Apple StoreApple’s initial iPhone prices signaled the constrained production that the highly-buzzed-about device would naturally face at launch and during ramp up. Now that greater supply and lower manufacturing costs have developed, Apple has cut prices for the holidays, Carl Howe explains for Blackfriars’ Marketing.

Howe explains that Apple also “needed to rationalize its pricing of the iPhone against the iPod touch launch price. The iPhone couldn’t carry a $200 premium over an iPod touch; too many people would have just said, ‘I already have a phone’ and bought [an iPod touch]. But by bringing the iPhone price into line with the iPod touch, Apple ensured that consumers could choose whichever device met their needs best without pricing playing a major factor.”

“We know based upon Jobs’ statements yesterday that Apple is on track to sell its millionth phone this month. So for safety’s sake, let’s say that 900,000 are already sold at the higher price. Of those, maybe 150,000 will get some sort of rebate or refund through their credit cards or price protection (I don’t think it will be nearly that high, but let’s just accept it for argument). That leaves 750,000 phones that earned an extra $200 premium over the targeted $399 selling price. Do the math, and you discover that Apple pulled in an extra $150 million for its trouble. Not a bad business decision at all, given that that $150 million is largely profit. And that’s a nice profit cushion for the iPhone business unit to have while Apple ramps up its carrier subscription revenue numbers,” Howe writes.

“People in the technology and investing press need to realize that Apple is in the high-touch consumer products business. Even at its high price, an 8 GByte iPhone was still less than your average Fendi or Louis Vuitton handbag, and no one writes outraged articles when those go on sale every year. With a clever pricing strategy, Apple both garnered a $150 million premium to its normal sales, generated significant PR buzz with almost no advertising or other marketing, and now is getting even more attention from its new lower price,” Howe writes.

More in the full article here.

[Thanks to MacDailyNews Reader “Linux Guy And Mac Prodigal Son” for the heads up.]

iPhone early adopters (we are in that group) who paid launch prices for Apple iPhones, divorce yourselves from the feeling the price cut might engender and take a dispassionate look at what’s happening. We’re not excusing it, just explaining it. The news is now filled with iPhone stories that to anyone without an iPhone (which is the vast majority of the buying public, for example: just 0.33% of the U.S. population owned an iPhone before yesterday) all scream the same thing: iPhone costs $200 less! Just $399!

Apple is running another masterful free advertising campaign. The value of this free publicity could be well north of $100 million if Apple were to pay traditional advertising rates to get the word out about iPhone, it’s new price, etc. to such high market penetration.

The news is only negative to some portion of just 0.33% of the U.S. population. And the ones who are upset now tend to be the most faithful to Apple. In other words, “This too shall pass.” To the rest of the world this is only a positive: $200 off a remarkable product they’ve heard so much about, maybe even seen fleetingly in person, and probably wanted.

Apple is going to sell a ton of iPhones on the back of this new round of massive, free publicity.