Apple has made many strategic mistakes in the past but iPhone has been its biggest strategic mistake. History repeats itself and Apple brought itself to the corner much before the iPhone launch. Being a slick technology company with all the brand value of releasing innovative products; what was the requirement of hanging on to AT&T in the first place? Then you reduce the price by 35% and disappoint your first in line customers.

Apple iPhone will actually help other handset companies like Nokia, Motorola etc because now the consumer knows that a cellphone can be used to play music and its an in-thing. This will also effect iPod sales in long run. Apple should have released its product as an unlocked hardware (handset) that can be used in any network, maintain the price and release new iPhones with larger disk storage while reducing price slowly. Many many consumers would have switched their handset just to get the feel of the gorgeous iPhone. Something is wrong within Apple.

I think you're underestimating the powerful relationship consumers have with the Apple brand and its products. Apple customers exhibit a loyalty and dedication that is similar to a good marriage. Like a healthy marriage, occasional flubs and shortcomings by a spouse are overlooked in the context of the larger relationship.

Apple's announced intention to strategically lower the price, with the understanding that they risked a backlash, as a holiday promotion made complete sense to me. That they quickly offered a $100 "refund" (technically, a store credit) showed that they were responsive when the reaction was worse than they assumed.

I purchased the iphone at the reduced price and believe me it still feels quite authentic. Remember that most people get their phones for free with a plan or for $99. When originally launched the iphone should have gone for $399.

The previous price tag of $599 was too high even for many early adopters.

The mistake Apple made was not having the product priced correctly in the first two months. I applaud them for correcting the mistake, still pricing the phone as a premium offering and doing so in-time for the holiday.

The reason for the deal with ATT is that Apple will get a percent of your monthly cell phone bill. This is recurring revenue that goes in their pocket, not AT&T's. People who want the iPhone on another network can do so today using the SIM unlocking techniques. So they get to play both sides.

Put another way... If apple hits their target of 10,000,000 phones it's still just 1% of the overall market. That still makes the iphone a premium offering.

I think the iPhone is anything but "phoney". This is not a pricing strategy of desperation. It appears that they feel they really have the chance to play the majority segments sooner than later, hence the logical price cut. We could argue it was too much, but if so, they deftly worked it to their advantage.

Since the iPod launch, Apple has demonstrated again and again the dictum "Why Wait"? Chasm?, what Chasm? Seems to me they flew right through it. And in record time.

As far as lifting Nokia and the others, have you checked out the price of the other quote unquote smartphones lately. Their prices are plunging as their perceived value has dropped... in other words they have been commoditized and we could argue back and forth that the coup de grace is the iPhone. Touche!

To me the more interesting gambit is the Ipod Touch. For $399 what would you rather have, 8 gig iPhone or 16 gig iPod? Do you even need a phone? Do you need ATT? Can't wait to find out.

I think another thing that was missed.

In the case of the iPod, Apple had a breakthrough system (not just the iPod, but the iTunes Music Store as well) that no one else could replicate.

In the case of the iPhone, Apple is not first to market. They certainly have features that are unique and again it connects to their systems, but consumers weren't really crying out for this solution. Analyst stories leading up to the launch even felt that many of the features were only a year away anyway for the big players (Nokia et. al.).

So, in this case I'm actually surprised people are in an uproar over Apple's decision. Sure, the timing is relatively quick in regards to dropping the price, but some of the purchasers probably aren't your typical 'early adopters'. Welcome to that side of the curve, where the price of being first is a premium price.

Honestly, I don't think a lot of companies would have even issued a credit at all, so I applaud them for listening to the consumer.

Andy Martini

My wife and I purchased iPhones in early August and bear Apple no ill will for repricing the phone. Early adopters always pay a premium to be first; either in high initial price, waiting in lines, or phone plan conversion. I had a problem with the antenna on my first phone and the store literally "owned the problem" from the moment I walked in until I left later with a new phone. I am less pleased with AT&T and increased sales may speed utilization on other networks.

Did either of you buy at the early & higher price?

My cousin purchased an iphone shortly after the initial release. Her husband justified the $599 purchase because of Apple's history of price consistency. He said that Apple would eventually make a better iphone and was confident that the premium price would remain the same.

Those comments still resonate with me today after Apple announced the price reduction. He now has egg on his face because of Apple's recent decision which I thought was poorly handled. I do not understand why Apple did not offer the $200 credit with the price reduction announcement. Apple's loyalty goes beyond your traditional techie and "life in the technology lane".

Apple made a pricing mistake that was clearly going to jeopardize their audacious 10 million iphone sales goal. By giving the difference back to the original adopters and loyal Apple fans like my cousin, they stay above this 'technology lane".

I guarantee that this partial credit, which would have remained existing revenue for Apple, will eventually hurt them in the long run. The Apple brand has been riding so high over the last few years it is a shame that did not use better PR with the iphone price reduction announcement. It is always sad when heroes are brought back down to earth. What makes this scenario frustrating is that Apple could have saved face if they rewarded the early adopters. Had my cousin received a $200 credit, her husband could still justify is purchase and I would be considering the iphone this holiday season. Now I will compare this mobile phone with every other in the hyper competitive mobile phone industry.

