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.
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?
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….
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.
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.
Agree fully with MDN take and Grifterus.
Hey, you know that 50″ plasma TV you just bought …
Hmm, thousands of Apple’s very best customers being extremely pissed off doesn’t sound like the kind of free publicity that Apple should be looking for…
Nice Spin MDN – nothing like being the first on your block to pay top dollar for a disposible gadget.
“MDN Magic Word”: iSucker
Synthmeister, you are making my day – lolz
Over the course of time, what’s 200 clams? Hell, my utility bill costs more than that.
Is there a 16 GB iPhone in my future?
For me $399.00 seals the deal…
Just watch – in the near future Apple will release an 16GB iPhone priced at $499. The price reductions and the discontinued 4GB model, along with the pricing of the iPod line makes this a no brainer.
my 2 cents.
@thgerepguy
You hit the nail on the head.
For every PO’d early iPhone adopter, there’s gonna be 10 new customers who will buy a $399 iPhone. Not to mention the other 10 new Apple customers who don’t want to change phone carriers and will buy an iPod touch.
I need my iPhone NOW! So that I also can start whining about it! Damn It! Just a simple thing to start selling it here in The Nokialand!
I promise that I will whine about it everyday! Especially if it costs 999€ as I was ready to pay for it. (amazon.de sold iPhone 8 GB model 999€ and 4 GB model for 899€)
Excite’s CBS ‘Top News’ and at http://cbsnews.com – lead story
Wall Street Dismayed by iPhone Price Cut
Mr and Mrs Middle America will not care squat about whether or not Wall Street is ‘dismayed’ or not by anything – they all know Wall Street perpetually lives with their head either in their wallet or up their ass.
BUT – Hey Ethel, what’s that about that iPhone price CUT ?
MDN – $100 BILLION won’t buy this kind of publicity. Now the World is really another step closer to The Revolution we all know is coming, all brought to us courtesy of OSX.
But, Steve, you sly dawg you, last night while watching the stream – got to see it like a virgin, of course, is the only way (and that Turnstall is hot) – when you announced the new prices I almost squeezed out a zune. Thanks Bro. Appreciate it.
Now I’m off to the local AT&T;(yuk) to become a semi-early adopter.
Later Folks
BC Kelly
Tallahassee Fla
MDN MW “girls” – as in don’t be one and get your panties in a wad over few bucks, sheez, $200 these days ain’t chit, bet you spent almost that much last week at Starbucks
How about they put my $200 into delivering searchable contacts and a to-do list? And, how about ringtones from CDs imported into iTunes? That’d make my day more than a $200 rebate.
Oh, and the ability to transfer customized EQ settings from iTunes. Been waiting a LONG time for that one.
Digital and analog out from the dock to a stereo?
On-The-Go editable photo slideshows, à la On-The-Go playlists?
So far, half the reports I’ve seen on the price cut have been couched in the idea that sales were not meeting their mark, or the iPhone is in a sales slump, or Apple is attempting to boost sales on a flagging product. A lot of negative spin out there that is offsetting the positive news of a more affordable iPhone. I can see a lot of people concluding that the iPhone must not be “all that” if they are slashing prices so soon.
Not like I’d like to keep beating a dead horse, but….
… how come Microsofties never asked for a refund for their crappy OS?
Just wondering….
Thgerepguy and TripleHead:
You’ve both nailed it. Look for the $499 (maybe $599) 16GB iPhone within a few weeks.
Apple is definitely putting on the full court press with a 30 point lead right now…lowering the price on the iPhone already? Are you kidding me? And the iPod Touch, the fabled “iPhone without the phone?” WITH wifi? It’s “check” and “mate”. It’s like the newest franchise in the NFL winning the Super Bowl in their first season over storied franchises that’ve been around forever.
The rest of the pseudo-music-device-making cell phone companies may as well cancel Christmas now, ’cause there ain’t gonna be one, not for them.
Remember George Burns? “Say goodnight, Gracie.” Gracie: “Goodnight, Gracie.” That’s what they’re all saying right now.
Peace.
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Olmecmystic
Stop whining and check out http://www.apple.com/hotnews/openiphoneletter/