The market for iPad

iPad – An Overview

0 iPad first released in the US on 3rd April 20100Different models (wifi only or wifi+3G)0From April to December, over 15 million iPads sold,

generating US$9.5 billion dollars in revenue 0Was the fastest consumer product in the world selling

3million iPads in 80 days, before being overtaken by Xbox Kinect in November

0 iPad now has 90% market share of tablet PCs in the world, having sold more than all other tablet PCs combined

How is the price of iPad determined? :o

0Combination of several factors! 0Cost of manufacturing

parts!0Depends on the demand in

the Tablet PC market!0Based on competing tablet

PC prices!0Signalling function of the

market mechanism!

iPad and its related markets

0Compliments0APPS!0Accessories

0Substitutes 0Other tablet PCs0Other devices for reading ebooks

Apps!

0Apple App Store has over a million apps!0 >65,000 are iPad specialized!

0Over $2b have been earned by developers accumatively selling their apps on the App Store

0Other competitors have tried copying the App Store concept but are unable to attract developers and compete with Apple’s standards.

Accessories!0Apple has several OEM accessories for the iPad like

Camera Kits!

iPad Projector Cables!

Docks!

Keyboards

Compliments0A perfect complement is a good that has

to be consumed with another good.0 In marketing, complementary goods give

additional market power to the company.0Compliments have a negative cross

elasticity of demand (XED).0As the price of iPad increases, the

demand for compliments decreases. Qx – qty of complimentsPy – price of iPad

Substitutes! D:

0Other tablet PCs

Motorola XoomSamsung Galaxy Tab

Substitutes

0Other ebook readers

Amazon Kindle Nook

Substitutes

0 Substitute goods are goods which, as a result of changed conditions, may replace each other in use (or consumption)

0  Substitute goods have a positive cross elasticity of demand. (XED)

0As price of iPad increases, the demand of substitutes increases

Recent Developments affecting iPad

0Emergence of competition from other Tablet PCs

0More intensive advertising by competitors0Production problems in Foxconn China0Recent earthquake and tsunami crisis in Japan

Emergence and advertising of competition

0More companies have tried to join the success of the iPad by coming up with their own tablet substitutes0 Example, Samsung Galaxy Tab, tries to copy the features

and capabilities of the iPad like its design and App Store0They have also increased advertising of their products

0 Example, more advertisements on television, newspapers about their product.

What does this mean?

0With rise in substitutes, the quantity demanded for iPad will decrease.

0With more advertising, this will effect the consumer’s taste and hence more consumers will shift away from iPad, quantity demanded for iPad will decrease

Demand for substitutes

Demand for iPad

Total revenue of iPad

What does this mean?

D1

D2

SubsititueiPad

Price

Quantity Quantity

Price

What has been done?

0Apple has ramped up advertising to compete with competitors advertising0 Full building posters0 More and more TV ads – iPad is ___ series 0 http://www.youtube.com/watch?v=btfbIVGES1I

0Apple has come up with a new generation iPad0 iPad 2 has a better design and features like dual

cameras, faster graphics and CPU, 33% thinner0 Keeps the iPad up-to-date and makes it a better

substitute against other Tablet PCs

Graphic example to show effect of an iPad 2

0Some facts 0 30% of iPad 2 buyers are iPad1 owners0 Currently, iPhone and iPad are #1 most popular camerasin the world

iPad Production Problems

0At Foxconn factory in China, employees are overloaded to meet high demand of iPads.0 14 suicides were reported in 2010 due to employees

breaking under stress0 Thus, productions of iPads had to be declerated

0Recent earthquake and tsunami in Japan0 The natural disasters affected the production of iPads

because factories in Japan producing the iPad memory chips and batteries were closed

What does this mean?

0This means that the production of iPads will decline sharply.

0With less supply, impatient consumers may turn to other alternatives instead of buying the iPad.

Disruptions in iPad production chain

iPad supply Shortages in iPad

People turn to substitutes

iPad demand

References

0 http://www.ismashphone.com/2011/03/japans-earthquake-and-the-possible-economic-tragedy.html

0 http://www.tuaw.com/2011/03/11/ipad-killing-the-competition/

0 http://modmyi.com/forums/ipad-news/754457-ipad-2-costs-about-323-manufacture.html http://newenterprise.allthingsd.com/20110313/days-after-its-release-the-ipad-2-gets-the-teardown-treatment/?mod=googlenews

http://www.zdnet.com/blog/apple/how-will-japan-earthquake-affect-apples-ipad-supply-chain/9763

http://events.apple.com.edgesuite.net/1103pijanbdvaaj/event/index.html