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Commentary: Price competition over 7-inch tablets erodes profits
Ocean Chen, Taipei; Jackie Chang, DIGITIMES [Monday 29 April 2013]

Tier-one tablet makers have been engaging in price competition in the 7-inch tablet market which has eroded profits, according to sources from distribution channels.

The popularity of 7-inch tablets continues to rise. To increase sales many brands provided price promotions at Softex 2013 between April 17-21.

Acer's Iconia B1 was originally priced at NT$4,990/unit (US$168/unit) but that the show, prices were slashed below NT$4,000/unit. Prices of Asustek's MeMO Pad ME172V dropped to NT$4,990/unit from NT$5,990/unit at the show. Sources from the distribution channels noted that the aim for the price competition was to increase brand recognition.

However, this type of development is not beneficial to distributors and brands.

In the 10-inch tablet market, distributors have been able to obtain profits. Excluding the iPad series, the average price of most 10-inch models is around NT$8,000-10,000/unit. Because the prices are high, consumers tend to buy accessories such as covers to protect the products, and the profit margins on accessories are usually high.

However, prices of 7-inch products are relatively low and distributors stated that consumers are less likely to purchase accessories to protect them. This has been eroding profits for distributors.

For brands, price competition does not help to increase brand value. In addition, consumers purchase products from brands because of quality, guarantees, and maintenance services. All these increase costs. But if brands continue to engage in price competition and shrink profit margins, resources will be depleted and firms will suffer.

UMC
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