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.
It has been said that there’s no such thing as bad publicity . . . but this SJ/Apple move comes perilously close, methinks.
Early Adopters,
While I feel your pain and the $200 price drop is truly remarkable for Apple, you have to accept that things like this may happen when you live on the bleeding edge of technology.
I’d like to hear more people applaud Apple for their 14 day price drop policy. That is certainly in line with many other businesses (tech and non-tech) and is not something that they are compelled to do. Anyone who bought their iPhone more than two weeks ago and gets anything out of Apple should consider themselves extremely lucky!
In other words, stop your bitchin’!
@ Damacles
truly. In the long run it makes sense, but a risky move.
quit whinning and buy some AAPL, your 200 will come back in no time
Only to those who don’t understand how the consumer electronics marketplace works. Those are the only people who could take offense to what has transpired.
Just buy a Zune or other SmartPhone with media player and you can see your 200 bucks was worth it.
Good for Apple! Now that they’re gonna be selling so many phones and making so much money, they can afford to give back the $200 that they’ve fleeced from us loyal customers.
I’ve learned my lesson, and I’ve been a sucker. I’ll take responsibility for my actions.
But NEVER AGAIN will I purchase an Apple product on day one.
As a life-long Apple/Mac user and loyal customer, my brand loyalty has been tarnished.
I’m an early adopter. At first, I felt a tweak of pain with the announcement, almost like a spurned lover. But then I realized this past summer with my iPhone has been awesome. Met a lot of ladies with this phone! I guess soon it won’t be quite as much of a status symbol, and that is good. I’m glad that more people are gonna be able to afford it. It’s really amazing, and I’m sure this will be even more of a switcher device than the iPod could ever hope to be.
This price cut is a clear symptom that the new Apple is not the old Apple. In Scully’s, Spindler’s, (et al) day, they would have milked the fat profit margins for years on the iPhone. Now, they are going for the jugular of the competition (and probably still making some pretty good margins.)
I honestly don’t see anything that the competition can hope to get to market in the next year that will come close to Apple’s iPods and iPhones. I mean, look at the Zune now. A week ago, it looked passé. Now it looks downright retarded, like someone wearing a three-piece, polyester leisure suit to a tropical luau.
Nokia, Motorola, Sony, Creative, MS, Real, etc. are gonna have a lot of coal in their stockings this Christmas.
The greatest thing with the iPod Touch is…
..you don\’t have \”Big Brother\” cohorts AT&T;and Cisco tracking you and tapping into your sensitive iPhone data info via cell.
Eventually a device/service will enable VOIP on the iPod Touch, allowing one to make and recieve calls via numerous free WiFi locations. Turn it on, turn it off. Your safe.
Heck even over Bluetooth on your cell.
Check this out..
http://www.hardmac.com/articles/73/
@ Sunlokyee
That’s the best strategy of all, especially since the stock went down a couple more bucks today.
(You might also want to throw in a few shares of Starbucks.)
I asked myself a question earlier. If I knew ahead of time Apple would do a 200 dollars price drop 2 months after launch date, would I have been able to stop myself from buying the phone for 599 on day one? Probably not, that is how much I wanted this phone. While most people may not feel that way, but I’m sure theres plenty of people on this site who may feel the same way.
The whiners just don’t get it, but who cares about them and all their loyalty? They’re the first to pee in their pants when Apple does something that they don’t like. You see, there’s a difference between fanaticism and support. Apple needs more supporters and fewer fanatics, especially considering how vocal the fanatics are and how much attention they get in proportion to the validity of their statements.
Wah, wah, wah! Go on and complain about how much it sucks that the iPhone can be bought by more people! A few weeks ago you were complaining about how much it cost. Just do us all a favor and take your “I’ve been an Apple guy since..” self-promoting martyr complexes somewhere else. No-one cares nor wants to hear your whingefests about jilted computer love, ok?
My only solace is that I’m a shareholder since last summer, and Steve J. just got a little bit of the increase back that i’ve earned off his stock, as if he didn’t already have enough!
I don’t understand all the whining. You agreed to the price. They agreed to sell you a phone. You made the decision. Done deal.
