$499 iPad is a good value!
“$499 for an iPad ?
That is crazy” many people have said. The critical consumer goes on to conclude that many budget priced 15.6 inch laptops with 6GB of ram and a few hundred gig’s of HD space cost less than $450. They also point out that android tablets like the Kindle Fire sell for less than half the price of the entry level iPad. If these conclusions are true then why are millions of people all over the world willing to pay $499+ for an Apple iPad?
The three most important words in Real Estate are “Location, Location, Location” : The value of anything is determined by the price that consumers are willing to pay for that item. The consumers willingness to pay a price for an item comes down to perceptual issues unique to each person. A given persons desire for a item is highly dependent on the culture in which they were raised.
Apple has created a unique consumer culture. If we imagine the iOS ecosystem (Apple Mobile Devices / iTunes/ App Store/ Air Play/ OSX) as a higher desirable location, then the value of the Apple devices sold for that system will sell for prices that are not directly related to the devices, the way that homes will sell for prices not directly related to the homes. Apple device consumers want an experience that is simple, intuitive, clean and robust and are willing to pay more to be in "that ecosystem location".
Apple creates additional added value to their products with very creative marketing. Their press conferences are big with video and demos and images that everyone can relate too. They tell a story and stick to that story. If you compare the way that Apple launches a product to the way that other companies launch products, you will find that other companies have confusing press conferences that are hard for anyone to relate too. Apple's clockwork like product release cycle also helps to build enthusiasm for their upcoming products.
The Apple retail stores create additional added value by giving consumers a chance to go look at and try out Apple products in first person. These stores offer free classes to educate Apple customers about how to get the best value and function out of their products, with the geek bar offering expert technical support!
Apple’s unique eco-friendly and clean looking hardware also appeals to aesthetic values that people hold about how nice something looks and what a good product should feel like. Every other consumer electronics maker predominately employ’s flimsy feeling plastic where apple uses glass and metal. Apple’s choice to avoid plastics in their contemporary hardware gives these products a quality feel. The unibody design architecture/ engineering creates a compact, rugged, quality feel that other manufactures simply fail to embrace in all but the most exotic niche’s of their offerings.
Fragmentation or a lack thereof also creates added value for Apple consumers. If a person set out to find a tablet computer, they can go with an iPad, or spend hours pouring over user reviews in an attempt to isolate which of the hundreds of different android tablets will best fit what they want. Of the consumers that do go to the trouble of trying all of these android tablets, they also come away realizing that the user experience is not just about hardware specifications. Many high end android tablets with 4 CPU cores 12 GPU cores 2GB of RAM and an HD screen with Android 4.0 $599+ do not perform as well in the real world as the 2 CPU Core, 2 GPU Core, 512MB or RAM and an XGA monitor of the now last generation iPad 2 $399. Many of these Android tablets feel plastic flimsy, bulky and less refined while they have buggy glitchy software that disappoints. With so much fragmentation in the android market place, few of the apps are optimized to take advantage of a given androids tablets hardware.
The kindle fire was the one notable exception to the Android tablet problems. With Amazon’s kindle marketplace, Amazon created an ecosystem that takes advantage of their Kindle content platform. The Kindle Fire sold at a loss to Amazon for $199 (they cost $270 to make), creates added value by offering the user easier access to consumable content that Amazon sells for a profit. I don’t remember exactly the number, but I think Amazon claimed internally that the average Kindle Fire user ends up buying more than $150 worth of content annually. Amazon is banking on the content profit stream to compensate for their $70 per copy loss leader sale price of $199 Kindle Fire. Read some reviews that compare the Kindle Fire to the iPad 2. For some people, the Kindle Fire is a great value! That said, you get what you pay for. The internet browsing on a Kindle Fire is totally lackluster and leaves much to be desired in terms of performance. The Kindle Fire has a smaller lower quality screen. The plastic construction of the Kindle fire is also not on par with the iPads aluminum and glass! Sure, for $199 you are getting a screaming deal, but don’t think for a second that it will perform like an iPad 2 $399 or the new iPad 3 $499. That said, Amazon is going to launch a 10.1 inch version of the Kindle Fire 2 soon!
Apple is able to command a price premium on their product for a lot of reasons. Apple’s legendary marketing creates "mind space" with consumers. This more than anything else has helped to propel Apple to #1. Marketing alone was not enough. Apple's hardware/ software integration leadership is also unique. The design the software to use the hardware in an optimized way so that less hardware can give much greater battery life and performance! Their class leading mobile devices take advantage of the iTunes/ App Store ecosystem which is notably better than the android market. Apple's hardware has beautiful industrial design that really raises the bar for everyone else/ Samsung enthusiastically taking hints from Apple in this regard. Apple's segment leading retail stores combine to create an end user experience that is simple absent in other devices.
The iPad might not seem like its worth $499 if you compare it on paper to other android tablets or budget laptop computers, but I assure you the millions of people who continue to buy iPad's are not crazy/ they are choosing the option that gives them the best overall end user experience.
Companies that please their end users like Amazon and Apple will flourish. Companies that frustrate their customers will like HP will fail. That is exactly why Apple has been making record profits selling records numbers of its greatest devices ever; the end user of the Apple system are pleased and see little value in the lower quality android / windows ecosystem alternatives.