$329 - why it works

Discussion in 'iPad' started by davey1107, Oct 25, 2012.

  1. davey1107 macrumors newbie

    Sep 27, 2011
    Last summer I wrote a post explaining why an iPad Mini made sense, and while that article had its detractors, I was happy to offer a forum for us "common-sense, less excitable Apple fans," ha, to talk about why we wanted that option.

    Now we have the Mini, so the detractors need something new to gripe about. 'Cause, you know, if you really love Apple you need to balance praising them with screaming your head off about everything you dislike. Some will move on to complaining about Apple's apparent problem with anorexia, made evident by their thinness obsession on the new iMac. Others are still cradled in the fetal position, laughing deliriously with glee that the iPhone puts a purple tinge on direct photos of the sun. But I wager that most iPad Mini haters will go directly from hating the concept of the Mini to hating the device itself. Makes sense - they staked a lot of ego on this thing never being released, and like a US President who's haplessly waded into a war in Southeast Asia, they need to stay the course regardless of logic or reason.

    The top complaint, at least until they discover that this device also produces sucky photos when you're a sucky photographer, is price. You can just picture all those Mac-fanatic faces going red when Apple announced that the Mini would start at $329. "But the GUI, and GPU, and K-RAM, and frazz-o-dialators! It's worth $250, tops! Apple's gonna burn! Argh, we're all gonna die!" We have to expect that replica Nero fiddle sales soared Tuesday afternoon.

    Here in the real world, where consumers like decent products and shareholders like sales, $329 sounds about right. Three out of the four business analysts I follow agree, with the fourth saying he wanted something within $50 of the Kindle HD. As someone who's worked in marketing and finance for many years, and as an Apple shareholder, I'm happy with the pricing decision. Here are a few reasons why:

    Gotta make the margin.
    The teardown on iPad gens 1-3 indicated an Apple profit margin of about $100 per device. To stay in line with this, the Mini had to be priced up in that $300 range. If Apple wanted a $200 device, they would have needed to do one of two things.

    First, they could have sacrificed quality, using the sort of plastic casings and lower-end parts you find on the budget tablets. Is this really what we want? Imagine an Apple Store with these beautiful, high-end products...then this one el cheapo device sitting in the corner. Tell me the Apple community wouldn't be forming angry mobs and investing in torches if this had happened.

    Secondly, they might have sold the thing at cost, like Amazon reportedly does. I'm sure a lot of the price-gripers will clamor for this, but it's not really an "Apple thing to do." Selling at cost means that you have to make your profit elsewhere, which means a company has to be pushy with upgrades and apps. Just glancing at a Kindle sets it to buying e-books in the Amazon store, or so I've heard. Seriously, though, consider this - If you currently have an iPad, how many paid apps do you have installed? What's the average for a casual user? An at-cost Mini would mean Apple needs to sell the average iPad owner $200 more in apps (to make back the margin and pay developers their share). So low software prices - something that has been a HUGE benefit in the iOS environment - would need to go up. And by a lot - spreading $200 in profits out over apps, books, movies and music would require a pretty noticeable price hike. Of course, anyone reading this would also probably wind up paying way more than most users. If you're on this site, you're likely a heavy user who invests in more apps. A price hike intended to offset cheap minis would affect you disproportionately. The average Mini user will now pay an extra $1 for their e-book of The Hunger Games - you're going to pay way more for the 100 games, tools and productivity apps you use your iPad for. And this is something about Apple that the complainers are maybe not appreciating enough. They like to call Apple "greedy," but they're really pretty laid back. If you buy an iPad, they've made their money, they don't have to upsell you. There's no pressure to spend money in the App Store, just a friendly reminder you have that option if you want to expand your experience. If you want to see pushy, open a $100 Chase checking account and get ready for 10,000 letters, emails and marketing calls over the next year.

    The perceived value of an Apple product is higher. Apple is a luxury brand, and as such their products fetch a higher price. Louis Vutton cost more than Sears, it just does and always will. Call it a "coolness factor," the "neat-o effect," or whatever...Apple products are hip, so they're perceived as worth more. I have to ask - if you're reading this, are all your clothes from Ross and your food from the expired meat bin at the dollar store? (ha, expired meat) Or like most people, do you pay a little more, sometimes even when there's no rational reason to? That's what I thought. So when Apple decides to sell a $329 iPad Mini in their sleek, super-cool stores rather than a $200 Mini down at Uncle Lenny's Discount Electronic Emporium and Fish Tank Supply, I'm kinda glad about that. As a luxury brand, Apple works.

