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Apple’s new iPads to offer greater profit opportunities?

Apple Inc’s (Apple) latest additions to its iPad tablet range show that it continues to focus on the high-end of the market. The addition of a Retina display to the iPad mini, in conjunction with a price increase, demonstrates that the company continues to value premium, profitable products. The replacement of last year’s flagship iPad with the new iPad Air also marks an attempt to continue premium profitability, as the company continues to offer its iPad 2 at $399.

Further premiuzation of the iPad mini

This time last year, I opined on the announcement of the original iPad mini, its lack of a Retina display, and its relatively high price in comparison to its competition. This year, the iPad mini has been updated with a Retina display, but will retail at a higher starting point than last year’s model.

Crucially, the iPad mini with Retina display will retail at $399 for the entry level 16GB Wi-Fi version upon its release in November, compared to $329 last year. The price increase reflects the higher costs of including a display with a higher resolution, but also represents Apple’s further attempts at occupying the high-end of the mini tablet market.

Last year’s model has, however, been retained and now retails for $299. The iPad mini’s lower price point had a negative impact on Apple’s profitability over the past few months, due to the relative cost of manufacture compared to price. However, manufacturing costs will have certainly reduced since its original release, and the retention of the old iPad mini will allow Apple to continue to breach the lower end of the market while retaining profitability.

Out with the old, in with the new

Apple’s strategy regarding its full-sized iPad offering is different to that of its mini devices. Notably, the new iPad Air has completely replaced last year’s flagship model. The company has altered the tablet’s form factor with the iPad Air, giving it a more streamlined exterior and reducing its weight to just 1lb. The new iPad Air will retail at a starting point of $499 upon its November release.

However, the company will continue to offer the iPad 2 at the same retail price of $399 going forward, a price that it has had since a price cut it was given at this time last year. Incredibly, Apple has been selling this variant of the iPad since March 2011 and it occupies the older, less sleek iPad form factor.

Apple’s decision to continue to offer the iPad 2 at the same price will no doubt bolster its profitability: manufacturing costs will continue to decline, especially considering that the tablet lacks the Retina display featured on the iPad Air, as well as all later full-size incarnations of the iPad for that matter.

Furthermore, the retention of the iPad 2 will enable Apple to continue to occupy the lower end of the tablet market without cannibalizing sales of its latest flagship iPad Air. Although last year’s version of the iPad had vastly superior hardware specifications, it still came wrapped up in virtually the same form factor as the iPad 2. As a result, consumers opted for the cheaper iPad 2, as the difference between them was not sufficiently palpable to entice the average buyer.

By way of contrast, the iPad Air’s change in form factor will enable Apple to demonstrate a highly tangible difference between the high and low-end of the iPad range, therefore encouraging consumers to purchase Apple’s latest premium flagship, rather than the cheaper option. If this works, it will allow Apple to enjoy a higher profit margin, as its high-end products are where it enjoys its greatest profitability.

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