Analysis of an Industry Price War: The Tablet price war

The Tablet price war

Christian Hamelin V00731496

Ryan Laidlaw V00725449

Erin Mathews V00686855

Econ 205

Friday, November 25^th, 2011

Word Count: 1498

Though the concept of the tablet has been alive for many years and there were previous attempts to jump-start the market in the early 2000’s, Apple is credited as the first to create a truly innovative design and popularize the product with the release of the first iPad in 2010. With the initial thrill of the tablet Apple sold around 3 million iPads in the first 80 days of release (Albanesius, 2011). The new boom in tablet technology sent companies such as Motorola, Samsung and Blackberry’s RIM to begin production of their tablet versions with high hopes of attaining the same successes as Apple, however their achievements would only be a fraction of that of the iPads.

As the excitement of the new tablet phenomenon wears off the prices will inevitably drop. While companies such as RIM began pricing their products around the same price point as the iPad (around $520CAN) a price war was soon triggered by sluggish demand for Android products (Wilcox, 2011). RIM in particular lost an outstanding number of sales from their Blackberry Playbook from 500,000 to 200,000 in their first quarter (Wilcox, 2011). Retailers such as Best Buy continue to slash their prices and currently Blackberry Playbook is selling for 100 dollars less than its original price. The main reason for the tablet price war is the iPads sheer dominance in the tablet market. Apple’s strong hold on the tablet market could be accredited to its effective advertising and previous acclamation of their other popular products such as the iPhone and iPod. Today apple holds around 80% of tablet sales and J. Gold Associates expects that they will continue being a leader until at least 2014 (Kaiser, 2011). A reason why the price wars continue could be due to the poor economic conditions where people are less likely to purchase products like the tablet when they already own a laptop or desktop computer. Also when money is scarce people are more likely to purchase a product from a company with a strong reputation instead of risk spending the same amount on a less notable product. Because Blackberry has invested such a large amount of money in tablet manufacturing they cannot afford to exit the market at this time, therefore, they must continue production to sell for much less than they had initially anticipated (Wilcox, 2011). Blackberry will need to take a large loss in order to sell off their entire inventory and start from scratch. Though the future for Android tablets seems bleak now technology analysts predict that they will make a comeback soon enough. Gold states, “By 2014-15 we expect Android markets to acquire a majority share of the consumer market as the number of vendors and the variety of models overwhelms the iPad” (Kaiser, 2011).

When looking at the newer “tablet” technology, it is hard to find any form of price war at all. Since release, the Apple iPad has dominated sales in its field and continues to grow. Looking at the strategy of Apple versus other companies, such as Google or Blackberry, in pricing the release of their tablet is difficult, solely due to the fact that there was much more anticipation for the iPad compared to all other products. From the beginning it appears that Apple has the dominant strategy with whatever direction they tend to take with their product, whether it be heavily advertised or not at all. This can be attributed to the iPad being the first of its kind, and having superior tablet technology when compared to its competitors. In its first year the iPad sold for a value of around 12 billion dollars globally, where as the Android tablet, a close tablet competitor, sold significantly less (Whitney, 2010). In this pricing war, one must place the Apple iPad alone against all other competitors due to the sheer dominance of the product.

At the beginning of the tablets campaign it appeared Apple would dominate the industry despite what they charged, how much they advertised, or how much was invested into the product. The client base for Apple products is so large to begin with the company would have to produce something no greater than a lemon to dominate the market. Looking at the release of the iPad compared to its competitors, it was released with a much higher starting price. The justification behind this is due to the increased amount of demand for the Apple product. The company was able to charge more money without losing a significant amount of sales to another tablet. The iPad was by far the most advertised tablet product as well, this is probably because, being the dominant player, Apple benefited from the advertisement.

Looking at the Apple iPad now, we can tell that the company succeeded in winning the initial price war against other tablet companies due to customer dedication and having a superior product. Looking at prices of the closest competitor, the iPad is still priced close to $100 dollars more, and is able to sell a lot more product. Android being the closest competitor sold 3.4 million units while Apple has sold close to 10 million, and at a higher price (Yarow, 2011).

Online retail giant Amazon, led by Jeff Bezos, have released in September a rival to the Apple’s iPad, the Kindle Fire. The device offers web-browsing, e-commerce and an apps store, and its starting price of 199$, nearly half of Apple’s cheapest iPad, positions Amazon to take a bite out of Apple. The Kindle Fire is, according to CEO Jeff Bezos, “more than a tablet, the Kindle Fire is a service” (Manjoo 2011). Indeed Amazon’s 1990 slogan’s the “world’s largest bookstore” is a promise that with the Kindle, the user has access to every book in the world. Amazon also offers music, apps and movies, similar to the selections on iTunes. Within these means, Amazon’s Kindle Fire, and inevitable successors, are putting the iPad at risk. Similar to what the iPod presented in 2001 (easy to use, simplicity that was accessible to non-techies) the Kindle Fire, with its own hardware and software, is ready to do just that, and reach out and extend the demand to a client base that is more technologically impaired. The Kindle, released in 2007, easily became the leader in E-book selling. Add to the device web browsing and an apps store, you have yourself a cheaper, simpler but just as functional rival to the iPad.

According to recent analysis and expert speculations (Savitz 2011), the demand for iPads has been decreasing, although reportedly not for long. Indeed, experts predict that with the integration of Siri, a voice-activated software acting as a personal assistant, on all Apple merchandise, as well as the launch of iCloud will boost sales by Christmas. Apple’s merchandise can be seen as complements; if one owns a MacBook laptop computer, it is likely that he will be attracted to products such as an iPod, iPhone or iPad. iCloud increases this relationship between apples products by seamlessly connecting them. Therefore we can expect Apple to continue to be a leader in the technological world.

Although many speculations have been made about the tablet market, only time will tell how the war will truly play out. Will Apple drive Amazon out just as it has done to its previous competitors? Will the Kindle fire play a significant role in shaping the demand for tablets? In these times of economic downturn, much is uncertain, and as companies strive to offer their products in an economically efficient way, the costumer is ultimately the key. While the market started out with many players, it seems obvious now that this price war has two players. On one side, we have a product that is aesthetical, relies on reputation and differentiation from other products, and therefore more costly. On the other side, we have a product that is affordable, functional, and that is aiming to expand their sales by directly connecting their costumers to their retail. In the end, these two products will probably end up targeting different segments of the demand, but what is certain, is that they will be going head to head until either one is driven out. Ultimately, the lesson learned here is that, the winners of this market were the ones who were able to successfully integrated their products as complements of their already existing commodities.

Savitz, E. (2011, November 15). “Apple: Investors Worrying About Slowing iPad demand.” Forbes. Accessed Nov 12, 2011, Retrieved from http://www.forbes.com/sites/ericsavitz/2011/11/15/apple-investors-worrying-above-slowing-ipad-demand/