Monday, April 12, 2010

Why you might want to wait to buy an iPad

As the first wave of iPad hype begins to recede, let's consider the possibility that Apple will repeat the pricing tactics used to launch the iPhone.

Apple lowered the price of the iPhone by $200 just two months after its launch on an earlier wave of carefully-crafted publicity. Widespread outrage prompted Apple CEO Steve Jobs to offer early buyers a $100 store credit.

This still looks like a textbook example of price discrimination.  Price discrimination occurs when the same product is sold to different consumers for different prices.  This requires first that consumers will pay different amounts for the product, and second that consumers can be divided into groups based on their willingness to pay.

A classic way to divide consumers into groups uses time.  Release a product, let's call it an iPhone, for $599.  Wait until all of the people who want to be among the first to own the product have bought one. Then lower the price to, oh, $399.

Offer complaining customers a consolation prize.  The store credits probably cost Apple much less than $100 a person.  Store credits are often used to buy products that cost more than the credit.  Or else the customer never uses the entire credit.

Now Apple has another "magical and revolutionary product." The starting price is $499 for the most basic iPad.  That's $100 less than the iPhone's original cost, but the iPad doesn't make phone calls.

Is Apple's pricing history about to repeat itself?  It can't hurt to wait and see.