Apple’s iPad Pricing Reflects Confidence In Products, Customers Willingness To Pay Premiums
Apple’s 2013 special event has come and gone, with no real surprises when it comes to iPad hardware. As expected, the focus was bringing the full-sized iPad front and center. The new slimmed down version gets a new name, the iPad Air, in hopes that customers won’t immediately dismiss it in favor of the iPad mini. The iPad Air is now closer in weight to the iPad mini than with the iPad 4. Apple had to make big moves with the 9.7-inch iPad or risk it moving further into obscurity. As these events unfold, the focus is almost always on how Apple improved upon the previous generation, be it the iPad or iPad mini. The other major headlines coming out the Yerba Buena Center was the assault on paid software, with iLife and iWork apps now being offered free with any new iOS device or Mac. Amidst all of the product announcements, on display was Apple’s confidence in their ability to sell iPads at a premium in a marketplace that one would think is becoming increasingly competitive.
The only complaint with the first generation iPad mini had been the display. Apple fixed that and more adding the A7 processor. Boasting a new retina display, it now offers 2048-by-1536 resolution at 326 pixels per inch (ppi). One would think it would be in direct competition with the Nexus 7, which also received a new display in 2013, offering 1920-by-1200 resolution at 323 pixels per inch. Last year, the iPad mini pricing was $329, a $130 premium over the $199 Nexus 7. Given the iOS ecosystem, slightly larger display and double the storage capacity, customers could easily justify the price point. The iPad mini (2012) is a much better tablet than the Nexus 7 (2012).
The baseline 2013 Nexus 7 offers a more acceptable 16GB of storage, priced at $229. Instead of replacing the first generation with the new model, Apple has created a new higher price point with their retina model. Their double-dipping on premium pricing. Forget about being $100 more than the Nexus 7. The iPad mini with retina display starts at $399, making it nearly double the price of the nearest competing tablet. Amazon’s Kindle Fire HDX is also priced at $229. If you want cheap, Amazon will sell you an 8GB HD Fire for just $139. You can buy three of them for every one iPad mini with retina. Probably the boldest pricing move was no move at all on the iPad 2. Customers can still buy a tablet released in 2011 for $399. People are buying these tablets and supporting these price points.
Apple’s advantage continues to be iOS and more specifically, the App Store. If you buy an iPad, you immediately receive well over $100 in free software in form of iWork and iLife apps. The disparity in quality and quantity of apps between Android and iOS is greater on tablets than on phones. Apple’s iPad pricing reflects this disparity and customers willingness to pay for the ecosystem. I’d bet that brisk sales of the iPad 2 might have the impetus for keeping the older iPad mini around, while creating a new higher premium for the second generation. It’s a strategy that has little in the way of consequences. It’s easy to drop prices in response to softer demand. Based on yesterday’s events, Apple remains confident that consumers will not only pay a premium, but a higher one than last year.