Prior to yesterday’s announcement of the iPad Mini, there was a great deal of speculation as to its form, its capabilities, its existence and its price. Commentators saw the rumoured tablet to be a direct competitor to the Kindle Fire and the Nexus 7, indicating that they believed Apple was concerned about losing market share in that market. The price was rumoured to be around the same level as those competitors, so that the differences which would make people want to buy an iPad over an Android tablet would be the quality of the hardware and the app marketplace.
There is certainly some merit to this idea. Apple has, in the past, introduced new products to create ‘price umbrellas’, meaning that consumers are able to pick a product at any level of affordability. This article shows a clear staggered pricing strategy for each of the main product lines, with subsidies on iPhone contracts bringing prices for those to very low levels.
In the end, the price was a lot higher than analysts were expecting, and it remains to be seen how this affects sales. Certainly, Apple seem to be valuing the build quality and operating system and ecosystem relatively highly, and there is some evidence (from the iPad’s continued dominance of the larger tablet market) that consumers will as well.
The danger to Apple of setting a low price for any of its products is cannibalisation. While the iPad Mini will no doubt sell well, at least some of the demand will come from consumers who would otherwise have bought a larger, more expensive iPad. The loss of revenue here needs to be managed, and this is likely to be a major factor in setting the price.