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Tablet Price Promotions to Boost Demand

Staples is the latest retailer in the tablet market to offer a price promotion on tablets. The company is offering a coupon for $100 off tablet purchases (excluding the HP TouchPad) through July 30.

The coupon is the latest price move by a tablet player to spur demand. Tablet brands have recently been lowering prices to boost demand as the US market enters the high volume back-to-school season. Motorola dropped $100 off its Xoom, from $599 to $499, earlier this month. Acer cut $100 off its Iconia A500, from $499 to $399, this past week in Best Buy circulars. Toshiba launched its Thrive at $429 for the 8GB version. Apple’s iPad starts at $499 and had initially set the bar for what tablet pricing should be. However, brands are having trouble reaching levels similar to the iPad’s success with their devices.

Brands and retailers have been gradually catering to the emerging device category through differentiated floor space, dedicated business units, and specific sales strategies. Staples is the first major retailer to offer a price promotion on tablets. Price cuts tend to be viewed as a last resort. Still, many are aiming for significant adoption, viewing iPad sales as the basis for their expectations. Apple reported sales of 9.2 million units in Q2, up over 180% Y/Y. Other brands are nowhere near experiencing iPad-like success.

These price moves may boost demand in the short term, although I doubt it will be to the level they’re expecting, but long term, it devalues the category and threatens the margin levels that they are hoping to achieve. This is especially risky at the start of a category because it sets the consumer’s expectation of what a product should cost. It also makes it difficult to raise that price expectation in the future. We saw that with mini-notes (or netbooks) and the impact on notebook average sales prices.

To a certain extent, the brands and retailers have their hands tied because Apple is having so much success with their tablet. There is an impression that if you can’t reach that level, then you’re messing it up. The reality is: the brands and retailers competing with Apple are playing from behind, and in their desperation, they might be digging themselves into a deeper hole. One could argue that the brands and retailers are responding to what the market is willing to pay for their tablets. That might be easier to accept if the devices in the market were fully mature and not experiencing glitches; however, it is giving the impression that these products aren’t completely finished.

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  • http://www.644142367.com Tablet-runner

    cutting price is not a good method, but it’s a effective method for these brandings to survive with a heavy inventory and not good sales.
    Struggling in desperation is the reality, but do you have good suggestion for a way out?
    I suppose you do NOT have. Critising is easy, but constructive suggestion is hard.
    The whole market for tablet haven’t been mature from HW and SW ecosystem, so it’s not possible to soar right now for the market. But sooner or later, it will, with a stable Android, lower price in LCD panel and multi-touch.

  • http://www.displaysearchblog.com Richard Shim

    Hi Tablet-runner,

    Perhaps I should have been more clear. My point was not to criticize the brands for the price moves, rather to point out that at this point they have no other choice amidst increasing competitive pressure. I actually think that the bottleneck in the tablet market is distribution and the challenge of educating consumers as to what makes the tablet different from a notebook or a smartphone, which is a common theme in my analysis.

    Richard

  • http://sebastiengivry.blogspot.com/ Sebastien Givry

    Well I think that the first mistake most made, was to over evaluate the potential size of the market. There’s not that many people out there willing to pay few hundred bucks to have the luxury to better browse content; it doesn’t replace their smartphones, nor their PC (you need one to sync anyway)…

    Apple got early entrant’s advantage and took most of the market, very good move of releasing iPad 2 in same time as the first version of its competitor’s tablets; shrinking all the more their market potential.

    Best proof of that is that most manufacturers are revising their sales forecast…. despite the decrease of prices.

    Now what they should do? Well… Personnally I would think about “what great functionality / service I can provide using LTE’s technology that could be disruptive compared to Apple’s iPad and thus justify consumers to switch to my product”? For me, they are focusing too much on consumer’s market and shall focus much more on Enterprise solutions through LTE + Cloud Computing.

    Sales people, medical institutions, logistics…. real market which will pay the price for the devices AND the services!

    While most where too enthusiastic about the market, I also think that it will take some time to get consumers to adopt the products, more time than most analyst ever thought….