The iPad mini Price Premium

A common analytical method in pricing is Conjoint Analysis. While this has evolved into far more sophisticated methods, at its core Conjoint Analysis is about finding how much utility different customers assign to different “features/aspects” of a product. If you know the utilities you can find how to price different product versions.

Here is a quick tutorial if you want to know more.

In the case of tablets you can think of iPad and Fire to be a collection of  features (or benefits) that customers assign perceived utilities. So when you add up the utility assignment for each feature you get the total utility.

Total Utility from Tablet = Fudge Factor +
Price Point ($199, $329)+
Utility from physical features (screen, wifi, etc) +
Utility from Brand +
Utility from Ecosystem

A few days ago Amazon ran a message on its main page comparing Kindle Fire and iPad mini, feature by feature.

The message essentially says Kindle Fire at $199 price point offers better features (by extension better utility) than iPad mini at $329 price point.

Likely true. But the point to note is the utility value from features is neither absolute nor intrinsic. It is perceived utility and it differs from segment to segment. Furthermore there are the “Fudge Factor” – the unknowns, Brand premium and Ecosystem Premium.

Apple likely found a sizeable segment – different from Amazon’s target segment – that assigns lot more value to Apple’s Brand and Ecosystem than they do for Amazon’s Brand and Ecosystem and hence is willing to pay $130 more for iPad mini. (Technically it is $95 more if you consider Fire without “Special Offers” and add price of Fire charger).

Amazon’s comparison is valid. But if the customer segments and their value allocation is not the same, then it does not matter that Fire packs better features at lower price. That is likely why Amazon decided to pull the Ad?

 

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