Market Overview

Was the HP TouchPad Truly a Success at $99?

Or were buyers simply excited to get a $500 device for 80% off?

Consumers love a good sale. Between the weekly ads in the paper, the endless number of coupon options online or off, the onslaught of commercials, and the growth of daily deal sites, you would think that our desire to save would finally be satisfied. But it's not. We still can't get enough of them. And when we hear that an expensive item has received a tremendous price drop, we will jump on it like a tiger going after its prey.

Several years ago, a Blockbuster employee told me that he and his colleagues bought up the remaining Virtual Boy units because the price had fallen to $25. The game machine hadn't gotten any better and did not feature any good games. But the discount was enormous; just a few months prior the Virtual Boy sold for $180! In the minds of those five buyers, the quality of the device did not matter because the discount was too attractive to resist.

Earlier this month, Nintendo officially dropped the price of the Nintendo 3DS from $249.99 to $169.99 in the United States and from 25,000 yen to 15,000 yen in Japan. Sales of the new handheld quickly rose in Japan, giving hope to investors who had begun to fear the worst. But while the promise of tomorrow was undeniably tantalizing (Super Mario 3D Land and Mario Kart 7 were confirmed for release this year), the 3DS is currently the same dull system it was when it was released in March. But people bought it anyway – all because of the price cut.

This past weekend, Hewlett-Packard (NYSE: HPQ) dropped the price of its dead-in-the-water tablet from $499 to $99. People flocked to Best Buy (NYSE: BBY) and other retailers to pick up a TouchPad the moment this occurred. Best Buy alone sold more than 200,000 of them. Just days prior to the price drop, the retailer wanted HP to take back the unsold devices.

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The lighting-quick (perhaps record-breaking) TouchPad sellout inspired TechCrunch to urge HP to continue to manufacture and sell the devices for $200 or less.

“One thing I was very right on is the huge demand for a less expensive tablet computer, even in today's iPad world,” Michael Arrington wrote, referring to his own efforts to produce a low-cost tablet. “HP's sale of the TouchPad for $100 just confirms this – people will buy millions and millions of these things even if it doesn't have an Apple logo on it.”

That's an interesting idea. Business Insider seems to agree. And if HP took this route now, it would likely sell a lot of tablets. After all, consumers would be getting a $500 tablet for $100.

That price, however, is the magic of the sale. Consumers don't see the TouchPad as a low-cost alternative to the iPad because, truth be told, it isn't one. The TouchPad was designed to compete directly with Apple's (NASDAQ: AAPL) wunderkind device. But at full price, nobody was interested in buying an iPad knock-off. The iPad is lighter, more powerful, contains more apps, and offers a number of other features that make it vastly superior to the TouchPad. But drop the price to $100 and suddenly consumers are ready to open their wallets.

Would the same results have occurred if HP had launched the device at a similarly low price? Possibly, but only if it was the exact same device (not the lower-cost and lower-quality tablet that TechCrunch suggested HP should produce). As it stands, HP spent $318 on every TouchPad – more than $100 more than Apple spends on each iPhone. Therefore the company cannot afford to sell the device that cheaply unless it is willing to take a loss today for the greater good (app sales) later.

But even if HP had taken this route, it would have faced one serious problem: the iPad is still a better device. Consumers have repeatedly shown that they are willing to pay more for high-quality products, especially those sold by Apple. Why would this scenario be any different?

HP computers have been criticized for years because they feel cheap and break down easily (hence the reason why the company is getting out of the PC business). If the TouchPad had launched at $100, consumers would have likely seen it as another cheap product from one of the worst computer manufacturers in the world.

Follow me @LouisBedigian

Posted-In: Apple hewlett-packard HP TouchPad iPad Nintendo Nintendo 3DSSuccess Stories Tech Best of Benzinga

 

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