iPad Paralysis
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October 20, 2014 By Stephen Baker, Vice President Industry Analysis Leave a Comment
Apple’s new fall lineup of iPads has been introduced, and I find myself struggling to analyze the myriad of SKUs and configurations available. One thing is for sure – the iPad has been struggling in 2014. For the first 40 weeks of the year sales are down 16 percent; performance that has caused many U.S. retailers, who were counting on the iPad to continue to provide sales lift, to seek alternatives. One of those alternatives has been Android tablets, whose sales growth was a boon earlier in the year. However, the fact is that Android has also fallen victim to challenging product positioning and a murderous pricing cycle.
Prices for both iPads (especially the Mini, but the Air as well) have been difficult to maintain at their published levels over the last couple of quarters in the U.S., leading to promotions and markdowns all over the U.S. retail landscape. Pricing activity stepped up in the third quarter, primarily focused on the back-to-school season, as Android sales slowed and average selling prices dropped, and Apple responded. This pricing proved to be a boon to iPad’s unit sales, turning that 16 percent decline into a 3 percent increase during the back-to-school season. But, that unit boost came at a tremendous cost as revenues declined by more than 10 percent. Android found no solace in the pricing wars either - its back-to-school unit growth was also around 3 percent (a steep fall from the 30 percent full year sales results), and revenue was down 16 percent. Basically, both sides continued to lose. Price action after price action has done little to keep the market whole.
Can the new product offerings lead to better Q4 results? Will additional SKUs and a more complete range of price points have a beneficial result on the iPad? Will it help stem the price erosion in the market? Can Android products compete more effectively with iPads without further pricing activity? Frankly the answer to all of these questions is likely to be no, but trying to parse out the details of how to come to that conclusion is a withering challenge.
So, despite my analysis paralysis, I feel there are a couple of truths that I can grab onto. First, the iPad Mini pricing at $249 will not hold. Three times this year major U.S. retailers have advertised it at $199. Those three weeks alone accounted for almost 20 percent of all iPad Mini (both regular and Retina displays) sales in 2014, and were, by far, the three highest selling weeks for iPads year-to-date. Aggressive pricing at the entry-level is a must for Apple – that will not change. The iPad Air (last year’s model) will not hold its price at $399 either – large tablets are even more competitive today than small ones. This year, the 9.7” class of iPads suffered from Apple’s inconsistent application of an entry-level product strategy. The volume pressures will be enormous.
I’m left with maybe a little more analysis than I thought, along with the realization that holiday tablet sales will be more about price than ever, and that Apple is setting itself up with a product and price strategy with that truism in mind. |
