Apple dropped the price of the iPhone. You probably heard about this too.
Very shortly after the big launch at $599, the price is now down to $399.
If you bought early, you get a credit for $100. But it's only good in the store if you buy some additional stuff.
"Our early customers trusted us, and we must live up to that trust with our actions in moments like these" -- Steve Jobs
Companies with less goodwill might find themselves in a descending spiral with stuff like this. People might say that they should have seen this coming. But Apple seems to have such a deep well of goodwill that they don't pay full price for these slips.
I'm just as interested in what is behind this move, and how we might understand what is going on here. Here's the most interesting chatter I found out there:
Steve Levitt, of Freakonomics fame, writing in the New York Times, says that economic models for pricing generally ignore the consumer response to the reason for the price:
"What economists (and Apple too, I guess) ignore is that consumers hate it when companies follow practices that look like they are designed to maximize profits. You won’t find it in economic models, but consumers care about the reason a firm chooses the price it chooses. ...Apple’s price cut looks like one driven purely by a desire to maximize profit, which is why everyone is so mad."
As Levitt goes on to point out, something like 10 - 20% of the gift card recipients will not use the $100 coupon. He suggests that Apple should have gone all the way and offered the early buyers a $200 coupon, which would have made it harder for people to be angry with them, and not cost all that much more.
Seth Godin says the trouble with this event is that it was differential treatment of customers that was random and unpredictable. Instead of spending $20 million on these coupons, Apple could have offered customers some other kind of preferential treatment in keeping with their early adopter status. Among his ideas:
- free exclusive ringtones commissioned from major artists like U2 and Bob Dylan, and available only to early adopters
- free head-of-the-line pass for their next big thing
- ability to buy a specially colored, limited-edition iPod
Godin's conclusion is brilliant, and worth remembering:
"The key is to not give price protection to early buyers (that's unsustainable as a business model) but to make them feel more exclusive, not less."
Some lesser luminaries have also weighed in with some interesting variants on this theme:
DV Hardware reports that the iPhone -- even when turned off -- continues to download e-mail. This can result in some big-time data charges if you happen to be traveling abroad with your iPhone turned off. Author Thomas De Maesschalck speculates that this is the reason Apple was able to reduce the price so quickly!
Nerdblog suggests that this type of price cut is standard practice in the mobile phone industry. [So why was my Razr still so expensive a month ago, after the original had an unfortunate encounter with a small body of water??? Perhaps because I live in Canada... sigh]
Way back on July 24, BrandCurve predicted this price drop would be coming as a result of poor subscriptions due to the high price of the phone+subscription combo:
"I can’t say I’m surprised by the low numbers. With a price tag of $500, the iPhone isn’t going to fit in the budgets of the masses. It’s a cool toy but hardly essential. Also, consumers are educated about electronics these days. They know if they wait a little longer, the prices will drop. There is little need to rush into laying out $500 when that price will plummet not too far into the future. And of course, there is always the question of how AT&T is negatively impacting sales. Their wireless services are not known for top-notch coverage or customer service."
The marriage with telco's known for their hostile customer relationships is something I've also wondered about.
I do still feel that Apple is becoming more part of the mainstream, and that they will be less lovable as a result, cool products notwithstanding. Time will tell, as always.
September 14 addendum:
Reader Rich McIver from Inside CRM drew their post on Apple to my attention: 12 Effective Strategies Apple Uses to Create Loyal Customers. Personally, I think this is a great title for a book, and the mere presence of Apple's name is probably enough to make it sell.
I'm not sure I totally agree with all their points, but my brand is not as successful as Apple, so what the heck do I know? See what you think. Feel free to add to the conversation by commenting here. Do you agree with the 12 points?