September 6, 2007
Apple Slashes Price on iPhone
By most accounts, Apple’s iPhone has been a sales success, although not as big a hit as the company was hoping for. That, many venture, is the reason behind Apple’s decision to cut the price on the iPhone from $599 to $399.
“You have to speculate that even though Steve said it would sell one million units at the end of the month, it’s not as fast as he would like,” said Van Baker, an analyst at Gartner Inc., told Dow Jones. “I’m not surprised by the price cut, but I’m surprised by the magnitude.”
Trip Chowdhry, an analyst at Global Equities Research, said, “Consumers had been priced out of the iPhone. At the old price levels, they couldn’t hit their targets.”
AT&T, which is the exclusive cellular carrier for the iPhone, expressed support for Apple’s action. “We’re very pleased with the customer response from the iPhone before,” said Michael Coe, a spokesperson for the company. “We expect this new pricing will be even more popular.”
Gene Munster, an analyst at Piper Jaffray, said the move being made by Apple is being misinterpreted. He said, “Investors think something is wrong with demand, but we felt even before the price cut that Apple was going to make or even exceed its targets. In the short term, it will cost them some profits, but there’s an even better tradeoff.”
Some believe that a consumer backlash is coming against Apple from those who ponied up the $599 to buy the iPhone at its original price.
“It (price cut) will absolutely help sales – but at what cost?,” Tim Beyers, an analyst at The Motley Fool, told The Associated Press. “People who bought the iPhone weeks or months ago must really be annoyed, and with good reason they might think twice about being the first to buy future Apple products. This smacks a little of desperation, and it’s very unlike Apple.”??
Tom Zack is one of those unhappy Apple customers. He said, “I for one am not happy. I will never buy an Apple product when it is brand new.”
Discussion Question: What do you expect to come out of Apple’s steep price cut on the iPhone?
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Apple is brilliant, and again it shines through. People can grouse all they want about paying the high introductory price but every one of them knew the price would come down. They bought exclusivity, a club membership and a product that will be obsolete in 18 to 24 months anyway. Apple’s decision to eliminate the lower priced phone and reduce the price of the high capacity phone is a move designed to do two things 1. Establish dominance in the WiFi enabled smart phone arena. 2. Expand the use of and monthly revenue generated for AT&T and themselves. Remember this is the iPhone ONE. It is designed to function well on AT&Ts older systems. Note that you have heard few complaints about the iPhone after the initial rush to activate hundreds of thousands in the first few days they were available. AT&T has a faster, better system that will allow Apple to design an upgraded phone with faster response and also improve the WiFi. Look forward to Apple allowing you to pay more for the iPhone TWO. Hey, this is technology. Moore’s Law pretty much says that capability will double every 18 months. If you take into consideration the technology that was designed into the iPhone, the current model is near the end of the 18 month cycle. Why not drop the price on an obsolete product, suck sales away from Palm Nokia and Blackberry who are scrambling to catch up (which always cost more) and increase dominance in the category? Never, never question the marketing of Jobs and Apple. They are thinking so far beyond the rest of us and the industry that our opinions will prove pathetic. My advice–buy on the dip!
If I bought an iPhone four weeks ago (fortunately I did not), I’m feeling a taken advantage of at this point. And don’t go all Latin on me and tell me about “buyer beware” because the buyer feels as though they don’t need to beware when dealing with Apple. It’s part of the reason the company has fans and not just customers. No matter how I look at this, I can’t see it as good news for Apple.
I agree that while this may boost sales, it will happen at the extreme annoyance of brand loyalists that shelled out $599 without a blink and the timing is not great. Joel got a right…they need to do a make good and motivate those early buyers to advocate on behalf of the product. Really, anyone that I know that has one is in love with it and extolling its virtues wholeheartedly. As a marketer, I don’t think I’d want to do ANYthing to stymie this.
This is an unusual misstep for Apple. The people who bought an iPhone when it first came out (myself included) were not only early adopters, but also brand influencers. The iPhone users extolled the virtues of the product to whomever would listen, and helped sell a lot of product for Apple. And what do these users get as a reward? Nothing!
Price decreases will happen, but a $200 reduction in price says two things to the early adopters. We made a huge profit on you, thanks! And you are a sucker to ever buy a product when it first comes out.
But Apple can fix this, TODAY! They should send a $200 Apple store gift card to every early adopter who has previously registered their iPhone. They will create great brand evangelism, and will bring the early adopters back into the store for additional purchases.
