iPhone Price Cut: More Than Meets the Eye

| Editorial

The price reduction of the iPhone announced yesterday has a lot of people talking. Some are annoyed, and some think Apple was on course to reach its sales target, and so the move was simply aggressive pricing. I donit buy any of it.

When Apple was ready to release the iPhone, I believe there were worries about whether they could meet demand. Apple has had that happen in the past, thanks to consumer enthusiasm, and the only way to balance demand and availability was to set the price as they did.

So far so good. Recently, Appleis COO, Tim Cook, at Appleis last earnings report stated that Apple was on track to sell one million iPhones by the end of September. However, that was just a forecast with the side effect that missed forecasts look very bad to the investors.

On Wednesday, Steve Jobs reiterated Appleis belief that they would meet that sales goal, but he didnit specify whether that meant at the old price or at the new iPhone price for the next 25 days.

Awhile back, I saw a report that Apple has been selling 21 iPhones per day per store while AT&T is selling 3. Some simple math suggests that there may be some wriggle room in the projection of 1M iPhones before the end of the quarter, and Appleis fiscal reporting quarter often ends a few days before the end of the month.

So what if Mr. Cookis Numbers spreadsheet reported 950,000? Close enough? Not really. Apple needs to make sure that they achieve that 1M number with some nice margin. One way to do that is balance current demand against price and make an adjustment. Thatis just plain old business sense. So when Mr. Jobs reaffirmed the 1M number, he most likely meant us to overlook the fact that the new price will produce just enough of a sales acceleration to guarantee Mr. Cookis projection and then some. And that will look a lot better.

I also suspect that there were issues related to the European market. Just what, I donit know. After all, Iim editorializing. It may have been the more open approach European carriers have, more flexibility in buying patterns, greater Nokia influence, and the price expectations of European mobile phone customers. Finally, the holiday buying season in the U.S. will have individual customers who are a lot more price sensitive than the early adopters and businessmen were on June 29th.

I can promise you this. The iPhone price cut wasnit just being price aggressive. Nor was it in any way Apple beneficence. It solved several nagging problems, including keeping the sales numbers right where Apple wants them to be and a resulting guarantee of success in their sales projections.

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