Does 'Nimble' Pricing Suggest iPad Won't Move?
Indications that Apple may lower the price of its new iPad have surfaced -- even though its not yet available for sale -- suggesting that the company may not be certain it hit the sweet spot for consumers. One big inhibitor for a lot of prospective buyers is the extra monthly charge for WiFi and 3G connectivity.
Feb 9, 2010 8:52 AM PT
Apple surprised some company watchers with its relatively low price points for the iPad, and it appears prepared to go even lower, if necessary.
That was the take-away from a recent meeting between Credit Suisse analysts and Apple officials, according to analyst Bill Shope. "While it remains to be seen how much traction the iPad gets initially, management noted that it will remain nimble (pricing could change if the company is not attracting as many customers as anticipated)," Shope wrote.
Affordable Price Tag
When Apple first rolled out the iPad, its pricing was surprisingly modest: The device begins at US$499 for the basic 16 GB model and goes up to $829 for the most expensive 64 GB model, which includes WiFi and 3G.
A $1,000 price point had been widely expected in the weeks leading up to its introduction.
Apple's brand and pricing has always been on the high end, catering to Mac and Apple enthusiasts who are willing to pay a premium for the brand, said Peter Cohan of Peter Cohan & Associates.
"That Apple is signaling that it is willing to go even lower than $500 two months before the device is released makes you wonder what is going on behind the scenes," he told MacNewsWorld.
The information provided in the Credit Suisse note -- assuming it's true -- is one of many factors that suggest the iPad might not be joining the ranks of Apple's product success stories, Cohan said. "First, there is the name, which is terrible. Also, the positioning is terrible."
The iPad is not a notebook or smartphone, he explained -- nor does it come with a camera, a regular feature even in most in standard cellphones. "I just don't understand who this device is targeted for," said Cohen. "I think it will likely be a smaller group than Apple had at one time expected."
Hence, the signal that it is willing to be flexible on pricing, he suggested.
More Expensive Content
Another possible reason for the supposed flexible pricing could be that the cost of content will be higher on the iPad and consumers may balk -- especially when many have become used to the package Amazon delivers with its Kindle. Right now, a storm is brewing over the pricing of e-books that shows little sign of abating, Cohan noted.
Amazon recently blinked in e-book price negotiations with publisher Macmillan. After a brief tiff between the companies, Amazon agreed to raise Macmillan new release e-book prices to $12.99 to $14.99, instead of charging its normal $9.99. Macmillan had the gumption to stare down Amazon because of the iPad, Cohan noted -- and other publishers are likely to follow suit if they haven't already.
The iPad environment is not the same as the iPod's was when Apple first released that device. "Now that device was a game changer -- it entered the market where the competing products weren't delivering to consumers what they needed," , Cohan said. "With the iPad, it seems as though Apple is making things worse."
The additional cost for 3G service is another objection that consumers have to the iPad -- and that may be what Apple is attempting to neutralize with the rumored flexible pricing, said Manish Rathi, cofounder of Retrevo, which recently released a survey suggesting that interest in the iPad might be waning after its initial introduction.
"We have done three surveys on the subject, with the first being late last year, and what we found from the price point perspective is that while Mac owners are happy to pay a premium for the tablet, the general population is not," Rathi told MacNewsWorld.
If Apple wants to go after the mass market with this device, then it will either have to drop the price considerably or eliminate the necessity of paying extra for 3G coverage -- or preferably both, he said. "Consumers don't want to pay extra for wireless charges -- especially for a device that can't even make calls. They just won't do it."
Of course, all of this assumes that Credit Suisse's assessment of Apple's willingness to be flexible on pricing is correct -- and that Apple doesn't change its mind as the launch date nears.
"Apple has already taken an unprecedented step -- by launching the iPad with a price/value message," Adam Hanft, CEO of the marketing and branding firm Hanft Unlimited, told MacNewsWorld.
"That's unheard of for Apple. They've always been insensitive to price, creating a cult brand where cool doesn't come cheap," he said. "So I'd be surprised if Apple took down the price of the device."
Rather, what it might try to do is add more value to the total package, either by discounting connectivity or loading in free Apps or video content, he said.