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Wednesday, October 24, 2012

The iPad Mini Is Not Overpriced, And $AAPL Sales Numbers Will Prove It

The iPad Mini Is Not Overpriced, And $AAPL Sales Numbers Will Prove It

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So while a lot of similar headlines are popping up this time around, we now have the benefit of hindsight to add some clarity to the discussion. There’s also a fair number of logical reasons Apple has priced this tablet correctly, history lessons notwithstanding.

1. Brand cachet

Apple operates as, and is perceived as a premium brand. With some of their recent pricing accomplishments, including the MacBook Air starting at $999 and the iMac now beginning at $1299, it’s easy to see why people might think Apple is playing along with the rest of the market’s race to lower prices. But that’s not how Apple competes, and that’s not how it ships product.
Much of the value in Apple lies in its brand cachet, something which is especially powerful in emerging Asian markets, but also still very effective in established regions like North America. Apple is seen as a maker of premium goods, and they emphasized that amply with this iPad, bringing back a lot of the same rhetoric they used to portray the iPhone 5 as a precision instrument, on par with the finest mechanical watches.

2. Measured by quality

Apple’s identity as a luxury brand clearly has a strong marketing component, but it also arises naturally from making great products. The iPad mini is meant to compete on quality with others out there in the smaller tablet space, not price, just like the Mac does in the notebook and desktop market (where its growth outpaces the rest of the industry, by the way).
Almost all of Apple’s marketing around this device focuses on its ability to exceed the competition in terms of usability, design and quality of experience. That’s also how it has traditionally marketed the Mac. With the original iPad, it had a leg up in that it was forging a new market, but it’s coming late to the small tablet space. Still, by competing on its own terms, and delivering a product that definitely does feel more polished than other options out there, it’s saying the extra $129 you’ll pay versus others is money well spent.
And Apple’s right on that score. As I mentioned in a Branch discussion on the subject, the iPad displays approximately 49 percent more content when viewing web pages horizontally than the Nexus 7, according to Apple SVP Phil Schiller, and at $329 it’s around 49 percent more expensive than the Nexus 7

3. Apple is a hardware company

Apple sells hardware, and that’s its main concern. Amazon and Google are not hardware companies, and don’t pretend to be. They sell devices because it furthers their own primary agendas (e-commerce for Amazon, search and ad revenue for Google) and can accordingly do so at a loss.
For Apple to market a device it must be profitable. And not just profitable, but within their acceptable range of what defines profitability, which means significant gross margins made on every device. Otherwise, it’s not worth Apple’s time to make that product, and it won’t be made.
The iPad mini is priced where Apple can price it while still creating a quality product that doesn’t feel like a crippled device, while still satisfying their profitability requirements. If it was a 7-inch tablet with a single camera and a much thicker design, I’d say it was overpriced, but as it is, if you look at what it can do, it’s more than competitive and meets Apple’s business requirements for bringing a new product to market.
Those claiming this iPad is too expensive are either forgetting the past or forgetting what kind of company Apple is, but I don’t think consumers will be among that crowd. But you don’t have to take my word for it: pre-orders start Friday, and we’ll probably learn soon after just how much appetite there is out there for Apple’s latest innovation."

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