Why Apple should price the iPad Mini at $199

As the rumored unveiling date for the iPad Mini steadily approaches - October 23 to be exact - speculation and rumors over Apple's pricing plans continue to pile up.

As the rumored unveiling date for the iPad Mini steadily approaches - October 23 to be exact - speculation and rumors over Apple's pricing plan for the product continue to pile up. Most recently, leaked screenshots from  the inventory of a German electronics company purport to show the entry-level iPad Mini checking in with 8GB of storage and a price tag of $249 Euros, or about $323.

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Now the iPad Mini, by virtue of its size alone, will be positioned to compete against smaller tablets like the Google Nexus 7 and the Amazon Kindle Fire. That being the case, Apple's iPad Mini should be priced rather aggressively. Keep in mind that the Nexus 7 retails for $199 while the base-level Kindle Fire is about $40 cheaper.

So what are the analysts and pundits saying?

Well, leaked screenshots aside, some analysts believe Apple will go all out and disrupt the low-end tablet market with an aggressive pricepoint in the $199 range. Still, others believe that Apple, always keen on maximizing its profits, will price the device in the $250 range.

Either way, iPad Mini pricing creates an interesting dilemma. As pointed out by the Investors Business Daily, the iPad Mini needs to be priced low enough to compete with the likes of Google and Amazon, but necessarily so low that it cannibalizes iPod Touch sales. The recently released fifth-gen iPod Touch starts at $399 for the 32GB model. That's right, the 16GB model is no more.

The pricing of the iPod Touch may actually give us a hint of where they're going to price the (iPad) Mini," said Sterne Agee analyst Shaw Wu. "It's a low likelihood that they will price the Mini on par with the Touch or even at a discount. You can forget about a discount. So we're probably looking at a price above $299."

Wu's prediction: $349.

That seems absurdly high to me. $349 for a smaller non Retina Display iPad when you can pick up the iPad 2 for $399? That's an awful value proposition.

I contend that there really is no pricing confusion to be had with the iPad Mini and the iPod Touch as they are two different products that serve two different purposes. The iPad Mini is a miniaturized tablet meant for mild media consumption and book reading. And as opposed to the iPod Touch, it won't feature a crisp Retina Display or high-quality camera. What's more, a rumor this past weekend claimed that Apple's upcoming iPad event will have a strong focus on iBooks.

So if we take and run with the assertion that the iPad Mini and iPod Touch won't be competing for the same customers, does that necessarily mean that Apple should price the iPad Mini very competitively?

Absolutely.

Remember that the tablet market is still in its infancy with tremendous room for growth ahead. Now contrast this with the MP3 player/handheld mobile device market, a market that's been mature for some time now and one that Apple continues to dominate. Consequently, it's in Apple's own best interest to aggressively price the iPad Mini as a means to eliminate any price umbrella - a phrase Apple executives like to trot out - for the competition to enjoy.

If Apple were to release a $350 iPad Mini, they might as well not release anything at all. The whole point of the iPad Mini is to appeal to a completely new demographic of consumer. You might remember that Tim Cook during a recent Apple earnings conference call said that they noted a significant uptick in iPad 2 sales once they lowered the price to $399.

In other words, there are a whole lot of people who want to get their hands on an Apple iPad but are simply priced out of the market under Apple's current pricing matrix. Right now, those folks are becoming Amazon and Android-based tablet users. Apple wants to avoid this dynamic at all costs and we imagine the highest Apple would price the iPad Mini is at $250. Unleashing an iPad Mini at $199, though, would really leave the competitors like Amazon and Google scrambling to stay afloat.

Why cannibalization isn't an issue

Meanwhile, the IBD quotes NPD Group analyst Stephen Baker who says that Apple should worry about a "cheaper iPad Mini cannibalizing sales of pricier, large-screen iPads."

That's a valid consideration, but as Apple has said time and time again, if an Apple product is going to be cannabilized, they'd rather have it be at the hands of another Apple product. As it stands now, Apple's competitors are the ones enjoying the benefits of a marketplace without a cheap iPad option. It should be a no-brainer for Apple to limit the growth of its tablet competitors, even if it means sacrificing a few higher-margined iPads in the process.

Here's why.

It was made abundantly clear during Apple's and Samsung's trial this past summer that the significance of a purchased iOS device doesn't end with the profit derived from the sale alone. Rather, each sale of an iOS device takes on a greater significance because it brings consumers into the iOS ecosystem where they're likely to spend money on media content and, more importantly, purchase additional Apple products in the future.

It's worth noting that during Apple's earnings conference call back in January 2011, Tim Cook addressed straight on an analyst question regarding iPad sales cannibalizing Mac sales.

"If this is cannibalization, it feels pretty good," Cook quipped.

Apple's ultimate goal with the iPad Mini isn't solely make a killing at all costs - after all, they're already doing that with regular-priced iPads and iPhones. Rather, their ultimate goal is to corner the low-end of the market and prevent companies like Google, Barnes & Noble, Amazon, and even Microsoft from gaining a foothold in the tablet market and then using that momentum to release larger-sized tablets and steal some of that iPad thunder.

All that said, Apple is smart enough to price the iPad Mini at a price well below the $349 figure cited by Shaw Wu.

Again, the $250 range is likely for an entry-level model, but we're really hoping for $199 - you know, just to see how the market reacts and keep things interesting.

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