The assumption is that a 33% price cut will increase sales dramatically–enough to pay out for lost margin. I’m wondering if there is much elasticity at this price range. If I’m looking at a $100 phone, whether iPhone is $400 or $600 doesn’t much matter. The only people who would be enticed were those who were already planning on spending $300 or more on a phone. I would not expect that to be a large target market at any one point in time.
iPhones earn money for Apple 3 ways: music downloads; AT+T revenue sharing; and hardware sales. Revenue lost by cutting the hardware price might be regained by increased music downloads and AT+T revenue sharing. Apple’s quick response is totally appropriate in the fast-moving world of electronics.
I think this has more to do with the launch of the iPod Touch than it does with driving iPhone sales. With the iPod Touch available for $299, then the iPhone at its original price would be asking $300 for the added phone capability.
If you think about the “Wow” factor of the iPhone, it’s not the phone feature at all. If Apple didn’t reduce the price of the iPhone, their sales would probably drop substantially, since you can now get almost all of the really cool features in the new iPod Touch for $300 less.
That said, I think the magnitude of the change so soon after launch is a strategic mistake. It seems like they might have been better served to consider launching the iPod Touch at a slightly higher price and/or utilizing promotional rebates (through AT&T and Apple) instead of a dramatic price reduction to make the iPhone more affordable. As it is, they’re making all of the early Apple adopters feel like they made a mistake.
Great move by Apple but maybe two months too early. This would have made a great announcement to kick off the Christmas buying session.
As everyone has stated, the $200 reduction may make some early adopters unhappy. A solution, if Apple is worried about this group, was suggested by one of the panelists. A gift certificate for those early adopters. It would also spur them to walk into an Apple store and buy something else. This group sure has the money to spend on toys!
Based on the chatter around our office, I’d say more folks are disenchanted with the AT&T exclusivity than the price….
A reduction in price of new technology is always expected but by this percentage, it is very interesting. Certainly, the people that were tempted at first to buy an iPhone and didn’t would be more tempted now, and this reduction may put them over the edge or at the cash register. Apple now has a public relations issue with the early adopters, though! Plus, this move may promote a “wait and see” attitude the next time a new product is released.
Apple made a mistake here that will cost them in the future. Future rollouts will be hurt. I would have made a revision on the current model and cut pricing on the “old” one first.
Personally, I would NEVER buy a first iteration of an Apple product anyway. I already have a Treo and it works great. I’ll wait until it breaks.
iPhone is cool–yes. Worth the lower price? Maybe. Will I wait for the next one? Probably.
Offending the customers who were willing and able to spend that kind of money for the original phones is a problem that Apple should do something to pacify. I think that their sales volume will increase enough to offset the price reduction but alienating this many loyal Apple customers that bought the originals needs to be addressed, and soon. The most important thing for these consumers is saving face, not the dollar amount, as they have the disposable income or they wouldn’t have purchased in the first place. They want to be appreciated by Apple and not made to feel as though they were taken advantage of.
Joel W. – You’re apparently a genius. Within hours of your post here on RW, Apple posted an open letter from Steve Jobs on its Web site indicating that it would send most existing iPhone customers a $100 store credit. Quick, call and demand your consulting fee!
Mistakes happen, but you have to be impressed at how rapidly Apple reacted to this one.
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Apple is brilliant, and again it shines through. People can grouse all they want about paying the high introductory price but every one of them knew the price would come down. They bought exclusivity, a club membership and a product that will be obsolete in 18 to 24 months anyway. Apple’s decision to eliminate the lower priced phone and reduce the price of the high capacity phone is a move designed to do two things 1. Establish dominance in the WiFi enabled smart phone arena. 2. Expand the use of and monthly revenue generated for AT&T and themselves. Remember this is the iPhone ONE. It is designed to function well on AT&Ts older systems. Note that you have heard few complaints about the iPhone after the initial rush to activate hundreds of thousands in the first few days they were available. AT&T has a faster, better system that will allow Apple to design an upgraded phone with faster response and also improve the WiFi. Look forward to Apple allowing you to pay more for the iPhone TWO. Hey, this is technology. Moore’s Law pretty much says that capability will double every 18 months. If you take into consideration the technology that was designed into the iPhone, the current model is near the end of the 18 month cycle. Why not drop the price on an obsolete product, suck sales away from Palm Nokia and Blackberry who are scrambling to catch up (which always cost more) and increase dominance in the category? Never, never question the marketing of Jobs and Apple. They are thinking so far beyond the rest of us and the industry that our opinions will prove pathetic. My advice–buy on the dip!
