One way to deal with supply issues – raise the price

chalk boardby Crystl

[Via Cult of Mac]

As you may have noticed, Apple announced the iPad mini today. Soon after, of course, came the analyst perspective – if there’s a strong demand for the iPad mini device, we may see serious supply issues. This has been rumored already in regards to the aluminum back for the new iPad mini, but this is the first report that a shortage of display units may also have a role to play.

“We’re now starting to see the issues that [Apple] is having with Samsung,” said Richard Shim, an analyst at NPD DisplaySearch, in an interview with CNET.

Samsung is not supplying displays for iPad mini, according to the analyst, which leaves only two suppliers to make the smaller iPad mini for Apple.

Of the two suppliers that are making the displays for iPad mini, LG Display and AUO, only one is producing the needed volume of units. “The problem is that AUO is a new supplier, and they’re not able to get to the volumes that Apple needs. So, essentially, there’s just one supplier,” Shim said.

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Many people were upset that Apple seemed to price the iPad mini so high, hoping it would come in at $299, $250 or less. And maybe it could have if they could have produced enough.

But if your supply is constrained by quality control issues, there are only a couple of things you can do. Just go ahead and price it where it should be and deal with a lot of ubset people who have to wait a long tim.

Or bump up the price, this making the market smaller but also creating a greater likelihood of pleasing those who buy. Of course, too high a price and you may never get those customers back.

I think that is what Apple is tweaking here. It is hopeful that the supply problem will be dealt with in a few months. So, by pricing the iPad mini higher it does two things : constrains the demand so that it can actually fulfill it with the supply; and, make a little more profit in the meantime.

In a few months, when supply ramps up, they can lower the price or not, depending on circumstances.

A win-win for all. But if supply problems continue, this strategy falls apart.