Buying Power

Lesson of the iPad: In Tough Times, Treat Yourself


Lesson of the iPad: In Tough Times, Treat Yourself

Photograph by Jeff Pachoud/AFP/Getty Images

When the iPad was released on Apr. 3, 2010, it was an inauspicious time to introduce a gadget with a base price of $500. Yet in the past two and a half years, Apple (AAPL) has sold more than 34 million iPads in the U.S. and more than 84 million worldwide. Its success says something about the power of innovation, but also about how Americans spend money even when they have less of it.

Click to enlargePhotograph by Emily Keegin for Bloomberg BusinessweekClick to enlarge

The iPad’s design and engineering notwithstanding, the real magic was its price. A $500 product is not cheap, but the average computer cost $710 in April 2010, according to market researcher NPD Group, and other tablets routinely topped $1,000. As such, the device was an ideal purchase for those who’d been paring back for more than a year and a half and were looking for a modest indulgence. They probably weren’t getting a new home in April 2010 (housing values were still 30 percent below their April 2006 peak) or a new car (sales were down 21 percent from April 2008), but, darn it, they were going to treat themselves to something. This is why other products, such as nail polish (up 65 percent since 2008) and chocolate (up 14 percent), saw a bump: They’re smaller purchases one can rationalize. Condoms (up 23 percent from 2008 to 2011) are yet another sort of rational, recessionary indulgence, acting as they do to prevent kids people can’t afford.

Also critical to the iPad’s success has been its use as a communication tool. Even in the face of scarcity, connection is a powerful attractor. According to the U.S. Department of Labor, households spent less on food, entertainment, apparel, and other categories from 2007 to 2011, but spending on communications rose more than 10 percent during the same period.

Novelty, an attainable price, and the power to connect people: It’s not the first time a new product with those selling points has defied a lousy economy. Most people equate the 1930s with bread lines, but the decade also saw sales double for a new gadget called the radio.

Sources: NPD, Mintel Group, IMS Health

Grobart is a senior writer for Bloomberg Businessweek and the managing editor of Bloomberg Digital Video. Follow him on Twitter @samgrobart.

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