Lessons for Rivals to Gain Ground

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One of four basic economic questions: What should be produced? Watch, listen and learn from consumers, their purchasing decisions will provide the answer.

Nokia Oyj, Apple, Inc., Research In Motion, and others have saturated the market with high-end mobile phones that each has a portable media player, a camera, and a web browser, among many features. For advanced computing, Hewlett Packard, Apple and Dell and others already have laptops with battery like Dell RD859 Battery, Dell PR002 Battery, Dell UD260 Battery, Dell PD942 Battery, Dell Latitude 131L Battery, Dell 8F871 Battery, Dell 2G218 Battery, Dell Winbook N4 Battery, Dell F0590A01 Battery, Dell 7T670 Battery and desktops in the market.

In April 2010, Apple launched a device that had with a tablet form factor that can function as an e-book reader, gaming platform music and movie player, Web browser, and word processor.

Since then, Apple has already sold more than 29 million iPad units and has recorded $18.5 billion in revenue in its books. Smartphone makers and personal computers want a piece of the pie.

Supply and demand: the unit price for a particular good settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers.

There is a market for media tablets. From 18 million units sold in 2010, research firm IDC projects that more than 50 million tablets will be sold in 2011.

With a gross margin of over 40 percent, Apple is certainly profiting from the $499 tag price of the iPad 2 in shelves. More than 9.2 million people bought iPads during the most recent quarter.

After the iPad became another cash cow for Apple, which just last week took a stint as the world's most valuable company based on market capitalization, more tablet offerings have emerged: among others, BlackBerry maker Research In Motion's PlayBook, Apple nemesis Samsung Electronics Inc.'s Galaxy Tab, Netbook pioneer Asus' Eee Pad, HTC's EVO View 4G, Motorola Mobility Holdings Inc.'s Xoom, and Hewlett-Packard Co.'s TouchPad. Apple though has continued to take 70 to 80 percent of the market despite hopeful "iPad killers" being launched every month.

Enter rivals: Hewlett-Packard launched the TouchPad a month ago at prices starting at $499, the same as the iPad and Motorola launched the Xoom at a premium to the Apple device.

However, the iPad doesn't share the same demand curve with the TouchPad or even the Android tablets. Apple has already established its brand in the market place, the iPad 2 is generally bug-free, and there area already more than 100,000 applications optimized for the iPad 2 that are already available in the Apple App Store. Although the other tablets have Adobe Flash support, more advanced cameras, or more powerful processors, most consumers still believe that the iPad still provides more value at $499 (based on weak sales by rivals and the continuing strong sales of the iPad).

The Wall Street Journal, citing industry watchers, says there are more iPads rival tablets sitting in warehouses and stores than current demand for those products.

The Law of Demand: When the price of an item goes down, the demand for it goes up.

Just last week, Hewlett-Packard lowered by $100 the price of its TouchPad just one month after introducing the tablet. TouchPads will now cost only $399.99 for a 16 GB model and $499.99 for a 32 GB version.

The price reductions make the TouchPad $100 less expensive than comparable iPad2 models, which may help the HP tablets draw customers from Apple, said Brian Marshall, an analyst at Gleacher & Co., according to reports by Bloomberg News.

Penetrating strategy in marketing: Gaining market share by sacrificing short-term profits, and hiking the price over time as market share is gained.

Hewlett-Packard, the world's number one seller of laptops and desktops, has enough cash to sell the HP tablets at a loss until it establishes the brand in the tablet market.

ZD Net's Jason Perlow states that while he predicted that HP TouchPad had no chance in hell of succeeding against the iPad or even Android tablets, the recent $100 price cut plus the $100 coupon issued by Staples are now making the TouchPad a "lot more attractive." The $299 for the HP tablet makes the cheapest among Android based tablets. Noting that the double-dipping deal was only short term, Perlow says that for HP to gain any progress, it needs to establish a brand that is identified as the more "affordable" choice than the iPad.