Apple’s mini pricing problem

I’m trying to wrap my head around Apple’s pricing strategy, but so far, the cost of the iPad mini is leaving me a little baffled.

It’s a nice little gadget. Slick, thin and powerful. As all Apple products should be. But as I said earlier this month it’s a reactionary device – and I think that applies to pricing strategy as well.

I’m certainly not the only one saying that, either. Ovum analyst Adam Leach said yesterday that for the first time, “Apple is responding to market pressures from its competitors”.

Nothing wrong with that. But pricing the iPad mini at $AU369 may prove an ineffective strategy.

As far as I can see it, the iPad mini is directed at two different groups of consumers. The first is the dedicated Apple crowd who will trade in their iPads and pick this up because they want a smaller form factor tablet, or just want to upgrade.

The second is the consumer who doesn’t want to spend hundreds of dollars on a tablet, and wants something for reading books, playing games and so on. This is where Google, Amazon and Samsung have succeeded in the past couple of years.

(And, yes, they have succeeded. Otherwise we wouldn’t be seeing Apple switching its gears on entering the seven-inch form factor space in the first place.)

But why would they pay $369 for a tablet when they could buy something for under $300 that does the same thing?

Apple’s obvious argument is that the customer is buying a premium build, and access to the company’s plethora of content in the Apple ecosystem. That’s a solid line to run. It has over 250,000 apps in the store, and parents with children will know how addicted they can be to iPad games. Buying a cheaper tablet just for the kids for Christmas may seem like a great idea.

But for users in the low-budget space, I’m not sure that’s enough to bring them over the line. If you can pick up a Google Nexus for $300 (or as cheap as $230 for the 8GB at some online stores), and download the essential apps that appear in both the Android and Apple stores, why fork over the extra $70?

The other problem is that while existing users will buy Apple gear to make sure they don’t abandon their app libraries, users without an iPad don’t have to make that choice. They’re not locked in.

And in the end, that’s what Apple wants. Consumers who buy so much content they won’t buy another device, because they’ll lose access to all the Apple copyrighted material they already have.

Can a $369 tablet convince people to enter that space?

In a way, this is typical of Apple. It enters a space which already has budget models and then offers a premium build. It did the same thing with MP3 players and the iPod. It’s trumping the competition with build quality and hoping that brings people over the line.

That would work if the Android tablets are totally horrible, but they’re not. Both the Kindle Fire and Google Nexus are fine devices.

Of course, the iPad mini will sell extremely well, there’s no doubt there. But if it were just that little bit cheaper, then maybe it could sell even more.

You can follow Patrick Stafford on Twitter @pdstafford.