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Only rarely you have this scenario playing itself out in international business: an aggressive technology giant initiates a bold move by coming up with a device similar to the one that has already brought much fame and profits to its main rival. The new device has good features, yet it is completely ignored in the marketplace. In a fit of pique, the corporation opts for a fire sale; the entire remaining stock is offered to buyers at a fraction of the earlier sale price. Now it is time for the market to take notice. Buyers rush to buy the device, available at an unbelievably low price. The entire remaining stock gets picked up in a matter of few days.
There is such frenetic demand that despite stampeding from one shop to other many buyers are unable find even a single unsold device, which they could buy. Finally it dawns on the corporation that if its pricing strategy had been right at the time when the device was first launched, there might not have been any lack of buyers. But now it is too late for it to do anything, the pricing game has already been played. So what does the corporation do? It promises to stage a sequel - it would produce a new batch of the device to be sold at the same fire sale price, which incidentally is almost $200 below the corporations cost price.
We are talking about HP, whose strategy for TouchPad tablet seems to be marred by endless flip-flops. The device made its debut at $399; after lacklustre sales, HP slashed its price to just $99, which quickly became the magic price for tablets buyers. Given the fact that the discounted TouchPads are $200 below per unit cost, why has HP decided to make some more? Perhaps it is an attempt to get rid of the components that the company already has, or has committed to with vendors. It could even be an attempt to shore up the popularity of webOS. After two fire sales, the webOS powered TouchPad would probably command the second position in the tablet market, just behind Apples iPad.
We also cant ignore the possibility that the sequel of the $99 fire sale could be a stealth move for creating more options for HP in the tablet space. Earlier HP had taken the world by surprise, with its announcement that it may unload the flagship PC division. However, potential suitors like Samsung and Acer quickly indicated that they were not willing to buy HPs PC division. Lenovo remains non-committal, but it is doubtful that the Chinese PC giant has the financial muscle to complete such a large transaction. Indications are that whether it likes it or not, HP is stuck with its PC division for foreseeable future.
You cant run in the PC business without a tablet. Even at a low price of $99, the TouchPad will remain far behind iPad, but high sales will ensure that it will have more market presence as compared to every non-Apple tablet. Now the question is is a second place in the tablet space worth taking a $200 hit for each device sold?
Published in October 2011 Issue of IT Next.
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