Attracting new customers with old products
Apple released the second iteration of their iPad tablet yesterday, and much as was expected, the changes were mostly incremental. Aside from the integration with the very cool Airplay, there were not too many features to get the tech bloggers typing.
Apparently the real changes are coming with iPad 3, rumored to be coming in the fall.
But after the release yesterday, I found myself excited by something else entirely - what would be the price of a first generation iPad a couple of months from now, when the new version is widespread and selling well? And I don’t think I am the only one thinking this way, in fact, Apple’s aggressive and consistent release schedule has created a brand new market for its superseded products.
Take the iPhone 3GS, which AT&T recently began selling for $49 (coupled to a 2 year contract). AT&T are yet to release any sales data for phones at this new price, but a phone that originally went on sale at over 4x that price can be bought just 18 months later, for a price you would expect to pay for an average Motorola clam shell. For AT&T it makes sense - the average value of a customer using an iPhone is higher than other phone types - the expensive data plan being one key point of differentiation. Why not lure new customers in with the iPhone brand, at a subsidized price, and reap the benefit of their spend on the network over time?
Its a great practice for Apple too. No matter how great your forecasting, most manufacturers over-produce, particularly when building a range of blockbuster products, as Apple has been since the launch of the first iPod. Offering excess older generation product at a lower price point, and with clear differentiation, creates an opportunity to acquire a less trend conscious, more price sensitive customer who otherwise might feel alienated by such a forward-focused company.
The iPod classic is a great example of this - at $249 its just $20 more than the cheapest of the new shape iPods, but yet it has a memory that is a full 20x bigger. The difference is merely the form factor, with the older version lacking the slender looks of its successor.
One critical note here - we must differentiate between products that stand alone (iPod), and products that require a contract (iPhone). Its considerably easier to heavily reduce the upfront price of a piece of hardware when you know that you have a guaranteed stream of usage revenue following in its wake.
But most of all, this pricing trend makes sense for the consumer. $49 is a tremendous price for a technically advanced product which is every bit the match of its newer, flashier brother, with the exception of a front facing camera. For those that are prepared to forego the bragging points of always having the latest gadget in their product arsenal, the savings are significant.
One can only assume that Apple will pursue the same policy with the iPad - the critical question is what the price will be. The issue is clouded by the availability of on-contract/off-contract versions, but is it possible that we might see a wifi-only iPad for under $200? I for one will be buying if we do.
Zoom Image
