Before Apple (NAS: AAPL) officially took the wraps off of its new iPad mini earlier this week, the big question on everyone's minds was: Where would Cupertino price the thing? The answer was that it started at $329 for an entry-level 16 GB model, on the higher end of expectations. In fact, Apple shares dipped during trading when pricing was announced, as investors expressed displeasure over that price tag.
Compared to rivals in the small-tablet market, particularly the Amazon.com (NAS: AMZN) Kindle Fire HD or the Google (NAS: GOOG) Nexus 7 that both start at $199, the iPad mini entry-level asking price is $129 higher, a 65% premium.
Kindle Fire HD
Sources: Amazon, Google, and Apple.
Even fellow Fool Rick Munarriz thinks $329 is too high, believing it too expensive to compete and that it will primarily cannibalize sales of the larger iPad.
Well, iPad mini preorders have begun today, with a total of six different color and storage configurations to choose from. We also now have indications that the device is priced just right, because three of them are already sold out, and it's still bright and early in the morning as of this writing.
The white and silver model has sold out of units available for launch day for all three storage configurations, which is notable because it shows that plenty of people are not only willing to fork over $329, but will pay as high as $529 to get one. That's more than the entry-level $499 big brother.
We knew Apple would never try to compete on price with the Kindle Fire HD or Nexus 7, which sell at cost, and that it would follow its characteristic premium pricing strategy and shoot for a gross margin in the 40% range. In fact, CFO Peter Oppenheimer said the device's gross margin is "significantly below the corporate average," so in that sense $329 actually is aggressive compared to the profitability of the rest of Apple's lineup.
Apple did a good job justifying why the iPad mini is worth a premium -- larger display, higher build quality, wider selection of tablet-optimized apps -- to consumers, something it was able to do with the iPod a decade ago and maintain market leadership. At $329, the price is right.
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The article 3 Reasons the iPad Mini's Price Is Right originally appeared on Fool.com.
Evan Niu, CFA, owns shares of Apple. The Motley Fool owns shares of Apple, Amazon.com, and Google. Motley Fool newsletter services recommend Apple, Amazon.com, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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