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Pricing rumors swirl for iPad mini

John Cox | Oct. 23, 2012
On the eve of Apple's expected announcement tomorrow of a smaller iPad, there's still a lot of uncertainty and intense debate over its price.

Singh predicted in August an iPad mini starting price of $299 based on his estimates of a bill of materials for the smaller tablet, based on what we know about the current full-size iPad.

[Another recent BOM analysis, by Ming-Chi Kuo of KGI Securities as reported by AppleInsider, had a very similar BOM total starting at $195 and a starting retail price matching Singh's at $299. Both see Apple continuing to accept lower margins on its tablet line compared to the iPhone.]

"I really doubt an iPad mini buyer would consider substituting it with an iPod touch or vice versa," Singh says. "My guess is that when consumers are making a buying decision, the natural impulse is to compare products competing in the same category.

"For example, I haven't seen anyone question why most tablets are cheaper than unsubsidized high end smartphones," Singh says. "It's because consumers are comparing prices of, say the [Samsung] Galaxy S III versus an iPhone and not an iPad versus an iPhone."

Looking only at the range of all Apple price points is misleading he suggests because the key is how the pricing of each product category is structured.

Singh is sticking by his prediction that the small iPad will have a starting price of $299, though he now says he's somewhat less certain about that. Apple could be more aggressive with a price closer to $250.

DaringFireball's Gruber has followed a similar argument: The iPod touch pricing, at $299, is not Apple's frame of reference for pricing a small iPad. "Don't worry about comparing the price of the new smaller iPad to the iPod Touch," he writes in a blog post last week. "It's a different category. Compare it to the price of competing tablets and to the regular iPad. That's all that matters."

The key difference is between the iPod touch and the small iPad is the former is miniaturized. "It's true that smaller generally implies cheaper, but miniature carries a premium," Gruber argues. "The 13-inch MacBook Pro is smaller than the 15, and thus cheaper. ... But the iPod Touch isn't just smaller than the iPad -- it's miniature. Gadget prices tend to follow a U-shaped curve: big is expensive, small is cheap, miniature is expensive."

If you include Apple's fourth-generation iPod touch into the product matrix, you can see a clear, almost precise progression in price across the touch, iPhone, iPad and possible small iPad product lines, as in this chart prepared by Horace Dediu, founder of Asymco. [At this writing, the Asymco site was offline, and the link is to an Apple 2.0 blog post at Fortune, by Philip Elmer-DeWitt. His full post is online.] 



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