Wednesday, September 5, 2007

Desperation, or market share?

When you introduce a new product, you want to maximize revenue as much as possible, either by charging a high price, or by flodding the market in quantity.

Looks like Apple's trying to do both:

The consumer-electronic maker [Apple]...slashed the price of its iPhone, barely two months after the much-hyped device first came on the market.

That news appeared to cause some concern among investors. Apple's shares began to drop following the iPhone announcement Wednesday and were last trading down nearly 4% at $138.50.

Apple Chief Executive Steve Jobs announced the changes at an event in San Francisco on Wednesday.

"We've clearly got a breakthrough product, and we want to make it affordable for even more customers as we enter this holiday season," Jobs said in reference to the price cut on the iPhone.

The price of the 8GB version of iPhone will drop by $200 to $399. That's $100 cheaper than the current price of the 4GB version of the device, which Jobs said will continue to be sold "while supplies last."

One analyst said that investors were likely interpreting the sharp price cut as a sign that demand for the iPhone is weak.

"They [investors] are reading this the wrong way," said Gene Munster of Piper Jaffray, who rates Apple's shares as a buy. "Apple's making a statement that they want to be big in the mobile market."

Perhaps there's another reason:

With the new heat the iPhone will be getting from the iPod Touch, Apple decided to lower the barrier of entry to a much more palatable $399, and that’s for the 8GB model, which just yesterday was rocking at $599 pricepoint.

JK on the run snuck into Apple's headquarters, apparently:

SJ- Now, how can we amp up iPhone sales again?

#3- drop the 4 GB iPhone which was for wimps anyway and then drop the price for the 8 GB version.

SJ- great idea, let's drop the price $200 to $399!

(sound of jaws hitting the conference table)

#6- but sir, won't our most fanatical and loyal customers who stood in line just 2 months ago get pissed?

SJ- you said it yourself, they are the fanatical ones who will love us no matter what. Screw them! Let's drop the price. I'll make so much money off the AT&T commission every month it will almost be obscene!

But forget about Steve - either CellGeek has inside information (in which case Steve will fire CellGeek), or CellGeek is lucky, or CellGeek is a genius:

In a poll leading up to the iPhone release; while an impressive 41% surveyed had an favorable impression of the iPhone; only 6% were interested in buying one. The reason? It doesn’t matter how many different things the iPhone does, $499-$599 is still a lot of money to pay for a cell phone....

In July, it’s first full month on the market; market research firm iSuppliFrom reports the iPhone accounted for 1.8% of all cell phones sold; tied for first place with the much less heralded LG Chocolate.

While it would be absurd to call first place a failure; with the iPhone parts estimated to cost around $200 to manufacture; they could cut $200 off the price tag and still be making a 100% profit!

And how many more people would be interested in the iPhone for $200 cheaper? Their own greed is costing them money.

We'll see, CellGeek, we'll see...

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