    BMWs are better than Fords. I gotta be honest - I put the second point above just to stir up some controversy. A lot of people will gripe about the idea of paying more for Apple products just because they're hip (then, of course, they sign their post with a brag list of Apple they own). But what we sometimes forget is that there is also a direct value to owning Apple over others. Apple products aren't just cooler - they're better. They are the BMW of the computer industry, and the iPad Mini is their 3 Series. Like BMW, Apple is betting that the actual, quantifiable value will prompt consumers to spend a little more, opting for an iPad Mini or BMW 328i over a Kindle Fire or Ford Taurus.

    This value comes in many forms, and sometimes this isn't a spendier retina display. The Apple Stores and their Genius Bars add MASSIVE value to owning Apple, especially for the consumers the iPad mini is aimed at. The first generation of tablet owners were mostly "computer literates," people who know about RAM and display resolution and device syncing. The next generation will be people who see how awesome these devices are and want to enjoy the benefits, but might not know how to proceed if they hit a stumbling block. This might be a wifi antenna going bad (the only Apple defect I've experienced personally amongst the 25+ devices I've owned...on a gen 1 iPod touch) or it might be something as simple as not knowing how to put your copy of The Hunger Games on your device (yes, I'm being paid to endorse The Hunger Games). What do you get with Kindle ownership? You can call India for tech support (maybe) or you can wade through online forums looking for answers. And hey...I'm personally good at wading. But my mom isn't, and when she encounters a question about her iPad, she's really going to appreciate that she can stop by the Genius Bar on her next visit to the mall to ask questions. For free, I might add. Happy, cute, friendly computer nerds at your disposal.

    And that's just added value in the form of the Genius Bar. The devices themselves are made better, with lower failure rates than the competition. Apple products are worth more - but don't take my opinion as fact. Let's look at the market, the ultimate "value decider." If I take a look at amazon, my $499 gen 3 iPad would sell "like new" for $385. So I've lost about 23% of my initial cost over the last year. Keep in mind - today will represent a bottom for used iPad values, as the market is flooded with eager upgraders willing to take a loss. They'll bump up next month...I have a lot of experience selling used iPads. Regardless, let's look at last fall's Kindle HD. That sold for $200 and I can get a "like new" used one for...$82. That's a 61% decline in value over the same period. So here we have a good basis for making some estimates. A $329 Mini bought today will possibly sell used for $253 next year. A Kindle bought today will go for $82. These devices cost you $76 and $118 to own for one year, respectively. Still don't see the added value of Apple? Because the math is pretty clear.

    One last thing: if you're reading this, and if you get the "one last thing" joke, Apple would love it if you bought an iPad Mini, but it's really not aimed at you. Let's face it, Macrumor readers are mostly going to want the latest and greatest. I do, and I'm checking the Apple Store every four hours to see if they've posted the cost of putting that neat-o fusion drive on a 27" iMac, ha. So you're probably going to want the big, beautiful retina display on the larger iPad, and you might even be thinking that you HAVE to ditch your perfectly good iPad 3 for that cool new iPad 4. Let's face it, Apple had us at "say hello to iPad 4."

    The iPad Mini is aimed at a totally different market. Last Christmas, about 25% of total US tablet shares went to "budget" 7" tablets, largely the Kindle. The market data are pretty clear - this was due mostly to price. For many, many, many consumers, $500 is just too much - forget retina and genius and the cloud. Apple lost these sales - literally millions of units - because Apple products were too expensive. The Mini doesn't close the price gap, but it sure as heck bridges it, dropping it from $300 to $129 - and without sacrificing quality. That's Apple's message, loud and clear - the Mini is every bit an iPad, so much so that you're going to be willing to pay a little more for it than a plastic, generic tablet. Some customers won't, of course, but Apple's bet is that a huge number of people who in 2011 said, "sheesh...$300 to move up from a Kindle to an iPad? I wish I could...those iPads look so cool...but I just can't do it," are going to go shopping this Christmas and say, "okay...this new iPad is $129 more, but man they're cool...and I hear Apple stuff is the best. It has that Apple Care, and if I have questions I can just make an appointment with one of their Geniuses. You know what...that's totally worth it."

