The iPad Sale Apple Needs for Black Friday
The Apple Store is not known for discounts, opting instead to attract shoppers with a combination of compelling merchandise and superior customer service. Black Friday is the only day of the year that you can count on seeing markdowns at the Apple Store. Even then, the deals never match up to the doorbusters offered at other retailers.
Apple still hasn't revealed its Black Friday plans for 2013, but when it does, I hope to see a meaningful discount for the new iPad Air. By doing so, it can neutralize a potential sales headwind: low supply of the (also new) iPad Mini Retina.
Apple's Black Friday "problem"
Apple has a problem coming into Black Friday. It just released the iPad Mini Retina, which is sure to be in high demand, but Apple does not have much supply available yet. (All things considered, it's a good problem to have!)
While Apple's inventory is a closely guarded secret, it's still possible to gather "clues" from the supply chain and from retail outlets. For example, Rhoda Alexander, an analyst for IHS iSuppli, found that Apple will be able to ship less than 4 million units of the new iPad Mini this quarter. By contrast, Apple shipped 8.9 million iPad Minis in last year's December quarter -- and still could not fully meet customer demand!
Meanwhile, Brian White of Cantor Fitzgerald surveyed Apple Stores last week, and found that most iPad Mini Retina configurations were unavailable for in-store pickup at most locations. Cellular-enabled models seem particularly hard to come by, with lead times piling up at the major wireless carriers.
This creates a risk that throngs of customers will come to Apple Stores on Black Friday hoping for an iPad Mini Retina, only to find that the stores are out of stock. There's not much Apple can do to boost availability of the iPad Mini Retina next week, but it could try to "upsell" customers to the iPad Air.
Similar hardware, different price
Whereas the first-generation iPad Mini was essentially a shrunken iPad 2 in a much sleeker form, this year the iPad Air and iPad Mini Retina are virtually identical, except for size. The iPad Air provides approximately 50% more screen "real estate," and costs an extra $100.
Some customers will prefer the Air's larger screen size, while those who are particularly focused on portability may prefer the smaller form factor of the Mini. However, in between, there will almost certainly be a large group of potential customers who are more or less indifferent about screen size. These individuals are likely to gravitate toward the Mini because of its cheaper price tag.
Apple's goal on Black Friday should be to sell as many iPads as possible. Since the iPad Mini Retina will be in very short supply, Apple should promote the iPad Air as an alternative. Dropping the iPad Air price would help lure customers who were looking for an iPad Mini Retina mainly due to its lower cost.
Getting to within $50
Last year, Apple offered $41 off the fourth-generation iPad on Black Friday. That put the base model price at $458, which is $59 more than this year's base price for the iPad Mini Retina. I would like to see Apple get the iPad Air starting price down to $449 or less for Black Friday. Offering a 50% larger screen for just $50 extra should be a compelling enough value proposition to entice some would-be iPad Mini Retina buyers to buy an iPad Air instead.
Apple can afford to do this insofar as the iPad Air is actually cheaper to build than previous full-size iPads. Furthermore, since the biggest difference between the iPad Air and the iPad Mini Retina is the screen size, it's likely that the difference in production cost is actually less than $50. Thus, Apple would make more money selling an iPad Air for $449 than selling a full-price iPad Mini Retina.
A potential hitch
There's one potential hitch that would undermine this plan: insufficient supply of the iPad Air. While the iPad Air was in relatively plentiful supply at launch, lead times have been expanding. As of Thursday, Apple's online store was reporting a five to seven day shipping time frame for all iPad Air configurations.
It could be that Apple is holding back inventory in order to make sure it has enough product to sell in stores on Black Friday and thereafter. However, if a real iPad Air shortage is developing, it would not make sense to sell the product at a discount and then run out of stock.
Apple has a good chance to deliver a blowout holiday quarter, primarily on the back of strong iPad demand. One of the few significant threats to growth for the iPad product line is low supply of the iPad Mini Retina. If many potential iPad Mini Retina purchasers want to buy it as a holiday gift, they will just find something else if it's not available.
A significant iPad Air sale for Black Friday could mitigate this risk by convincing people who came to the Apple Store looking for the iPad Mini Retina to go with the iPad Air instead. This would give Apple the ability to boost December quarter iPad sales well beyond the market's expectations.
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The article The iPad Sale Apple Needs for Black Friday originally appeared on Fool.com.Fool contributor Adam Levine-Weinberg owns shares of Apple and is long January 2015 $390 calls on Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.