Every Apple (AAPL) media event is marked by some sort of surprise—the launch of a new product, the addition of an innovative feature, or the introduction of a new service. At the last iPad event, the surprise was the new iPad’s name. Many branding experts voiced their concern that the new name—simply iPad, rather than the widely expected iPad 3—could be confusing, given the expectation that the latest-generation device would receive a numeric identifier just as its predecessors had. The explanation provided by Apple’s senior vice president of worldwide marketing—”because we don’t want to be predictable”—did not help alleviate the confusion.
So why didn’t the new iPad get a number? To gain a better understanding, let’s take a peek into the future of the tablet market and explore Apple’s options for maintaining its competitive edge.
As the tablet market evolves, it is entering a new stage of its life cycle, characterized by intensifying competition. Amazon (AMZN), Samsung (005930:KS), Hewlett-Packard (HPQ), and many others are frantically scrambling to develop an “iPad killer” that will present consumers with a viable alternative. And although they have not managed to slay the iPad, they have succeeded in taking a bite from the iPad’s market share. The reason is simple—as the market grows, it is becoming more diverse, with more customers seeking different benefits. And the more diverse customer needs are, the more difficult it is for a company to fulfill these needs with a single offering.
Currently there are two important consumer segments that are not well-served by Apple—those seeking a smaller tablet and those seeking a cheaper one. These two segments are strategically important to Apple because they are likely to drive most of the tablet market’s future growth—and competition. Indeed, most competitors have come to the realization that one way to compete with Apple is on price: The iPad’s prices are about twice those of most of its competitors. In addition, many of the iPad’s competitors—such as Amazon, Samsung, Acer (2353:TT), HTC (2498:TT), and Lenovo (992:HK)—offer smaller-sized tablets that appeal to some customers not just because of their low price, but also because of their handier size.
Not having a presence in these two rapidly growing markets—low-price and small-sized tablets—represents a missed opportunity for Apple, but also allows its competitors to gain a stronger foothold in the tablet market.
So, the most logical move for Apple would be to launch a smaller, lower-priced version of the iPad. This strategy worked well for the iPod: The Mini proved to be a great success by adding to Apple’s bottom line while shielding the iPod from low-priced rivals. Therefore it would be logical for Apple to diversify its tablet portfolio along the lines of the iPad and iPad Mini—a product-line strategy that needs no numerical designation.
This line of reasoning is consistent with Apple’s decision to keep the lower-priced iPad 2 on the market. It could also explain Apple’s reluctance to provide a cohesive story for the new iPad’s naming decision, since stating the real reason for dropping the number would reveal Apple’s future product line and competitive strategy.
In marketing, the development of a product line that appeals to both the high and low ends of the market is often referred to as the sandwich strategy. The idea here is that Apple can “sandwich” its competitors, such that performance- and size-oriented consumers will migrate toward the high-end offering (iPad) while price- and convenience-oriented consumers will migrate toward the hypothetical low-end offering (iPad Mini). Leaving its competitors stuck in the middle.