Strategic demand forecasts for the tablet PC market using the Bayesian mixed logit model and market share simulations

Abstract

Since the release of the Apple iPad and the explosion of consumer demand for tablet PCs, a number of companies are entering into the tablet PC market, creating a situation that is becoming more fiercely competitive, complex, and difficult to predict. Under the singularity of the Korean tablet PC market, into which both the iPad and Galaxy Tab (with an Android operating system) were simultaneously released, this study closely analyses consumer preferences for tablet PCs. It uses the Bayesian mixed logit model, which can reflect consumers’ heterogeneous preferences based on data collected from a conjoint method, and using the estimates of the consumer utility function with model verification, it offers forecasts for the tablet PC market under six likely situations.

Keywords:

• tablet PCs
• mixed logit
• Bayesian estimation
• market simulation

Notes

1. http://www.strategyanalytics.com/

2. Sales of Netbook was 12 million in the first year 2008 and increased to 40 million by 2010. However, sales of tablet PCs are expected to be over 15 million in 2010 and increase to 100 million in 2012. This is much faster than the sales of Netbook.

3. According to SA, the market share of iPad was 95.5% in the third quarter of 2010, but in the fourth quarter of 2010 the market share of iPad was 75.3%. In addition, IDC reported that the market share of iPad in 2011 will increase from 70% to 80%.

4. Barclays Capital expected that sales of the iPad will be 29 million by 2011.

5. SERI, Impact of tablet PCs and Change of Media, 2010.10 (in Korean).

6. In addition, there are other products, such as Identity Tab. However, sales of other products are very small compared with iPad and Galaxy Tab, which were released November 30, 2010, and November 15, 2010, respectively.

7. From January to February 2010 in Korea, the market share of Galaxy Tab (400,000 units) was higher than iPad (98,000 units). However, the sales figures reflect a Galaxy Tab higher percentage of sell-in, which refers to sales to retailers or channel distributors, over the percentage of sell-out, which refers to sales to consumers. Therefore, whether Galaxy Tab is superior to iPad in the Korean market is unclear.

8. Unlike the Bayesian approach, the MLE have computational difficulties in estimating multinomial probit (McCulloch and Rossi 1994) and random coefficient (or mixed logit) models (Allenby and Rossi 1999).

9. Besides core attributes in this study, some other attributes (e.g. level of advertising, promotion, user-friendliness, etc.) might impact consumer choice of tablet PCs. However, the operating system (OS) of tablet PCs, represented by iOS, Android, and Windows, generally reflects the brand effect of these specific attributes.

10. For instance, when two products have the same operating system (iOS), definition, storage capacity, screen size, and other attributes, except price, all consumers prefer the lower priced product. Additionally, in a simple relationship analysis, this study shows a negative relationship between price and choice data, of which the value is −0.0041, which is significant at the 1% level.

11. The trace plots are inserted in Appendix 1 as evidence of convergence.

12. This panel survey was conducted by Internet from 21 October 2010 to 27 October 2010 in the United States and sampled 413 consumers, from 20 to 60 years old, who possessed an iPad. The survey results show that 90% of US owners use their iPads every day for an average of 83 min. The main purposes of using iPad are cited as web surfing, reading e-books, playing games, and accessing e-mail services.

13. According to TechCrunch (http://www.techcrunch.com), upgrading Android OS is not easy because of the diversity in carriers and manufacturers. In fact, the updates of Android depend exclusively on the manufacturer of the device. However, upgrading Apple iOS is easier than Android OS because iOS is applied to all versions of Apple products and Apple has a singular and integrated ecosystem for distribution.

14. Apple was a first mover in developing an operating system centered around the graphical user interface (GUI). So, Apple is largely considered an innovator of UI.

15. After acquiring Fingerworks's multi-touch technology in 2005, Apple mainly exposed their multi-touch technology through the announcement of the iPhone in 2007.

16. Train and Weeks (2005) noted that the distribution of willingness to-pay in preference space which analyses WTP in terms of coefficients could show large variance. Therefore, consumer median willingness to pay could have a large scale.

17. http://www.idc.com/

18. Currently, the price of Galaxy Tab includes both voice call and text message charges. Therefore, this study used factory price to directly compare iPad and Galaxy Tab.

19. Product specifications of Samsung Galaxy Tab, LG G-Slate, and HTC Flyer, which will be launched in Korea in 2011, are reflected as attributes in the market simulation.

20. According to Apple, the price of iPad 1 will be decreased by 95,000 won to 186,000 won depending on the model of iPad after releasing iPad 2.

21. The definition of existing iPad products is defined as 2 in Figure 2.