Electronics buyers have price limits

Electronics buyers have price limits

By Michelle Kessler, USA TODAY

Despite record sales, electronics makers are discovering limits to what consumers will pay for the latest tech gadget.

Apple (AAPL)
last week slashed the price of its iPhone cellphone to $399 from $599
just two months after it was released. That’s a sign sales were
sluggish, says equity analyst Ashok Kumar at CRT Capital Holdings.
Apple has not released recent sales numbers. It said it cut the price
because it wants bigger holiday sales and is on track to ship 1 million
iPhones by the end of the month.

Most consumers will only pay about $399 for a
typical electronic item, no matter how cool, says tech analyst Tim
Bajarin with researcher Creative Strategies. Although there will always
be some willing to spend top dollar, "that is pretty much the highest
you can get and still have large volumes," he says.

That may be why several recent cutting-edge devices have struggled to find buyers. Among them:

•Cellphone-maker Palm (PALM)
last week canceled a much-touted new product, the Foleo, due in part to
"early market feedback," CEO Ed Colligan wrote on the company’s
website. Many early reviews said the $599 Foleo, similar to a tiny
laptop, was too expensive.

•Sony (SNE)
in July lopped $100 from the price of its $599 PlayStation 3 video game
system, even though researcher iSuppli estimates it costs more than
$800 to make. Sony’s move came after being outsold more than 2-to-1 by
rival Nintendo’s (NTDOY) $250 Wii. (Microsoft’s (MSFT) Xbox 360, starting at $280, has also outsold PlayStation 3.)

•Blu-ray players were expected to dominate the
new market for high-definition DVD, but sales are falling short of
expectations, says tech analyst J.P. Gownder with researcher Forrester.
The players, made by Philips, (LPL)
Samsung, Sony and others, start at about $450. Players using a rival
technology, HD-DVD, start at about $250. Despite Blu-ray’s powerful
backers, HD-DVD players are outselling it, Gownder says. (Exact numbers
aren’t in yet.) That’s because the average high-definition TV owner
only wants to pay about $204 for a DVD player, he says.

U.S. consumer electronics sales are expected to
top $155 billion this year, up from $145 billion in 2006, says the
Consumer Electronics Association, a trade group. The amount people will
spend varies by product, says tech analyst John Byrne with Technology
Business Research.

Cellphones are usually cheap or free, because
carriers subsidize the cost when customers sign up for service. As a
result, few customers are willing to pay more than $400, Byrne says.

But there are exceptions. Consumers are willing
to spend more than $1,000 on some large electronics, such as PCs and
TVs. And some smaller devices are rare hits. An early 20-gigabyte iPod
cost $499, yet sold well, Byrne says.

Since electronics prices usually fall over time,
consumers should watch for price cuts, says Gownder. They avoid paying
top dollar but can still get a product before it’s obsolete, he says.

Contributing: Mike Snider

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