    I tend to agree with Apple. I know many of you want Apple to give their stuff away for free, and you think that not doing so is somehow going to bankrupt the company. But I think $329 is a pretty fair price, and I think we're going to see Amazon and Samsung take a huge hit to their 7" tablet market share this Christmas. At $329, the iPad Mini is the right price - and the right size - to fit into a heck of a lot of Christmas stockings.
  2. poloponies Suspended

    May 3, 2010
    Not likely. There's a lot of room at the low end and a lot of people for whom the $199-$249 price range is too hard to resist. That doesn't mean there won't be customers for the iPad mini as well, but it's ridiculous to think that the vast majority of people will stop buying the Nexus or Kindle Fire because Apple has a lower-cost device.
  3. rockyroad55 macrumors 601


    Jul 14, 2010
    Phila, PA
    Exactly. Especially with Amazon's currently unmatched selection of books and their cool free video service with Amazon Prime. Not the best selection but great for older shows to pass the time.
  4. iEvolution macrumors 65816

    Jul 11, 2008
    I'll tell you why it works, people are stupid and Apple has great media influence.

  5. DJTaurus macrumors 65816


    Jan 31, 2012
    It seems you read carefully the first post. Go back to your nerd hole cowboy :p


    You also did not read the first post. He never stated sth like that. Apple will gain more market share with the ipad mini either by bringing new customers to the post pc era or by stealing few (?) customers from the budget 7 tablets.
  6. mantan, Oct 25, 2012
    Last edited: Oct 25, 2012

    mantan macrumors 68000

    Nov 2, 2009
    It always goes back to the lame straw man argument that Apple can't sell things at cost.

    Of course not, nor should they since that's their business model. But this thing is making a huge margin, make no mistake about it. It would have made a very nice margin at $299 with about 10% of the complaints...but they just had to squeeze that extra $30 out.

    So much so that they are now floating stories out there about low yield on parts being the culprit for higher prices. (Ignore the fact that even if they got all the screens they needed at the price they wanted in 30 days they wouldn't lower the price.

    As a consumer I would have liked to see it at $299. An amount that would have ensured a healthy profit, but would have been under the $300 mark. (I also would like to see Apple stop squeezing an extra $100 for a $8 dollar memory bump to 32 gig....but that's just dreaming.)

    As much as I love their products, I hate Apple as a company. They will methodically squeeze every penny out of you that you can (like that overpriced Lightning adapter)....yet play this charade that they are just a hip cool company making things you love. But their stuff is good, and I end up buying it. But I get no more joy giving them my money than filling my tank with gas or paying my insurance premium. But with Apple it's entertainment income...so I can't blame anyone but myself.

    They are no different than Exxon, GE, Pfizer, HP, GM or any other big corporation. Their ONLY driving interest is maximizing revenue....yet they still get people to write long heartfelt posts defending their actions.
  7. ryannel2003 macrumors 68000


    Jan 30, 2005
    Greenville, NC
    Apple priced the Mini at $329 because they know that people will buy it regardless because "It's an iPad". The same argument is made by the same people who buy BMW's "Because it's a BMW". They don't care about quality or reliability, they want the image. We're an image obsessed society, that's why people like Apple products and expensive cars. They're trying to impress.
  8. Lost Rider macrumors member

    Lost Rider

    Jul 20, 2011
    Lake Isabella, California Republic

    I buy my BMW's and Apple products because I thoroughly enjoy using/driving/riding high quality, cutting edge designed, very reliable products.
    Cutting edge doesn't always mean maximum specs on paper, I'm sure there's Ford Mustangs with more HP than a BMW 325, but will it's overall driving performance/experience/quality be greater? Not likely.
    I work incredibly hard for my money and happen to be able to afford a few nice things and it has nothing at all to do with image or trying to impress anyone.

    Nice write up davey, a little bit of logic in all the MR madness. :D
    I like the BMW analogy, that's another very successful company that sets their own prices, is also the benchmark in their field only to be copied, and also has a near psychotic devotion to detail and design. Make products with passion, charge what you need to make profits.

    I can't wait to get my iPad Mini as I've not owned an iPad since iPad 1 that I sold 9 months after release, smaller size for my needs is better and I could care less if it costs $199, $299, or $329. You want the best designed stuff, you pay.
  9. davey1107 thread starter macrumors newbie

    Sep 27, 2011
    Fortunately, my statement takes so few risks that I'll look right no matter what the post-Xmas sales figures return. Amazon and Samsung have already seen a huge hit to their market share - Kindle HD did great last Christmas and then sales plummeted (I'm not saying anything about that device...those are just the sales figures). See Forbes, may 2012. 2011Q4 Kindle sales gave Amazon 17% US tablet marketshare. By end of 2012Q1, sales had declines 400%, dropping Amazon market share to under 4% So if Apple sells one Mini my statement will still be semi-accurate. Apple had dropped to 55% share, but rose back to 68% when Kindle sales dwindled.

