Monday, June 27, 2011

Apple iPad and the price elasticity equation

I met with the upper limit of the Apple iPad my price range over the weekend through a simple conversation at Best Buy. Chat like this:

    Me: Every iPads 16GB left.
    Best Buy rep: There they go fast. All we have is a 64GB iPads. They are $ 699. Want one?
    Me: No, thank you. I, Äôll wait.
After that discussion, I revisit that thought. Is the 32GB version from $ 599 to do the trick? Maybe, but maybe not. Frankly, I finally became a little more disgusted than I thought about plunking down $ 499 for the device I only played with for a few minutes before entering the lane.
Add the fact that Apple sold 300,000 units iPad out of the gate, Äîin line with Wall Street expectations of most, but also ashamed of Piper Jaffray, AOS high target, the price elasticity equation Äîand worth pondering.
Also: Special Report iPad
At $ 699, I need to know, Äîwithout buy iPad course, Äîwhether laptop replacement device or not. Consensus answer: It might be a killer laptop, Äîor not. A price tag of $ 699 is a lot of dough to spend just to find out.
At $ 499, Best Buy iPad observers have made their decisions as they walked in the door. However, the line, Äîto buy and the demo unit, Äîevaporated fast. Simply put, the iPad is to sell long-term. You have to play with the demo unit, reflect on, go home, go back and then make the plunge. Why?
Opportunity cost. When it costs $ 500 or more occasions are always a problem. At that price, the iPad compete not only with electronics, e-readers and laptops. IPad compete with everything at that price.
To wit:

    $ 500 can be given to charity;
    -Your alma mater;
    Your child, AOS college fund;
    A piece worthy of your mortgage;
    Rainy day fund;
    About four or five nice dinner for two;
    And allocated to any other purchases.
You win, AOT heard a lot about the price elasticity of the first wave of buyers iPad. They will buy iTurd if Steve Jobs creating it. Apple, however, is targeting the masses. And the masses to think in terms of opportunity cost.
Oppenheimer's Yair Reiner said in a research note:

    We believe the first day of sales iPad (300K + units) is a measure of brand loyalty among Apple fans, who will buy almost anything bearing the logo of miracle fruit. For others, it will take time to recognize an interesting use case for the device, which will be a function of the application becomes available.
As a guide, Apple already has one. The plan goes like this:

    Selling the first wave of devices to the big Apple fan;
    Use the group to sell enough units to reduce costs and improve products;
    Add applications continuously;
    Lower price (or give more value for money);
    Weight of the device market.
If that sounds familiar guidelines which, AOS because Apple did the same with the iPhone. The iPhone is a hit, but the price drop to $ 99 is what really sparked the volume.
At $ 399, the iPad is difficult to resist. At $ 299, Apple will move more units. You get the idea. The only wild card here is whether Apple wants to disrupt the iPad iPod touch. If Apple is getting more than that small problem, the iPad will escape.

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