OEMs: Tablets are impulse purchases and different pricing rules apply

The XOOM is definitely loaded to the gills with features and hardware components, but what OEMs like Motorola are about to discover is that different pricing rules apply for tablets.

My post yesterday detailing why I wouldn't be buying the hottest tablet not built by Apple due to its suggested price set off a storm of comments and tweets. The Motorola XOOM is certainly the first tablet to appear that is capable of competing with the iPad, and some feel it's worth a price premium. The XOOM is definitely loaded to the gills with features and hardware components, but what OEMs like Motorola and HP are about to discover as their products hit the market is that different pricing rules apply for tablets.

The decision to buy a tablet, and I've bought several, is what I believe is an impulse purchase. Tablets are a totally different beast in the consumer electronics space, and especially in the personal computing segment. Tablets do not replace existing electronics for the consumer, and thus prospective buyers must get the impulse to pull the trigger on the purchase. This forces the OEM to price the tablet accordingly, as the higher the price the harder it is for the consumer to cave in to the impulse to buy it.

Apple understood this with the iPad at launch, which is why the original message about the slate from Cupertino revolved around how "magical" it is. Steve Jobs understood that prospective buyers couldn't be sold that the totally new iPad would replace existing technology, because it doesn't. Gadgets that replace other electronics can be compared by the consumer to determine if the new gadget is a good value. Totally new tools like tablets must sell on the impression the buyer has of how useful (or cool) the new gadget must be. That turns the purchase decision into an impulse buy.

Impulse purchases require that the price to be low enough to justify satisfying the desire to pull out the credit card. Conversations I've had with a lot of folks lead me to place that price point around $500. More than that and a lot of people won't satisfy the impulse to purchase. It doesn't matter how many technical goodies the OEM has stuffed in the tablet, as they are not viewed as a product that fills a definite need for the consumer; if the price rises much above that $500 mark the impulse to purchase is easily squashed.

This puts a burden on OEMs coming to market with unproven products, as historically they would take the route Motorola has taken with the XOOM and stuff it with good hardware features. This drives the cost to produce it up significantly, and the resultant higher selling price fights the consumer's impulse to purchase. Consumers will compare pricing with the competition, especially the iPad, and will be more prone to delay the purchase if the price is above the impulse trigger. They will also put the wallet away if the price is above that of the iPad. Those who haven't purchased an iPad yet are already on the fence about the impulse to jump, and higher pricing isn't going to convince them to do so now.