So Far, So Good, So What?
Cecil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As everyone in the world already knows, Apple (NASDAQ: AAPL) recently released a host of products, including the highly anticipated iPad mini and a somewhat unexpected fourth generation iPad. One of they key reasons why Apple released a smaller version of its iconic iPad is to stave off competition from Google (NASDAQ: GOOG) and Amazon (NASDAQ: AMZN). Apple is still the most dominant player in the tablet segment, with nearly 60% of market share, but it is down from its peak on nearly 80% in 2010.
Wall Street didn’t seem too impressed with the pricing of the latest product from the Apple foundries. Analysts were expecting the iPad mini to be priced at less than $300, with the most people seeming to agree on $250. However, the basic model was revealed to cost $329; and what’s more, high end models with 4G wireless will be priced at $659.
Analysts seemed concerned about the pricing because they feared that the company wasn’t directly taking aim at budget minded customers, who would definitely opt for a cheaper tablet than the mini. In comparison, Google and Amazon have sub-$200 tablets, which will naturally attract the budget conscious. Barnes and Noble (NYSE: BKS) also provides an option with the $249 Nook, thanks to which the bookseller’s shares rose 6%. As soon as the price of the mini was announced, a sell off in the firm’s share accelerated, with the shares eventually dropping 3.3%.
Well, one thing is clear: Apple has remained consistent in its pricing. Their Macbooks and the iMacs are definitely priced at a premium, when compared to others in the laptops and the computer market. I’m not so sure it will work in this department at all.
Meanwhile, Apple marketing wizard Phil Schiller defended the hefty price tag, saying consumers will be willing to pay for quality not found in less expensive devices released by Amazon and Google.
“The iPad is far and away the most successful product in its category. The most affordable product we’ve made so far was $399 and people were choosing that over those devices,” argued Schiller when asked by Reuters whether he believed the price tag may push consumers to other products like the Google Nexus 7 and the Amazon Kindle Fire.
Amazon entered the tablet market last year with the launch of the Kindle Fire, and the Kindle Fire HD is supposed to be their best-selling product since it went on sale more than a month ago. Google and Amazon reportedly price their tablets close to cost, but this is only so that they can tap into the mobile community to drive revenue to their advertising and e-commerce interests, respectively.
“Others have tried to make tablets smaller than the iPad and they’ve failed miserably,” Schiller said during the event. “These are not great experiences,” he added as he took the unusual step of doing a side by side comparison between the iPad mini and the Google Nexus 7.
So I’m going to argue that the problem with the mini is exactly what Schiller thinks will persuade consumers to buy one: carving out a market. Analysts are having a hard time understanding which target segment exactly is going to buy this. A cost-conscious consumer would definitely be attracted to an alternative. A slightly less cost-conscious consumer would definitely opt to pay a premium for an Apple product, but why should they pick the mini over the actual iPad?
Despite this, analysts remain bullish on the stock because they feel that customers will pay a premium for a tablet that is manufactured by Apple. I’m not so sure about that, but I agree with their bullish call on Apple. I think they’re due a product that doesn’t really take off, and I’m afraid the mini might be it. But despite this, they have a range of other products that make them a very powerful company.
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ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, and Google. Motley Fool newsletter services recommend Apple, Amazon.com, 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.
