Apple’s iPhone Price Drop: A Big Goof-Up

Apple announced a $200 price cut on the iPhone. Ok, I didn’t buy one at the outrageous $599 price point and I don’t intend to buy one at the reduced price either. If you did purchase one at the high end for $599, you are probably pissed! My sympathies.

Steve Jobs’ open letter to early buyers seems to say, “You have reason to be pissed, but hey that’s life! We’ll meet you half way by giving you a $100 store credit!” I think this is the master marketer, Steve Jobs’ biggest goof up ever. Next time Apple announces a product many of the early buyers are going to think twice and many are probably going to wait around for the big price drop.

There are rumors about performance issues with the iPhone. Moreover, if the product was doing well in the market, why drop the price? In short, it appears as though Apple grossly overestimated the market. They perhaps thought that the hype will turn into sales and when it didn’t, Apple decided to drop the price in a hurry, in the process antagonizing many early enthusiasts. The only good news for Apple is that there were probably very few early buyers. So if you factor the financial hit of the store credit and a temporary PR crisis, it perhaps can be easily outweighed by an increase in sales triggered by the price drop.

Earlier, one of the Research firms predicted that Apple will sell 7 million iPhones in 2007 and 15 million in 2008. At a minimum of $499 each, that’s $3.4 billion to $7.5 billion in annual iPhone revenue for Apple. Obviously, they got it all horribly wrong!

Apple reported that it sold 270,000 iPhones during its fiscal third quarter and told analysts in July that it expected to sell 1 million phones by the end of September. Jobs said Wednesday that the company is on track to meet that goal.

Author: Pran Kurup

Pran Kurup is founder and CEO of Vitalect, Inc.

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