iPad Sales are 100% Price Insensitive

I am doing an about turn on a statement I made 18 months ago on iPad price elasticity. Then I presented this graphic below and stated the existence of linear demand curve,

ipad_elasticity

Looking at the unit volumes and average selling price (ASP) over three most recent quarters it appeared iPad sales were price elastic. That is, volume changed  with price changes.

This time I expanded the time frame and included data from the first month iPad was launched to latest quarter. Over this nearly six year period here is how the chart for Units vs. ASP looks like,

ipad-elasticity

We can step back and squint all we want, this does not say much. So I ran linear regression analysis on this data, trying to test the hypothesis if changes in volume can be explained by changes in price.  It turns out there is absolutely no correlation between unit volume and price.

The linear model  Units =  Constant + Coefficient X Price,  has an R-square of 0.0017, that is absolutely no predictability. Changes in unit volume is independent of price.

Here is how the scatter plot looks like, almost horizontal curve with points scattered above and below the line.

predicted_asp

Which means demand for iPad is driven by completely different factors  – use cases, product fit, features, customer preferences  etc. So if Apple wants to spur value growth it has to pull different levers than price. That is why you are seeing newer product innovations like the iPad Pro.

On the other extreme of price spectrum is Amazon’s $50 Kindle tablet. If iPad is not price elastic can we say anything about volume for $50 Kindle. Unfortunately we cannot extend the model to a different product category at such a low price point. It is highly likely a price point like that can drive impulse purchases that can drive up volume significantly.

Finally on changing my stand on price elasticity of iPad,

When new data come in I change my mind. What do you do?

 

2 thoughts on “iPad Sales are 100% Price Insensitive

  1. Tom
    Apple is seeing both ASP erosion and volume erosion over the period.
    Indeed people are price sensitive but they still likely do not see a competing reason to buy a tablet (other products see to do the job better).

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  2. It looks to me like higher price is linked to lower sales however. Following along your line, it seems it doesn’t really match the data but if you were to draw a line through the the middle of the prices it would follow a downward curve where closer to $700 you would expect to see sales of around 5000 but more as you back out toward the left, lowering the price. Maybe you need a different sort of regression to explain why this. It doesn’t seem logical that people would be price insensitive that price didn’t matter. Looking at the sales it’s easy to see that a higher price does equate with lower volume of sales so maybe you should try another sort of regression or rethink your model.

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