Sunday, 4 November 2012

iPad Mini vs. Playbook Pricing Fun

Now that Apple has unveiled it's latest tablet offering, the iPad mini, we are rushing into the holiday season with Apple having played it's hand and revealing it's cards. This is bad news for Apple, unless they plan on reducing prices over the next two months. We are likely to see a few more surprises with new product announcements from their competitors (Amazon, Google and Microsoft) who are going to aggressively price their product to compete and do their best to take a bite out of Apple's sales.

There has already been much negative buzz about the pricing scheme Apple has set for the iPad mini. At least in my area, their basic cheapest 16GB model comes in at a whopping $329, followed by 32GB model at $429 and 64GB model at $529. Apple needed to follow this pricing because they are offering their iPod Touch (4" screen) at $299 and iPad 2 (10" screen) for $399. They had no choice but to price it somewhere in-between.

Some recent news has determined that Apple's bill-of-materials or "BOM" on the iPad mini comes in around $188. That means they are making $141 in profit on top (75% markup). Apple could easily reduce the price if it wanted to and still earn a profit, but that could also mean they would have to drop the price of their iPod Touch since people may prefer buying the larger screen iPad mini (if it has essentially the same functions as the iPod Touch). The fact is, competing tablets from Google, Amazon, Blackberry and many others in the 7" screen space have already set a a price level which is much lower and is now in consumer minds.

Apple is relying on brand loyalty and has positioned itself in the "luxury" tier. Sure it has a strong content ecosystem and thousands of apps, but I also sense some complacency. Apple has rode the success of the iPhone and iPad for the past few years, and they think they can continue to push out over-priced products and have droves of consumers lining outside their stores waving their credit cards. But there will be a point of saturation.

Consumers loyal to Apple would have likely already bought an iPad over the past few years. Anyone who didn't already buy an iPad is not just waiting for a cheaper and smaller iPad, but is a more discretionary buyer with no particular loyalty, looking at the entire tablet space for value. These are the buyers who likely fueled the increased sales of competing tablets immediately following the iPad mini event. Amazon reported one of it's best day of sales ever on the Kindle Fire, right after the iPad mini pricing was announced. It seems many consumers decided it was over-priced as well.

A recent article from The Gadget Masters titled "3 Reasons Why You Would Be Stupid To Buy The iPad Mini" makes the following statement (and I quote):
"The iPad Mini’s specs are comparable to the BlackBerry PlayBook in most areas. In the areas that the two differ, the PlayBook actually has better specs (1GB RAM versus 512MB RAM for example). At only $149, the PlayBook is a far more attractive option than the iPad Mini, since buyers can save $180 (and get a free upgrade to BB 10)."
For fun I decided to do some pricing comparisons to see how the Blackberry Playbook stacks up with respect to the iPad mini. At my local retailer I can get a Playbook 32GB for $149 and a Playbook 64GB for $219. Note that there is no more 16GB version available. In fact, a recent sale made the Playbook 32GB available at $129 for a short period of time before it was completely sold out. Compare this with the iPad mini at $329 (16GB), $429 (32GB) and $529 (64GB).

You can purchase 2 Playbooks with double the memory of the iPad (32GB versions) at $149 x 2 = $298 and still be $31 less than 1 iPad mini with basic 16GB size. In fact, if you want to compare the same memory size devices, you could purchase 3 Playbooks (all 32GB) at $149 x 3 = $447 and only pay $18 more than the 1 iPad mini 32GB. If you had to buy a lightning dock adapter for your iPad mini, cancel out that $18 and basically 3 Playbooks (32GB) = 1 iPad mini (32GB).

Looking at the 64GB versions, you can purchase 2 Playbooks (with 64GB) $219 x 2 = $438 and pay only $9 more than 1 iPad 32GB at $429. Your 2 Playbooks would have a combined total of 128GB, or four-times that of your iPad mini memory (32GB) at almost the same cost. You could buy 4 Playbooks (with 32GB) $149 x 4 = $596, and be only $67 more than 1 iPad mini 64 GB model.

Finally, if you bought 2 Playbooks with 64GB ($219 x 2 = $438) and 1 Playbook with 32 GB ($149) that would bring the total to $587 for all 3 Playbooks, which is only $58 more than the 1 iPad mini 64GB version. Your 3 Playbooks would have a combined memory of 160GB, compared to the 64GB of your single iPad mini, and your whole family could have fun using them.

Now the market will decide. This holiday season, we will see how many people are looking to buy tablets in general, and out of those, how many people shopping for 7" screen sizes will walk out of the store with an iPad mini. Will we get a phenomenon where people buy this device for gifts because of the associated "prestige", or to meet a certain value requirement for their gift? If you receive a Playbook as a gift, will you think the gift-giver cheapened out on you? Would you be more impressed knowing they over-paid? After all, isn't someone's love supposed to be about the amount of money they spent?

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