iPhone: $599 to $399 – Where Apple goofed up

When Apple announced yesterday that they are dropping the price of their iPhone 8GB from $599 to $399, you would expect jubilation all around. One thing that had held back many people from purchasing their own iPhone was simply the price and this drop in price was always to be expected and when it really happened, it is in fact a happy news.

Who’s protesting?
But Steve Jobs was in for a rude shock when the blogosphere got abuzz with hate posts vehemently protesting the huge drop in price. The leaders in this campaign are the die-hard Apple loyalists who were one of the firsts to purchase the iPhone when it first hit the market. So naturally when they see the price drop after they have just become proud owners, you would naturally expect disappointed loyalists.

What went wrong?
To put it in the mildest of terms, nothing actually. Apple did nothing wrong in either overpricing it in the initial stages nor bringing down the price at this point. In marketing, this kind of overpricing a new product when it is first launched (and has hardly any competitors) is called Price Skimming. This is a strategy that so many companies have so successfully used to break even quicker while making a quick buck from those who consider purchasing the product early a status symbol. Everything from television, cellphones, internet, everything have used this strategy in their early days.

So why has the iPhone alone had to bear the brunt of the wrath of Apple loyalists? There are two main reasons for the same. The primary reason is that iPhone is a technology product. Technology related blogs are one of the widely popular sites on the internet, and most of these blogs are written by those who purchased iPhones early on. So, Apple can always expect this crowd of technology bloggers to have opposed this price drop.

But the most important decision for this vehement opposition is in the fact that Apple has brought about the price drop so quickly after its introduction. The iPhone was introduced on June 29th of this year to be precise, and paying $200 extra for the same product is something not everybody would prefer.

What Should have Apple Done?
A price drop to gather more user base is always on the cards. But this should be done in a way so that loyalists base does not get offended. The way to achieve this could be by launching iPhone in a newer market, say the Europe or Australia. Since there is a huge demand from people from these countries as well, Apple could have expected to keep up the momentum in sales growing. It is being increasingly speculated that iPhone sales growth is lesser than what Apple claims and that’s exactly the reason for this quick price drop.

This strategy could have helped Apple price-skim the other high demand markets as well. On the other hand, the strategy adopted by Apple shall hit it on two fronts. One, early adopters feel ripped off because Apple ‘fleeced’ them. Two, Apple will have no opportunity for price-skimming at these newer markets since they will have to price their product on par with the new price it is available for in the American market.

The iPhone is scheduled for launch very soon in some of the newer markets. Apple has definitely lost an opportunity to increase profit margins in these newer markets by announcing a price drop in the US.