Aggressive iPad discounts signal Apple's move for market share

Widespread price cuts and large-denomination gift cards for Black Friday are part of company's 'iPad Christmas' strategy

Apple's discounts of the iPad Air and first-generation iPad Mini were "very aggressive," a retail analyst said today, and were aimed at scooping up as much U.S. tablet market share as possible.

"Apple has been very aggressive this holiday season by driving down prices, whether that was letting retailers change prices or offer gift cards, or through its own gift card discounting," Stephen Baker of the NPD Group said in an interview Monday.

"They want market share," Baker added. "It was too widespread not to be authorized by Apple itself."

Baker was referring to the sales Apple and several of its key retail partners -- Best Buy, Target and Walmart -- ran last week, starting on Thursday, the Thanksgiving holiday in the U.S., and continuing on Black Friday.

For its one-day Nov. 29 sale, Apple bundled a $75 Apple Store gift card with the purchase of an iPad Air, competing with -- but not matching -- deals at other retailers. Target both reduced the price of the 16GB iPad Air to $479 and offered a $100 card, while Best Buy discounted the Air to $449.

The price cuts from list -- the 16GB iPad Air's is $499 -- and the large-denomination gift cards were unusual for an Apple product, Baker noted. "There were plenty of places where the Air was not advertised at $499," he said, referring to the discounted prices.

And for all intents and purposes, the gift cards were discounts. Cynics may scoff at gift cards and refuse to put them on equal footing with direct price cuts, but that's not the way customers see it.

"The whole discussion is silly," said Baker of the arguments about whether gift cards are second-class discounts. "Gift cards are money, consumers recognize them as money, and they want to spend it."

Baker declined to provide estimates of Apple's tablet sales over the weekend, saying that NPD was still collecting data from its sources. But tablets, as well as large-screen TVs -- those 50-in. or larger -- were the biggest sellers in the electronics category.

Another analyst believed Apple made a mistake in pushing the iPad by throwing in an Apple Store card, which are valid only for purchases at the company's online or retail stores, but are not good for app or digital content buys.

"There is so much more long-term benefit to be gained from iTunes/App Store gift cards," argued Ben Thompson, an independent analyst whose commentary appears on his Stratechery website.

Thompson contended that iTunes or App Store gift cards -- which Apple has used for the last three years as the carrot for its annual back-to-school sale -- make the iOS ecosystem more appealing to developers and help Apple "lock-in" customers.

Baker saw it differently.

"The goal of gift cards is to get people back into the store," Baker said. "That's even more important in consumer electronics. It's a challenge, for example, to get customers back into the store after they've bought a tablet. Once they've bought [an iPad], what are you going to sell them next?"

By prompting consumers to return to Apple's retail or online stores, Apple has a chance of selling another device, maybe an iPhone, perhaps a Mac, said Baker. "It's all about traffic and volume," he said.

In October, CEO Tim Cook was very upbeat about the fourth quarter, in hindsight perhaps hinting at what Apple planned for Black Friday and the following weeks. "I think it's going to be an iPad Christmas," Cook said during the most recent earnings call with Wall Street analysts.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at  @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

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