Good Things Come in Small Packages

Rita is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The first thought which comes to my mind when I hear the phrase “Good things come in small packages” is the iPad Mini. Just like every other fan, I’m eagerly waiting for Apple (NASDAQ: AAPL) to launch the younger sibling of the superbly designed iPad. The web is flooded with leaked photos of the Mini and even the rumor mill has started rolling. According to the latest rumors, the device can be expected to hit the streets sometime in late October, just ahead of the biggest holiday season of the year.

Though many analysts are suggesting that iPad Mini will not face much success and will be a pointless device, I beg to differ. I believe the iPad Mini will be a huge hit and will repeat the success story of the iPad. The following are some of the reasons that explain why I feel the Mini will be good for Apple.

A brilliant growth strategy

The iPad is not a new-to-the-market product anymore. Tablets have gained huge acceptance worldwide and needless to say, the iPad is the undisputed champion in the space. So, how can Apple carry on with expanding the iPad user base? The answer lies in the Ansoff’s Matrix, a hugely popular tool among corporate strategists. Igor Ansoff, also known as the Father of Strategic Management, presented this matrix to present alternative corporate growth strategies by establishing links between products and markets. The following is the image of the matrix.

(Image Source: taydeaburto.com)

According to the matrix, if the product is an existing one and even the market is an existing one, corporations must aim at market penetration as that would be the best strategy to expand. Apple is doing exactly what Igor suggested. By introducing a smaller iPad, Apple is attempting to target a different stratum of the consumer market and thus increase its overall market share. Initially, under the leadership of Steve Jobs, Apple was hesitant about the need of smaller tablets. However, after the recent success of 7-inch tablets from peers such as Google (NASDAQ: GOOG) and Amazon (NASDAQ: AMZN), Apple has realized that there is a market for the smaller device and now aims to harness the benefits of the same.

Huge market waiting for the Mini

The consumer market is composed of several layers, where each layer represents different consumer attitudes. The top layer includes consumers who are willing to pay huge prices to get their hands on the latest devices as soon as they are launched. The bottom layer of the market has consumers who would like to own an Apple product, but can’t afford full cost devices and even discounts are not attractive to them. For that segment Apple is launching the iPad Mini. Consumers are choosing tablets from Amazon and Google as a substitute for the iPad. But, now if they can own an iPad at a lower cost which is also more portable than existing iPads, there is no need for them to choose other brands.

According to a recent study conducted by Pew Research, Apple has recently lost its command over a huge chunk of the tablet market. Presently, 52% of all tablets in the US are iPads as compared to the 81% command a year earlier. The remaining 48% is under the Google Android influence and about half of the Android tablets, 21% of the total, are Amazon’s Kindle Fires. This figure explains clearly the opportunities that wait for the Mini. If Apple can grab this huge chunk of the market, it will be able to maintain its dominance in the space for a fairly long period of time.

Groundwork already done by peers

Apple enjoyed the first-mover’s advantage when it launched the first tablet. Google and Amazon enjoyed the first-mover’s advantage for smaller tablets when they launched the Nexus 7 and the Kindle Fire. But no one talks about the second-mover’s advantage. Google and Amazon have already done all the ground work that was required to set the demand of the 7-inch tablets rolling and now Apple can just walk into the space with the Mini and steal the show. The success of the iPad will surely have a roll over effect on the Mini and the already ready market will only make things easier for the smaller iPad.

Attractive pricing

Amazon sold as many as 5 million Kindle Fires since the time the device debuted last year and even the Google Nexus 7 met with similar success. The stores selling the devices were continually putting up the “sold out” banner. Such were the demand for the devices and the primary reason behind this was the pricing. Both the devices were priced much lower than the iPad and that attracted all the users. Presently the Kindle ranges from $99 to $299 and with 7-inch to 8.9-inch display options. In contrast to this, the iPad still offers a 9.7-inch display at starts at $499. As a result, consumers have been flocking to buy the cheaper smaller tablets.

But now, with the iPad Mini entering the scene, the competition dynamics are about to change. I surely don’t expect Apple to price the Mini at $199. I feel a price of $299 or $345 is more realistic, provided Apple includes the Retina display and the latest processor and iOS 6. The temptation of owning an Apple iPad with the latest specifications at $299 will be too strong to resist for many. According to Shaw Wu, a Sterne Agee analyst, Apple may end up selling as many as 22.3 million iPad Minis in the December quarter.

Concluding thoughts
Many analysts and industry experts are expecting Apple to benefit hugely from the forthcoming holiday season. Apple sold 5 million iPhone 5's in the first weekend after its launch and a similar number can be expected from the iPhone maker once again as it launches the iPad Mini on October 17(rumoured date). The company will also be hugely promoting the device and this will also add to the success of the Mini. All in all, the prospect of the device looks good to me. As the device gains popularity, Apple will benefit greatly and this will automatically be reflected in the stock’s price. Currently, several analysts have a price target of $780 for Apple and though the figure looks high especially since very recently the stock hasn't been doing well, I feel it’s definitely achievable, making me pretty bullish on the iPad Mini and on Apple.


analyse360degree has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, and Google. Motley Fool newsletter services recommend Amazon.com, Apple, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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