Why has Apple priced Australian iPads so low?

You know Apple is determined to do anything to make the iPad a success when it starts cutting into its own, historically-healthy margins – even when the iPad has already proved itself to be a runaway hit.

Pricing announced over the weekend offered both good and bad news: good, that Australian prices will range from $629 to $1049; bad, that Australian prices will range from $629 to $1049. In other words, the good news is that it’s possible to get into an iPad for an outlay that is far more reasonable than many had suspected. The bad news is that the 3G models will indeed range up to that magic four-digit mark, near which buyers tend to become a lot more careful about spending their hard-earned.

Whether this could spawn a generation of buyers who shell out for the low-end WiFi-only device rather than springing for a fully-capable iPad with 3G and loads of storage, has yet to be seen. As we learned from recent announcements by Telstra and Optus, the 3G devices will impose a not-insignificant cost burden for prepaid data. If customers add up their total expenditure for the 3G device, many may opt for the WiFi-only model instead.



Interesting thing, the WiFi model. Apple normally calculates its Australian pricing with a pretty generous allowance – compared with the US retail price – to cover the cost of currency hedging, shipping, local support, and so on.

For example, in the US the white MacBook costs $US999; here, it’s $A1299. That’s a 1.3 multiplier in absolute dollars terms. There, the Mac mini costs $US599; here, it’s $A849 (a 1.42 multiplier). There, your base-model 2.66GHz Core i5 iMac costs $US1999; here, it’s $A2599 (1.3). There, the 15-inch 2.53GHz MacBook Pro costs $US1999; here, it’s $A2499 (1.25). There, the 32GB iPod touch is $US299; here, it’s $A399 (1.33). Apple TV? $US229 vs $A329 here (1.44). And US buyers pay $US3299 for a basic 8-core Mac Pro, while Aussies are slugged $A4799 (1.45).

Fair enough: lower-margin iMacs and MacBooks play in a highly competitive market, so they have a lower multiplier compared with specialty items like the Mac mini, Apple TV and Mac Pro, which don’t have as many perfect competitors – meaning Apple can afford to price them a bit higher.

Some may say that currency fluctuation has something to do with it: when the AUD is low against the USD, it would make sense for Apple to use a higher multiplier to cover coming fluctuations. And, with few exceptions, Apple keeps the prices of its products consistent from the day they’re launched to the day they’re superseded – so it has to price on the conservative side to account for any currency movement.

Nonetheless, a long-term view of the AUD-USD exchange rate shows more internal variability in Apple’s pricing than external.  The current MacBook Pro line, for example, was launched (and priced) on April 13, when the AUD was buying $US0.92685, with a 1.25 multiplier; the current iMacs were introduced (and priced) last October 21 with a 1.3 multiplier, even though the AUD was trading at a near-identical $US0.92341. And the current Mac mini lineup, introduced on the same day as the iMacs, added an additional 13.6% to the multiplier used for the iMacs – even though the currency was converting at the same rate.



iPad: priced to move? Clearly, Apple’s pricing is quite arbitrary. But what, then, to make of the iPad, which has been priced in Australia with a multiplier of just 1.26? For a new product with no competitors, that’s a strikingly low pricing strategy. Given the fact that the iPad is literally flying off the shelves in the US, it’s hardly worth asking whether it will be popular in Australia – so why the relatively low prices?

The answer may be that the iPad is already sitting at the high end of acceptable consumer pricing – and that Apple has accepted more modest margins to keep the device below that psychological watermark of $1000. After all, had Apple Australia priced the iPad in line with its other specialty items, you’d be looking at a price range of $719 to $999 for the WiFi model, and $899 to $1199 for the 3G model. That’s putting the top-end device within spitting distance of Apple’s laptops – and makes it a bit hard to argue that the iPad is a mass-market device, especially given its functional limitations.

Speaking of functional limitations: Apple’s conciliatory pricing may also be a concession to what is expected to be the lack of an Australian iBookstore – at least, not until Australian publishers are enthusiastically onboard – particularly since competitors like Dymocks and Borders are already making their own e-book plans. It’s interesting that, despite the many things that could help the iPad succeed here, Apple may have ceded this as a potentially negative factor that could affect what customers will pay for the device.

Then there’s the issue of carrier pricing. For whatever reason, Telstra and Optus have released pricing for their iPad 3G recharges but have declined to offer subsidies for the iPad – which would have seemed to be a natural model for the device, particularly if it could be bundled by third-party content providers (We’ve already speculated about the reasons this might be the case). Lack of carrier subsidies (although this could change when VHA's pricing is released) mean the iPad is very much an upfront purchase for consumers.

There’s one final possibility: Apple may have used low conversion rates for the iPad because it’s counting on users to buy lots and lots of premium-priced apps for their new devices; the company can take a slight revenue hit now, in exchange for anticipated revenues down the track. This principle underlies the entire model for iPhone pricing in the US, which is hard to compare with prices here due to differing carrier subsidies.

Whatever the reason, the iPad’s looming Australian release will come at lower prices than one might have expected, given Apple’s historical pricing practices. Whether this helps it fly off the shelves, or just move at a steady pace, will become clear on May 28.

What do you think of the iPad pricing? Will you be buying one on May 28, now that the prices are clear? Or is it too expensive for your tastes?