After the sizable price cut on the iPhone, the shares of Apple Inc. (Nasdaq: AAPL) have been jumpy. Kind of like Google Inc. (Nasdaq: GOOG), it's never easy to predict the goings-on at Apple.So is the price cut a good thing?
Well, I had a chance to interview Rafi Mohammed, who is a pricing expert and the author of The Art of Pricing.
His opinion on the matter?
"With Apple announcing it recently sold one million iPhones, what should be clear is that last week's $200 price cut was not out of desperation. It was a very strategic move. When it released the iPhone, Apple stated its two key goals: sell one million phones before September 30 and 10 million phones before the end of 2008. One million iPhones were sold in just 74 days, but to achieve mass adoption, Apple has to cut its price to attract everyday customers. This is exactly what Apple is doing. Additionally, following its classic strategy of under promise and over deliver, an early September price cut will produce blockbuster numbers for its first full quarter (which ends on September 30) of iPhone sales.
Apple's next step is to do exactly what it has done with its other innovative products like iMacs and iPods: offer a full line of good, better, and best iPhone products. A good, better, and best line will enable Apple to achieve mass adoption while also profiting from those willing to pay for a premium product.
"Apple's rollout strategy illustrates the key roll that price plays in profits and growth. Apple employed a classic pricing strategy of lowering prices over time. And as I mentioned previously, there may have been room to even price the $599 version (Apple has noted that most iPhone sales were for the higher priced model). While many companies lower prices over time, they fail to offer a good, better, and best product line that enables them to price for profits and growth.
Tom Taulli is the author of various books, including The Complete M&A Handbook
Comfort Zone Investing: The unmighty dollar
Five winners of a weak dollar
For a quick-read on the U.S. economy, check the price of gasoline
Reader Comments (Page 1 of 1)
9-11-2007 @ 9:07PM
Colin Hoops said...
C'mon, this should be obvious. With the iPod Touch for 299, you can't charge much more for just the phone functionality and access to a prehistoric data connection. This leaves room for a 499 dollar 16g version, and 599 3G version, which are both inevitable and will come sooner than later. We in the US aren't going to watch Europe get 3G before us, and they sure as heck aren't gonna take the likes of ATT's EDGE network over there. I'll bet one share of apple that they are back to the 599 price point for the top of the line before christmas.
9-11-2007 @ 8:17PM
Colin Hoops said...
C'mon, it should be obvious that this is a re-pricing based on the new iPod Touch. You can't charge more than a hundred bucks just to add a phone and access to an archaically slow data network. This will make room for a 16gb model at 499, a 3g version at 599 (which is inevitable cuz there's no way we in the US will stand for Europe getting it before us, and there's no way they will tolerate the likes of ATT's EDGE network ), so the 599 price point will be back before christmas, I'll bet a share of Apple on it