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,
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,
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.
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?
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