In my last article on iPad Pro models I made the following claim,
Why don’t they offer 32GB capacity for Cellular models?
If the price premium for Cellular is $130, why not a $929 32GB Cellular?
The reasoning is once again based on positioning and segmentation. Those who value the mobility of iPad pro that is used as PC replacement value it enough that they are willing to pay more than $130 premium for it. Furthermore, this segment values less the higher capacity. Key aspect of effect price discrimination for profit maximization is to take away temptations for customers who have higher willingness to pay. So if Apple offered a $929 32GB Cellular iPad Pro most who would otherwise choose the $1079 would choose the former. That is profit erosion.
(Note: For those design fans, look at the simple 3 pricing options. Won’t most gravitate towards the middle option?)
The claim is value perception of mobility offered by Cellular connectivity in iPad Pro is more than that of higher capacity.
How do we validate this claim? Well since price is a proxy for value for Apple’s pricing philosophy (look it up, it is true but only for Apple), let us model what drives prices of different models.
We have access to 23 different iPad models and price points based on
- Screen size (Mini, Air, Pro)
- Capacity (16GB, 32GB, 64GB, 128GB)
- Connectivity (Wifi, Cellular)
- Generation (Current, Previous)
The data looks like this.
Using these four as dependent variables and price as dependent variable let us build a regression model. This is a simple linear regression. And the purpose of this is not to predict but to formalize the relative value of the four variables to customers that is reflected in the price they willingly pay.
I used StatsPlus for Mac and also R programming language. The results of the regression analysis?
How good a fit is this? There should be no surprise here. Adjusted R Square of 91.5% tells us it is very good. And all four dependent variables were statistically significant (p< 0.001 except for Generation where it is p<0.05).
From the coefficients of variables in the model we can safely state Connectivity is higher value than Capacity. In fact Screen size has the highest impact on value perception. This also explains why Apple didn’t bother with 32GB in Cellular models.
Now you have it, a formal value modeling of iPad based on four variables.