Apple should give all early adopters of iPhones $200 worth of free iTunes … that should keep loyal users happy.
I was at the Apple Store on Saturday showing off the iPhone to a friend who wants a new cell phone. She loves it but said she couldn’t afford it at $499 or $599. Fast forward – she’s buying an 8GB refurb tomorrow for $350
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<<Of those, maybe 150,000 will get some sort of rebate or refund through their credit cards or price protection>>
Did the whiners notice the above, that was mentioned in the Blackfriar’s blog?
If you used your credit card, you might have 90days of price protection and/or purchase insurance. I have both with my AMEX card, but my price protection is up to $300 items, but purchase insurance is for $1000. In other words, if your iPhone gets stolen or damaged beyond repair in the next how many days, you get a full refund. Some of you whiners might even have better price protection, and be able to get your $200 back.
“Nokia, Motorola, Sony, Creative, MS, Real, etc. are gonna have a lot of coal in their stockings this Christmas.”
Absolutely sends them all back to the drawing table again. This really stomps on Nokia’s cloner copy…who would imagine, a computer company making a phone and putting the real OS inside along with an interactive touch screen to run it…that is leverage upon all leverages. No one has all those goods combined. AAPL will go beyond 200 when folks realize this. Steve cut the throats of the competition before they could even breathe…they didn’t even get any last words. This is a history making product, and, in the future, with one of those low power Intel combined processor/graphics chips integrated…this thing is going to be a real computer.
I think this article makes a lot of sense.
Price is now $499….yawn.
Price is now $399….WOW. And 100’s of articles about it…good or bad, it’s free publicity.
I’m one of those that got “burned” by this iPhone price drop.
I’m not crying about it. If ANYONE bought an iPhone for full price and seriously didn’t expect a price drop, you’re just insane.
True they could have waited 6 months for this, and burned 6months worth of more people and lost out on a tremendous volume of holiday sales…
But without the sale of nearly 1 million iPhones they would not be able to justify ramping up production to a high enough volume to be able to offer these steep discounts. There’s no way they could have offered this price during launch.
Remember that.
And if you paid the 600, you must have thought it was worth it or you have a hole in your head.
Either way, seriously stop the complaining.
i was a little disappointed at the announcement too, but i shrugged it off as “oh well, that’s how it goes.” as it turns out i’m fortunate enough to get price protection (bought mine last week), but even if i didn’t i knew what i was getting into.
a few quirks in the interface, no email alias support, and AT&T;’s coverage isn’t great out here…but i’m still liking the phone a lot.
This is the Taming of the Shrewd.
I’ll wait at least a week now before buying a new Apple product. Except ringtones. Mainly because Marimba is really enough for me.
@Synthmeister
“I mean, look at the Zune now. A week ago, it looked passé. Now it looks downright retarded, like someone wearing a three-piece, polyester leisure suit to a tropical luau.”
Classic. 😀 And correct. It’s funny, because as of yesterday, even the delusional Zune fanatics (there actually were about six or so of them I believe) have finally gotten the message. I slummed on a few Zune boards last night (I still feel dirty) and once I got over my surprise that there actually WERE Zune message boards, I began to read the posts.
They all, by and large, realize that Apple has killed the Zune. Many are even saying that they are done, and are going to purchase an iPod Touch. It’s all doom and gloom over there in Zuneland.
Apple wins. It’s over. Goodnight.
@clinicaltechmaster
I agree with you….another alternative would be to give the early adopters a $200 credit towards an Apple Purchase or towards their AT&T;phone bill.
In any event Apple should do something to save the embarrasment of the early adopters. I think many of them will remember this and not buy 1st generation Apple products in the future.
Anyway you don’t want your customers to ever feel bad about buying your product.
On the other hand, I think the iphone was worth $600 dollars compared to all the highend phones on the market and I think many people also believed it was worth $600 dollars based on the current sales.
However, I think Apple should bail out the early adopters with some sort of credit….its reasonable and it will help the early adopters from feeling like they were cheated in some way.
I am glad I waited….I am still waiting for the 2nd generation iphone before making a purchase. By then my Sprint Contract will be up.