the interest in dignuggetville.com – keep the questions rolling in…

 

Best regards,

Dr. Dan-o

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

 

“New” iPad Takes 5% of all iPad Traffic – Dr. Dan-o on Forbes.com

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Hola Todos!

In interesting report was published on Forbes.com yesterday detailing that in the first 48 hours of its sale, the new iPad consisted of 4.6% of all iPad traffic in the US. Data for this article was provided by Chitika and I was quoted in the post (click here).

“Daniel M. Ladik, associate professor of Marketing at Seton Hall University for example, says there are differences between this event and previous Apple launches. “The launch was preceded by 9 days of pre-orders that Apple had described as “off the charts” while iPad 2 had no pre-orders.” Also, he said the new iPad went on sale at 8 a.m., as opposed to 5 p.m. the day before launch for the iPad 2.”

What I find interesting about the flurry of iPad numbers that were released yesterday was it totally contradicted the blogoshpere chatter over the weekend.  Some of the “talking heads” were flat out wrong as a few stories were floating around that Friday was not the usual “Apple Zealot Mania” which than was erroneously translated to “iPad sales disappoint.”

However, the data tells another story.  First, in the Apple conference call Monday morning (click here) announcing its first dividend since 1995, Gene Munster of Piper Jaffray asked:

Munster: Any color on iPad?

Cook: Record weekend, and we’re thrilled with it.

Then we found out about later on Monday that AT&T set an iPad record (click here) and then, Apple made it official with their own press release (click here).

The reasoning for “the talking heads” being wrong is simple.  Apple’s hype machine was more low-key than those in the past.  Besides the 9 days of pre-orders that would reduce the hype, new iPad also went on sale at 8 a.m., as opposed to the later (as well as – longer line creation as people stood outside all day) of a 5 p.m. launch for the iPad 2.  Moreover, Apple released the new iPad in more the 2-dozen counties at the same time.  Every few Apple zealots needed to fly into NYC or elsewhere to get their hands on their new favorite device.

If anyone was still wondering, there is no question now – Tim Cook and his personality is firmly in control at Apple.

 

Best regards,

Dr. Dan-o

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

 

The “New” iPad: Reviews from Tech’s Finest Journalists

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Hola Todos!

Today is the “new” iPad release day with lines literately all over the world (click here for videos).  For those of us who deciding whether to go with iPad 2 or (try to find) the “new” iPad, click here for a set of excellent reviews from the industry’s best tech journalists.   And for good measure, click here for a solid review on the updated Apple TV and its new killer feature.

 

Best regards,

Dr. Dan-o

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

 

 

 

iPad 3 or iPad HD Day: More Helium for Apple’s Stock Price & Dr. Dan-o on MSNBC.com

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Hola Todos!

Today is a big day for Apple and I am curious to see exactly what they are going to pull out of their hat.  No one is expecting anything mind bending for the new iPad and perhaps a new Apple HD TV box but it always interesting to follow nonetheless.  The Apple 2.0 Blog has a few suggestions for those of us who wish to follow along but who are not in San Francisco at 10AM PST (1PM EST) – click here for suggestions.

Yesterday, I was fortunate to have a chat with a journalist who is associated with MSNBC and the story and my comments could be found here.  For the sake of completeness, I included all of my comments to the journalist below.

Best regards,

Dr. Dan-o

 

Hello Eve,

My name is Daniel M. Ladik and I am as Associate Professor of Marketing in the Stillman School of Business at Seton Hall University.  Your request was forwarded to me as my main areas of teaching and research expertise include marketing strategy and social media/Web 2.0, as well as, personal selling and sales management.  I blog at www.dignuggetville.com.  I am also an Apple aficionado – see previous Apple comments in Forbes Magazine (click here).

The question you ask has a very simple answer – YES and without question, tablets will replace PCs for the normal, everyday use (e.g., email, word processing, powerpoint, web surfing, etc).  In one of his last conference appearances in 2010, former Apple CEO Steve Jobs explicitly stated “Welcome to the Post-PC Era.” On Valentine’s Day 2012 at a conference in New York City, current Apple CEO Tim Cook stated, “iPad sales are currently cannibalizing Mac sales, as well as, sales of all other PCs across the industry.”  Mr. Cook also stated, “I am OK with that as I am never going to tell one of Apple’s product divisions to hold back and make an inferior product.  In addition, I rather we cannibalizing our own sales than have some competitor do it for us.”  (For exact transcription, click here).

Also accelerating the shift to tablets from PCs is the use of tables in the corporate world.  In a January 2012 conference call with investors, analysts, and reporters discussing October, November, and December 2011 sales, CEO Tim Cook said more than 80 percent of Fortune 100 companies were using or testing the iPad, an increase from 65 percent three months earlier. (Reference, click here).

That said, I feel the more interesting question is not IF but rather WHEN is tablet sales going to overtake PC sales?  Some analysts such as Gene Muster of Piper Jaffray estimates sometime in 2017 while other more aggressive predications such as Horace Dediu of Asymco suggests it could happen by Fall 2013.  In my personal opinion, I see it happening sooner rather than later, especially if one combines the personal use, the corporate use, as well as, the iBooks initiative (and e-books in general) explosion with millions and millions of K-12 and universities moving to an all tablet platform for learning delivery.

How valuable is iPad to Apple financially?  iPad is the cornerstone of Apple’s growth for the next 4 to 8 years.  For the months of October, November and December 2011, Apple sold 15 million iPads that accounted for 9.15 billion dollars or 20% of Apple’s revenue for the quarter.  In addition, the other cornerstone is iPhone.  In the same quarter for 2011, Apple sold 13.4 million iPhones.  In early March 2012, CEO Tim Cook struck a deal with China Telecom, China’s No. 3 mobile carrier and No. 1 Wi-Fi and fixed-line provider (total subscribers: 216 million).  China Telecom has 38.7 million 3G subscribers, of which approximately roughly 15 million of whom are “high-end” users who could easily afford an iPhone.  I can easily predict that iPad and iPhone will drive Apple’s stock price north of $600 per share by January 2013 when Apple releases its October, November and December 2012 results fueled by iPad 3 and iPhone 5 sales (reference, click here)

I hope this was helpful for your article.  If you have any questions about the above comments or would like further detail, please let me know OK.

 

Best regards,

Dan

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

daniel.ladik@shu.edu