Apple shrewdly grabs tons more free publicity for Apple iPhone while making it much more affordable

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.

47 Comments

  1. 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 ” width=”19″ height=”19″ alt=”grin” style=”border:0;” />

  2. <<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.

  3. “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.

  4. 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.

  5. 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.

  6. @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.

  7. @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.

  8. Sunlokyee, I am with you. Even if I had known this was coming, I still would have bought the phone. I was out of the country, and at 6:01 pm PDT, I found a computer in our hotel, and ordered one for my wife and one for me [both 8gb]. They were waiting for us when we returned, and were activated easily. My summer of iPhone has been great, and although she is no tech nut, my wife loves hers. ZERO regrets.

    As for MikeK, oh boo hoo, your “brand loyalty has been tarnished.” That’s all on you. Apple has done nothing wrong or even negative. If you somehow see less value in your purchase, maybe you should not have bought it in the first place. That’s the only way anyone who bought the phone could be mad now, i.e., that they didn’t actually think it was worth the price in the first place. Same goes for high-demand items like the Prius, the Mini, the Wii, you name it. In those cases, the market actually commanded higher-than-retail pricing, and they still flew out the door. Are those purchases worth less now that retail has stabilized? Of course not. I bought Aperture at its initial price. Later, Apple rewarded me with a $200 refund when they lowered the retail price. I was very happy, but solely because I was not expecting that. Apple had no obligation to do that.

    You, and only you, made the decision to buy the phone on day one. The fact that you have vowed never to do that again only means you lack confidence in your own decision-making prowess.

    MW: “price” How do it know?

  9. We all know Apple is different (better) than companies like HP, Dell, etc and Microsoft who can screw their customers and nobody really cares…maybe their customers are used to it.

    However, I think people percieve Apple to play at a higher level and handle its customers much better than Dell/HP, etc.

    I don’t think Apple customers are used to this type of treatment…Steve Jobs described the electronics busines as cut throat, which is true, but people don’t expect Apple to be cut throat with its most loyal fans….

  10. Poor Microsoft. Their Zune had Wifi for months and couldn’t figure out how to do anything useful or cool with that feature. Kind of like they invented the wheel and just sat there mesmerized just by it spinning around. Now Apple comes along and builds a Ferrari or a Mack Truck using the same wheels while MS sits there and watches all the pretty colors go round and round.

    To add insult to injury, Apple tacks on the option to purchase tunes over wifi, further allowing them them to monetize the device in a way that must have the MS R&D;departments and beancounters foaming at the mouth (and at each other.) Can you imagine the conversations at next week’s brainstorming sessions? Why didn’t we have a partnership with Starbucks? Why can’t the Zune locate anything? Where’s our one-touch-download-to-purchase-option? So many questions but so much convoluted software to prevent any answers.

  11. I bought a 30 MB iPod 45 days ago. I want it updated for an 80 MB (which costs the same now) for free.

    I also bought a Shuffle, and I want it red.

    How’s that different from the iPhone thing?

    I mean, sucks to lose money, but it’s also about the opportunity of spending it.

    The way I see it: The iPhone could either fly or drop (anything’s possible), and Apple needed a price to match the production volume.

    The product flew, so, now there’s a bigger demand, a bigger market, and a bigger production scale. So, the price drops.

    A DVD player was over $500 when it was released (man, I even remember CD players!) And today you can get a DVD player with the same (or more) features for $50. And CD players are even cheaper.

    It doesn’t mean DVD players could be sold at $50 back then.

    In the case of the iPod, it’s perhaps the most successful portable device ever invented. How fast would you think the price would drop?

    Of course, it doesn’t mean it doesn’t suck to lose money, and it doesn’t mean I don’t feel bad for early adopters.

Reader Feedback

This site uses Akismet to reduce spam. Learn how your comment data is processed.