Is Apple, Inc. About to Make a Pricing Mistake?

By Markets Fool.com

iPad Pro. Image source: Apple.

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Don't do it, Apple .

Ahead of next week's event, 9to5Mac is reporting that the rumored 9.7-inch iPad Pro will start at $599, a whole $100 higher than the historical $499 starting price of the 9.7-inch flagship tablet. That would buy a WiFi-only model with 32GB of storage, with expected upsells for LTE cellular connectivity or more storage. Apple will reportedly keep the 9.7-inch iPad Air 2 at the $499 price point, while the 9.7-inch iPad Pro would cost a $100 premium. iPad Air looks like it might be discontinued as well.

Here's why it might be the wrong move.

Finally moving on up?
When Steve Jobs unveiled the original iPad in 2010, one of the biggest shockers was the incredibly aggressive $499 starting price. At the time, most analysts, investors, and consumers were expecting the tablet to cost anywhere from $800 to $1,000 at a minimum, so the $499 price tag was a pleasant surprise. It took a few years for rivals to even catch up, after which they expectedly undercut with cheaper models. But for a while there, the iPad really was the most affordable tablet on the market. How often does that happen?

Apple has been able to stand pat at $499 every year since for the entry-level configuration of the 9.7-inch iPad. Even if Apple keeps the iPad Air 2 at that same $499 price, the value is harder to justify since that device was originally released in 2014. It's still a great tablet, but it's starting to age a little bit.

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Apple should be more aggressive
While Apple rarely gives in to external pressure from investors or consumers, there seems to be some hubris in this rumored pricing strategy.

We all know that iPad unit sales have stagnated in recent years (I won't bore you with rehashing the details), and moving pricing up incrementally will only hurt demand. For example, here's how iPad starting prices might look like before and after the rumored change, not including the Minis:

Price Point

Before

After

$799

iPad Pro (12.9-inch)

iPad Pro (12.9-inch)

$699

--

--

$599

--

iPad Pro (9.7-inch)

$499

iPad Air 2

iPad Air 2

$399

iPad Air

--

Keeping iPad Air 2 in the lineup makes sense since it's still a strong offering, but Apple should be at least willing to discount the device due to its age. And a $100 difference between a 9.7-inch iPad Pro also makes sense, since Pro models will support Apple Pencil and Smart Keyboard while sporting better cameras and audio systems.

But cascading iPad Air 2 down to the $399 price point and pricing the new 9.7-inch Pro at $499 would be more aggressive. It's also hard to imagine that the cost curve for the 9.7-inch Pro is so high that Apple desperately needs the extra $100 increase to maintain its margin profile. Besides, even if there was a relative hit on margins, it would likely be negligible in the grand scheme of Apple's consolidated results since it probably wouldn't be a huge part of the overall unit mix.

Be aggressive, Apple.

The article Is Apple, Inc. About to Make a Pricing Mistake? originally appeared on Fool.com.

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.