In 2010 Apple had 80% of the tablet market share; by 2012 it was down to 60%. Many say that it was due to Apple’s pricing strategy and the fact that there came other tablets (Samsung Galaxy Tab, Google Nexus and Amazon Kindle) that had competitive features and better pricing. On October 23, 2012 Apple launched the iPad mini. This was a change in Apple’s strategy in response to market forces.
In the past, Steve Jobs had insisted that 10 inches was the right size for a tablet and that Apple would not be making a smaller tablet to compete with other cheaper and smaller tablets[i]. And despite a price tag of about $500, the iPad was very popular. But fast forward a couple of years and the demand for a smaller cheaper tablet were on the rise. The falling market share of iPad in the tablet industry was probably a sign. In my opinion, it was a good change in strategy on Apple’s part to respond to changes in market forces - Customers & Competitors (as described by Michael Porter in his HBR[ii] article The Five Competitive Forces that Shape Strategy).
But on October 23, 2012 when Apple launched the iPad Mini, its shares fell by over $20 – a 3.3% fall in a single day. And the downward trend continues (till the point this blog was written on October 31, 2012 10:30AM). People are blaming the cheaper but still pricier tag of $329 for the fall. The iPad Mini is more expensive from its competitors by $130. Both the Nexus and Kindle Fire HD offer better screen resolutions and speeds. But then the iPad Mini sales were not affected – the white model sold out in 20 minutes (Source: http://www.huffingtonpost.com/2012/10/26/white-ipad-mini-sells-sold-out_n_2023979.html).
Is Apple right in not pricing its iPad Mini same or near its competitor’s starting price of $199? Especially since both Kindle Fire HD and Nexus 7 are offering better screen resolution and speeds. Would consumers pay the extra $130 for Apple’s brand and experience? In my opinion, it is highly probable. Apple has positioned itself strategically well. It has focused on its core competency – providing an amazing experience to its consumers. The reviews are already in for the iPad Mini and it’s comparisons to the Kindle and Nexus tablets. Tim Stevens from Engadget, in his review article iPad Mini Review (http://www.engadget.com/2012/10/30/apple-ipad-mini-review/) is impressed by the experience and prefers the Mini over Nexus and Kindle. Same goes for Walt Mossberg (All Things Digital article: Sizing Up the New iPad Mini - http://allthingsd.com/20121030/sizing-up-the-new-ipad-mini/?mod=tweet)
Some factors in favor of Apple:
- The Apple experience: We cannot deny that Apple products do provide an amazing user experience
- The Apple eco-system: This in my opinion is a big advantage for Apple. If you already have a Mac or iPhone or iPod, it is easier to get a tablet from Apple, as it would sync easily with all your other products because of the iTunes eco-system.
- Brand Image: Now Apple does have a great brand image – as depicted by the high stock prices and past performance of the company despite higher prices than competitors, and people may be willing to pay the extra dollars to own an iPad.
- Pricing: The fact that Apple refused to price the iPad Mini at a price more competitive to its competitors may hurt it
- Competitors: Both Nexus and Kindle have either comparable or better technical specifications than the iPad Mini
We would get a better picture of how Apple’s product & pricing strategy work out in a couple of months – especially since the holiday season is almost here. But what do you think about Apple’s strategy? Can it really afford to price its products higher, just for the “Apple experience”? Or do you think Apple should have priced its iPad Mini more competitively? Are the falling share prices an indicator of the flawed pricing strategy, and will Apple lose its edge in the tablet market?
[i] See CNET article for more details: http://news.cnet.com/8301-13579_3-57486828-37/steve-jobs-7-inch-tablets-doa-yeah-right/
[ii] HBR – Harvard Business Review