On Being Overpriced

In the recent hubbub over Motorola Xoom pricing, I started to think a bit more about the current landscape of tablets on the market today—the iPad, and the competition.

Obviously, the iPad has won round 1. And it looks like round 2 is starting with Apple throwing all the punches—even though there's been no word on a second revision from the horse's mouth (yet).

But I was thinking to myself, "Why (and how?!) is Apple the only company selling a worthy $499 tablet." Apple's always been known to most people in the world as a luxury brand—and they are, in some senses—but why is Motorola introducing a tablet that retails for $799 minimum at launch, and will someday have a $599 version?

Motorola, and others in the 'actually working / almost shipping' tablet manufacturing market, probably see that the mid-range iPads are more popular than the cheap ones, and they target this price range/feature set. So, in a sense, what they're doing makes sense: target the large part of the bell curve of tablet sales, and make a great sub-$800 tablet.

However, I think they neglect to see one of Apple's greatest advantages: the upsell.

Apple has a $499 iPad, sure. But I don't know anyone that owns it. People instead go to the store feeling like they can afford $499 (it's only $500, right?). Then they look at numbers like 16 GB with WiFi only, and then see that they can just pay a little more and get 32 GB. A little more than that, and they can also have 3G, in case they ever need it.

Thus, Apple can still make a small margin on the $499 iPad, but they absorb the downside of that small margin by selling people the second model in the lineup. The $499 iPad is worth far more than you can imagine to Apple's iPad sales—even if it's not the hottest selling model. Even if Motorola would take a loss selling a $499 Xoom, they should do it.

Comments

I haven't seen any statistical analysis from Asymco on this yet, but I think it'd be a great topic to explore—especially to see if there's a precedent in the tech device category of a certain price cutoff detracting people from buying a product altogether.

Mirroring my thoughts exactly: http://gigaom.com/mobile/with-contract-a-599-xoom-tablet-unlikely-to-fly...

I suspect that Verizon is subsidizing the Xoom simply because the tablet at $799 is far beyond the $499 starting price for Apple’s iPad. Yes, that iPad model is Wi-Fi only and limited to 16 GB of storage, but it attracts consumer interest. And if those consumers have interest, they’ll consider upselling themselves on 3G and more storage. As a single model, the Xoom has no such potential.

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