Why is the iPad the cheapest of the comparable tablets ?

A Wall Street Journal article (March 2, 2011) reports on a note by an analyst, Toni Sacconaghi, at Bernstein Research, on why the Apple iPad is the cheapest of the tablet products offered.  The article claims reasons for this cost advantage (a) Apple’s use of its cash to build up an inventory of components and reserve capacity thereby assuming risk and getting a cost advantage (assuming growth targets are hit), (b) Vertical integration at the retail level by owning several stores – this channel is estimated to sell 33 % of the iPads, (c) The company designs its own chips and get a 20 % cost advantage, (d) Higher margins on the smartphones are used to subsidize or decrease margins on the iPad.   Will prices of the iPad increase as smartphone competition heats up and Apple can no longer generate higher margins in that segment ? Will new generations of the iPad emerge with more varieties to segment the market even more or will they emerge with common designs to leverage choices across phone carriers for the 3G or 4G cell phone and internet access ? If growth of the iPad sales sputter, will the vertical integration and risk absoprtion strategy become a burden on the supply chain ?

Advertisements

About aviyer2010

Professor
This entry was posted in Collaboration, Global Contexts, Operations Management, Supply Chain Issues and tagged , , , , . Bookmark the permalink.

One Response to Why is the iPad the cheapest of the comparable tablets ?

  1. Gerlinde Mikolik says:

    As smartphone competition increases and Apple can no longer generate higher margins in that segment and subsidize other products I think that for existing products Apple cannot increase the price. More realistic is the szenario that Apple will lounch a new product at a higher price in order to cover the costs. Regarding new generations of the iPad customized versus standardized – I think that the customization will increase at Apple products because the brand is positioned as a high price and high value products and even if the sales will decrease in the us market there is enough sales potential in other markets.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s