    But to make it totally accurate - what would we define as a "huge hit" going forward? Based on growth models, budget tablets should sell about 5 million units this Christmas. If Apple maintains 68% share for expensive tablets, I'd set the figures at:

    Apple capture:
    20% budget tablet sales (1.25 million units) - a pretty huge hit
    33% - ouch, hurts to be Amazon/Samsung
    50% - a bloodbath, Apple's release of iPad mini looks brilliant
    68% - a bloodbath, with a subsequent thwomping. Apple set to continue dominating tablet markets worldwide for the next decade.
  10. Poochi macrumors 6502a


    Jul 30, 2010
    Not sure about the next decade, more like the next 6 months to a year or so.

    Link to your model?
  11. Medic311 macrumors 68000


    Jul 30, 2011
    ^ that
  12. Poochi macrumors 6502a


    Jul 30, 2010
    $499 works for me if it's got A6 + Retina + same form factor, TODAY.

  13. mac jones macrumors 68040

    Apr 6, 2006
    I didn't read a word of any of this. But I agree!
  14. PlutoniusX macrumors member

    Mar 18, 2008
    Looks the like the BMW driver stereotype is leaking off into the Apple world. Good God.
  15. Medic311 macrumors 68000


    Jul 30, 2011

    maybe next year it'll get those updates
  16. ryannel2003 macrumors 68000


    Jan 30, 2005
    Greenville, NC
    I also have a BMW and buy Apple products because they are high quality, well designed products. My point is that most of the general public doesn't care about high quality or design because of the image that a BMW car or Apple product gives them.
  17. Poochi macrumors 6502a


    Jul 30, 2010
    in a few words why $329 works... "Because people will buy them".

    There. Don't need any analysis :)
  18. jmpnop macrumors 6502a


    Aug 8, 2010
    lol..Steve and his reality distortion feild:rolleyes:
  19. Geffen macrumors 6502

    Sep 23, 2007
    The way i see it if you want a higher quality product you'll buy an Apple ipad mini otherwise I really doubt the Mini will have an effect on Kindle/Nexus tablets since most people who are on a tight budget will buy those regardless.
  20. RedRaven571 macrumors 65816


    Mar 13, 2009
    Right, the same folks who buy Brand X HD TVs at Walmart for $400 rather than a comparable Sony (or whatever your favorite brand of TV is) will get a less expensive tablet device; I understand this may be all they can afford, I'm not trying to be an elitist.
  21. jedolley macrumors 68000

    Sep 18, 2009
    I can't and won't speak for others, but I was disappointed by the $329 price. When I first heard the rumor, I thought it was crazy, but feared it might be correct since rumors have been pretty spot on recently. I was expecting between $249-$299, and still feel that is a better price point for the iPad mini. However, I bought one anyways... The reason, because this was the iPad "I" wanted since I owned both the original iPad and the iPad 2. I always felt the 9.7" iPads were too large for my use and even replaced the iPad 2 with various 7" android tablets, but ended up returning them all.

    I know I am probably over-paying for the iPad mini based on it compared to current Android tablets, or compared to the iPad 2. However, the iPad mini is the iPad i've been wanting since I first used an iPad (launch day iPad 1) and probably would have paid $349 or even $399 for it. This is not something I would typically do or say, but this is a product that I was hoping for way before the rumors even surfaced.
  22. onthecouchagain macrumors 604


    Mar 29, 2011
    "At $329, it is believed that Apple will duplicate the 58% to 103% gross profit margin it enjoys on the third-generation Apple iPad." - Phone Arena.

    Oh yeah, it works, all right.
  23. Bokes macrumors 6502

    Mar 4, 2008
    You realize Barnes and Noble- a book seller- is releasing a tablet next week with far better specs- better screen, more Ram, storage card- for a much cheaper cost? And it's a true 7 inch.

    Apple can't do better than a book seller?

    Apple is nuts with this silly mini ipad.
    Good luck.
  24. bri1212 macrumors 6502

    Feb 1, 2008
    You realize that Barnes and Nobles brings out a reader at cost or close to cost and makes their money on selling the content. Apple's business model is different.
  25. wolfpuppies3 macrumors 6502

    Jun 26, 2012
    Virginia, USA
    Well, we knew it wouldn't be priced beneath the iPod Touch, it had to be over $300, the cost of the lowest cost Touch. I suspect they will sell only multiples of millions of them at that price.

    I have had the 1Pad 1, 2, and now my wife and I both have iPad 3s - all 64 GB wifi/3G or LTE. The mini will be used more as a reader and I have a mobile hotspot on my iPhone 5 anyway so I can save the $130 fee for 4G. I can save an additional $100 by getting a 32 GB instead of a 64GB because of this device's intended use for me. Sooooo it ends up being $429, less than half the price of my iPad3.

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