If I bought an iPhone four weeks ago (fortunately I did not), I’m feeling a taken advantage of at this point. And don’t go all Latin on me and tell me about “buyer beware” because the buyer feels as though they don’t need to beware when dealing with Apple. It’s part of the reason the company has fans and not just customers. No matter how I look at this, I can’t see it as good news for Apple.
I agree that while this may boost sales, it will happen at the extreme annoyance of brand loyalists that shelled out $599 without a blink and the timing is not great. Joel got a right…they need to do a make good and motivate those early buyers to advocate on behalf of the product. Really, anyone that I know that has one is in love with it and extolling its virtues wholeheartedly. As a marketer, I don’t think I’d want to do ANYthing to stymie this.
This is an unusual misstep for Apple. The people who bought an iPhone when it first came out (myself included) were not only early adopters, but also brand influencers. The iPhone users extolled the virtues of the product to whomever would listen, and helped sell a lot of product for Apple. And what do these users get as a reward? Nothing!
Price decreases will happen, but a $200 reduction in price says two things to the early adopters. We made a huge profit on you, thanks! And you are a sucker to ever buy a product when it first comes out.
But Apple can fix this, TODAY! They should send a $200 Apple store gift card to every early adopter who has previously registered their iPhone. They will create great brand evangelism, and will bring the early adopters back into the store for additional purchases.
The assumption is that a 33% price cut will increase sales dramatically–enough to pay out for lost margin. I’m wondering if there is much elasticity at this price range. If I’m looking at a $100 phone, whether iPhone is $400 or $600 doesn’t much matter. The only people who would be enticed were those who were already planning on spending $300 or more on a phone. I would not expect that to be a large target market at any one point in time.
iPhones earn money for Apple 3 ways: music downloads; AT+T revenue sharing; and hardware sales. Revenue lost by cutting the hardware price might be regained by increased music downloads and AT+T revenue sharing. Apple’s quick response is totally appropriate in the fast-moving world of electronics.
I think this has more to do with the launch of the iPod Touch than it does with driving iPhone sales. With the iPod Touch available for $299, then the iPhone at its original price would be asking $300 for the added phone capability.
If you think about the “Wow” factor of the iPhone, it’s not the phone feature at all. If Apple didn’t reduce the price of the iPhone, their sales would probably drop substantially, since you can now get almost all of the really cool features in the new iPod Touch for $300 less.
That said, I think the magnitude of the change so soon after launch is a strategic mistake. It seems like they might have been better served to consider launching the iPod Touch at a slightly higher price and/or utilizing promotional rebates (through AT&T and Apple) instead of a dramatic price reduction to make the iPhone more affordable. As it is, they’re making all of the early Apple adopters feel like they made a mistake.
Great move by Apple but maybe two months too early. This would have made a great announcement to kick off the Christmas buying session.
As everyone has stated, the $200 reduction may make some early adopters unhappy. A solution, if Apple is worried about this group, was suggested by one of the panelists. A gift certificate for those early adopters. It would also spur them to walk into an Apple store and buy something else. This group sure has the money to spend on toys!
Based on the chatter around our office, I’d say more folks are disenchanted with the AT&T exclusivity than the price….
A reduction in price of new technology is always expected but by this percentage, it is very interesting. Certainly, the people that were tempted at first to buy an iPhone and didn’t would be more tempted now, and this reduction may put them over the edge or at the cash register. Apple now has a public relations issue with the early adopters, though! Plus, this move may promote a “wait and see” attitude the next time a new product is released.
Apple made a mistake here that will cost them in the future. Future rollouts will be hurt. I would have made a revision on the current model and cut pricing on the “old” one first.
Personally, I would NEVER buy a first iteration of an Apple product anyway. I already have a Treo and it works great. I’ll wait until it breaks.
iPhone is cool–yes. Worth the lower price? Maybe. Will I wait for the next one? Probably.
Offending the customers who were willing and able to spend that kind of money for the original phones is a problem that Apple should do something to pacify. I think that their sales volume will increase enough to offset the price reduction but alienating this many loyal Apple customers that bought the originals needs to be addressed, and soon. The most important thing for these consumers is saving face, not the dollar amount, as they have the disposable income or they wouldn’t have purchased in the first place. They want to be appreciated by Apple and not made to feel as though they were taken advantage of.
Joel W. – You’re apparently a genius. Within hours of your post here on RW, Apple posted an open letter from Steve Jobs on its Web site indicating that it would send most existing iPhone customers a $100 store credit. Quick, call and demand your consulting fee!
Mistakes happen, but you have to be impressed at how rapidly Apple reacted to this one.