The iPad mini is quite obviously a response to cheaper, smaller Android tablets, the best selling of which is the Kindle. Apple is clearly interested in the customers on the fence between a Kindle and a more expensive but higher quality device.
Another way to look at it - if competition was the motivation for the iPad mini, it would have cost $50 less.
I'm an "Apple customer" and I'm price sensitive, I've also considered many Android based tablets as well as WebOS based tablets. Now we all know that anectadata is of limited value, but compare to no data...