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Aug
28

Does the TouchPad Firesale Teach Some Lessons In Pricing?

written by Dr. Duru

On August 18, Hewlett Packard (HPQ) announced its earnings and dropped the following bombshell:

“HP will discontinue operations for webOS devices, specifically the TouchPad and webOS phones. The devices have not met internal milestones and financial targets. HP will continue to explore options to optimize the value of webOS software going forward. “

My first thought was that I should check to see whether I can get one of those TouchPads, first released just a little over a month ago to the market, at a bargain basement discount. My father is an avid browser of the web but struggles with using a keyboard or clicking a mouse. At the right price, a tablet offers him a preferable computing alternative. I was far from alone. HP dropped the price of the TouchPad Tablet with 16GB Memory to $99.99 and the TouchPad Tablet with 32GB Memory to $149.99. Best Buy online sold out quickly and remains sold out today:


TouchPads sold out at Best Buy Online

TouchPads sold out at Best Buy Online



Source: BestBuy.com


Lines immediately formed outside of Best Buy stores in San Francisco, CA that still had TouchPads in stock. I just called a local Best Buy to inquire about availability of the TouchPad. The recorded message began with an introduction stating that the store had sold out of TouchPads and had no plans to sell any more of them. Even retailers in the United Kingdom quickly sold out of HP TouchPads.

Clearly, consumers think these products are a steal compared to the $500 or so they would otherwise pay for competing products like Apple’s iPad, Samsung Galaxy, or RIM’s Playbook. These consumers are not concerned that they are buying a product with an operating system that has reached the end of its life and may not be supported for long. Moreover, commentary on the product indicates the TouchPad is an inferior product. From CNET (before an update to account for the product cancellation):

“The TouchPad would have made a great competitor for the original iPad, but its design, features, and speed put it behind today’s crop of tablet heavyweights.”

So what pricing lesson does this event teach us? eWeek.com addresses this question on page 2 of its article “RIM Reaffirms PlayBook Commitment After TouchPad Fire Sale.” Firstly, tablets cost $300-500 to build, so HP’s firesale is priced to clear out product – great for consumers, bad for business. The rush to buy at firesale prices affirms consumer expectations that such deals will not be seen again anytime soon. The iPad has sold about 30 million units to-date, so it does not appear Apple (AAPL) has a pricing problem relative to the competition. Competitors could consider undercutting Apple prices to gain some market share, but one analyst thinks it would take a 30% discount to compete with iPad on price. At a $350 price point, such a competitor is most likely going to lose money.

I see the opportunity in multiple layers:

  1. Somewhere below $300 is a price where consumers are willing to trade features for price. A “stripped down” tablet, perhaps focused on a few common tasks like email and web browsing could be a big hit with a lower tier of the market. This product could also be made slightly smaller, slightly slower, etc…
  2. Additional sales could come from selling a cheap product that offers additional products and services to enhance the value of the software and provide recurring revenue streams. eWeek.com mentions something similar regarding Amazon.com’s pending tablet offering. Also see “What HP’s TouchPad fire sale tells iPad rivals.”
  3. Similar to the last point, a low-cost tablet bundled with wireless services, television programming, Netflix (NFLX) subscriptions, etc… could be a huge hit.

In other words, Apple is likely to remain the feature-function leader for quite some time. HP demonstrated that when cheap enough, a large number of consumers are willing to settle for less. The competitor that matches production costs with a low-priced, “budget” offering could have the best chance to compete.

The additional challenge in this marketplace is the proliferation of hardware at many different form factors converging with the increasing ability to pack more features into less. This dynamic blurs distinctions across devices – for example, my suggestions above could end up looking like a cell phone on steroids, a mini-tablet not much different than a netbook with a larger screen, etc.. – and keeps marketers and product managers on their toes trying to manage product cannibalization as well as all the many cross-competitive pressures.

2 Responses to “Does the TouchPad Firesale Teach Some Lessons In Pricing?”

  1. At $99, definitely worth it. Ata0$250, not so much. At $300, I wdouln’t even consider it.The problem with tech pricing, is that the consumer knows that a new product WILL come down in price, so they wait, and often a good product fails. A better strategy would be to have at-cost introductory prices, then raise the price ina0increments. Then instead of waiting for something better, people would be buying NOW to get a better price, and a good product would have a much better chance of catching on. And the sellers could learn where the best price/sales point is.

  2. Got my $428 back last night for my 16G TP.a0 Was originally purhsaced for work and expensed; now I’ll get an Asus Eee Pad and who knows?a0 Maybe a Touchstone charger?a0 They’ll let me keep the HP now for my own use, and the office will have the Asus.a0 Not a bad deal in the end.

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