What was all the hubbub about over the Apple (NASDAQ:AAPL) iPad Mini's pricing of $329? I am talking about its base 16 gigabyte model. I guess that traders and analysts expected the pricing to come in at $299 in order to be somewhat more competitive with Amazon (NASDAQ:AMZN) Kindle's price tags. Which Kindle is the Mini supposed to compete with? The 7 inch Fire HD model for $199 or the Fire HD 8.9 inch which sells for $299? I am sticking with wi-fi only models for comparison. The Mini has a 7.9 inch screen and the iPad4 has a 9.7 inch screen. I would guess that we have to compare the 7 inch fire with the 7.9 inch Mini, So let me get this straight… the expected price of $299 was to be highly competitive with $199 in the minds of analysts and traders?
When you analyze it this way, it sounds ridiculous. So, what is the big deal between $329 and $299? I will tell you what - the 7 inch, 16 gigabyte Samsung Galaxy sells for $349. That's the real competition if you ask me. In the end, $329 means better margins for Apple while being cheaper than Samsung.
Apple, it appears, is going the route of Macy's (NYSE:M). Macy's sells moderately priced brands and luxury brands. They will leave the lower margin off-priced brands to the discounting competition. Apple is trying to capture the mid-market for tablets. It already has the high-end market which was enhanced with the upgraded iPad4 model. Apple has now created a middle tier alternative. If you ask me, the decision is now much easier - you can get an Apple product at $329 or $499 or go for the competition at $349, $299 or less.
Amazon sells its Kindle products at cost. They are now backed into a corner. If they raise their prices in an attempt to make money, then the iPad Mini looks more attractive. Otherwise Amazon can keep on selling what many consumers believe is an inferior product and fail to make money. Perhaps Amazon believes in the razor and razor blades concept for the mobile computing market. Apple knows better. It can make money on both the razor and the razor blades.
Disclosure: I am long AAPL, M. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long AAPL and M stock - although positions can change at any time.