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The pricing game: How low can tablets go?

In a sign of an increasingly competitive tablet landscape, prices for the devices keep moving lower, with Acer reportedly readying a $99 tablet for next year.

The trend toward lower prices will drive continued expansion of the tablet market, bringing in customers who might not otherwise have purchased a $400 device. In turn, greater adoption could drive content sales for tablet devices, which is where much of the revenue in the tablet market comes from.

?I've often taken issue with the general analyst view that low-priced products always win,? said Carl Howe, vice president of research and data sciences at Yankee Group, Boston.
 
?If you look at automobiles, for example, the cheapest cars are not actually the best sellers, and Mercedes Benz, BMW, and Lexus make very good businesses out of selling rather expensive cars that many can't afford,? he said. 

?I think we need to recognize that consumer electronics may carve out a similar path, with Apple dominating the premium segment just as BMW or Lexus do, and other manufacturers possibly dominating the low end.?

Market matures
Prices on tablets have trending lower all year.

The market has already seen 7-inch Android tablets from lesser known manufacturers priced as low as $69.

However, Acer is a better-known brand and has better distribution, which could help put the tablets in more consumers? hands.

?I think what we're really seeing is a maturing of the tablet market,? Mr. Howe said.

?Someone once said that the ultimate sign of a mature market is one where no matter what your budget is, a product exists at a price that will consume all of it,? he said. ?That's what we're seeing in tablets.?

At some point, the market could even support subsidized tablets the way that wireless carriers currently subsidize smartphones. This would open up adoption even more.

Diminishing returns
The continued trend toward lower priced tablets will begin to put some pressures on the market and, diminishing the categories overall success.

For example, there are no clear indications yet if consumers who purchase lower-priced tablets are as receptive to marketing messages or consume as much content as those who have purchased the higher priced devices.

The need for lower priced tablets speaks to the success of the category ? which did not even exist until a couple of years ago.

Consumers have embraced tablets for a variety of activities such as watching their favorite programs and movies as well as shopping. As a result, tablets have been good news for marketers, who find that tablet users are heavy consumers of content and convert nicely on shopping sites.

Today, much of tablet use happens from a user?s couch or elsewhere inside the home. However, there is growing mobile use, which is expected to continue to trend upward.

Moving beyond price
The Kindle Fire and Barnes & Noble?s Nook Tablet are two lower-priced tablets that have carved out niches for themselves in the market. The Kindle Fire sells for as low as $159 and the Nook HD for $199 in comparison to a starting price of $389 for the iPad.

While both the Kindle Fire and Nook tablets have carved out a nice niche for themselves, neither has picked up significant market share, suggesting that price alone is not enough to drive sales for tablets.
However, these and other lower-priced tablets have made a big enough dent on the market that Apple felt compelled to come out with the iPad mini, which is smaller than the traditional iPad and is priced at $329.

?What this means is that device manufacturers have to learn to market something other than price,? Mr. Howe said. ?Price is the last refuge of marketers who have nothing else to sell.

?Tablet manufacturers will need to focus more on differentiation other than price as the market matures,? he said.

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York