So why did Apple cut the iPhone price?

Stephen Withers
Thursday, 06 September 2007 13:20

Your IT - Mobility

Dropping the price of any product by one-third just two months after its introduction is a pretty big step.

Was the initial price of the iPhone a mistake, and is Apple is now panicking?

Most Apple Stores sold out of the iPhone on the opening weekend, but there were few reports of anyone making a killing on eBay by reselling them. This suggests that supply and demand were reasonably well matched and that Apple got the price right.

The fact that Apple had a fair quantity of refurbished (ie, returned) stock  must be considered. One theory was that this happened because scalpers saw they weren't going to make the quick killing they hoped for, and cut their losses by taking advantage of Apple's returns policy.

That's certainly possible, but there would likely be a number that were returned as being faulty (whether they actually were or not) or just because purchasers decided they didn't really like the iPhone after all. Allow for some returns resulting from poor AT&T coverage or other service difficulties, and you can see why Apple would have refurbs to clear.

Given that Apple's public goal was to sell 10 million iPhones in 2008, selling the first million by the end of September in the US alone isn't a bad start. The company has said it will start selling the iPhone in Europe by the end of this year and in Asia during 2008. So I don't think you can call the initial price a mistake.

Another suggestion is that the price cut results from economies of scale brought about by the introduction of the iPod touch. There could be something in that, but it seems unlikely unless you think the touch was thought up and put into production in a hurry. Surely Apple would have factored any shared component volumes into its negotiations with suppliers.

Differential pricing may provide the answer to my opening question. I'll explain why on the next page