As a marketing prof I do lot of research in new products and pricing. The 40% price cut in just a few weeks' time is unheard of for a breakthrough new product. Early adopters' backlash is justified but Apple handled this disaster rather poorly. Apple needs these people for all their future products! They should have given back the full difference and not just the 50%. Without this die-hard loyal group, Apple would lose their charm and momentum with the future new gadgets. Many companies like Johnson & Johnson and Toyota turned such disasters upside down to core majpr victories. For the former it was Tylenol, adn for the latter it was with Lexus introduction. Apple did not goof totally like Exxon did at Valdez but they could have done much better. They missed a golden chance I would say.

Why did Apple cut the price? Apple might have thought about two alternatives iitially: go low and diffuse rapidly, or go high and get high margin but diffuse slow. They might have chosen the latter option hoping that their brand name would help prop up the diffusion speed. But their realized sales growth might have signalled to them that diffusion was slower than expected. Curiously, for Apple the only way to rev up the speed of sales growth is price cut because the other option i.e. advertising had already done its job fully thanks to Jobs! In I-Pod case they successfully did this gradually by bringing in the diluted versions to justify lower prices, but here they could not wait because competitors were ready to jump in.

Folks --

Here is a different point of view, in defense of the iPhone price cut.

It suggests that the value of the phone to Apple is not only to generate revenue, but also to serve as a platform around which other innovations will prosper, a tactic which then drives—and stabilizes—consumer demand for the iPhone.

I think this is a clever point-of-view that we out here are likely to miss. This is Saul Hansell writing in the NYTimes on September 7, 2007, the Bits column in Technology:

[http://bits.blogs.nytimes.com/2007/09/07/steve-jobs-speaks-the-truth-about-the-iphone-price-drop/]

" ... the iPhone is not just a phone, it is a platform for developing applications, services and accessories. The more iPhones sold, the bigger the ecosystem around it, and the more that is developed that attracts and retains customers.

“Even better, each iPhone generates money directly { for Apple and Jobs] by selling music, videos, ringtones and maybe Starbucks lattes. There’s more money yet from the substantial kickback AT&T provides from its voice and data revenue.

“So any MBA would add all this up and say that the rational strategy would be to lower the price as quickly as component economics allows in order to maximize market share...”

Does this observation make sense? It does to me.

John Kerans
Lecturer, Advertising
Fontbonne University
St. Louis, MO USA

You have absolutely no clue about the relationship of Apple devotees and the company - forget rationality - this is all about emotion. I bought the iPhone the nano it was available and would do it again - Steve Jobs rocks - who else was #1 CEO 18 months in a row - who else takes a salary of $1 - who else led Pixar at the same time - just accept that those of us who love Apple "love Apple".

If this is a screwup, then find me 5 more screw-ups that Apple has made on Job's most recent watch there since his return.

If you had ever actually run a software,hardware or entertainment company, then you will appreciate how masterful his management has been and how incredible his accomplishments truly are.

The price cut was a minor mistake and the $100. rebate Apple's answer to service recovery. Did he phrase t right -"tech. lane" maybe not but gimme a break. This will not shake Apple's customer faith in the "authenticity" of the Apple band one bit- in fact, Apple fans defend the pricing screw up more passionately than anyone else! Compare that to the long list of other firm screwups in the space and you either have to be a very harsh critic of Apple or somebody like a movie critic who never made a movie but alway gives out negative movie reviews. No mention made about how he revolutionized what a phone should do or how it does it (Nokia heads, keep your phones, you don't get it.), nor how many other breakthrough products he brought out at the same time (iLife '08, iWork'08 and the iTunes store integration, which work seamlessly across all platforms and are integrated into the iPhone platform.

I got my $100 store credit and bought several more Apple computers while in the store.

How's that latest version of Excel from Microsoft working for you? Allegedly full of calculation errors that put businesses at risk just trying to add up numbers. Try Apple's Numbers which came out at the same time as the iPhone cut- it works great!

And last time I check, AAPPl was at $186.16 today.

Dear All,

It is a taboo to reduce retail prices for more than 30% because it shown how much the mark-up would be and inducing customers to wait and see stalling demand for newly launched products.

A customer behaviour thus moulded by circumstances' wait for discount only purchase '.

Common sense. Anyone who lacked business intuition end up being acquired or wind-up as a matter of time it tells.

Unwise to make hasty decision.

Best Regards,

Alan Goh ACMA(U.K)
Chartered Management Accountant

What is your answer to Apple's pricing policy for Europe, in that case? All products are 20-30% more expensive and items bought in the US have no warranty in Europe... Isn't this more annoying than a one-off price cutting?

An Apple customer from Europe

Readers,

Joseph Pine and James Gilmore are attacking Apple to gain publicity for their book. It's that simple!

Apple has a large loyal base of followers and Pine and Gilmore are making a sensational statement - that the iPhone is a "phony" - to buy free publicity just like many authors at CNET, ZDNet, CNBC and others do. Apple may not always be "authentic," but the example and argument Pine and Gilmore use to get eyeballs doesn't work.

As others have stated, Apple has to manage the iPhone as a platform and not as a cell phone because unlike ordinary cell phones, the IPhone's perceived value grows with the number of people using it. Why? Because the iPhone is the first phone that can offer real applications (legal ones come February) and real web browsing. Developers like Facebook have already created custom sites for iPhone. Nokia on the other have had to buy developers and now even content providers (NAVTEQ) to enhance the perceived value of their phones so they aren't completely commoditized. Motorola just plain doesn't understand the market like they did a couple years ago.

The price cut will make the upfront cost of the iPhone more affordable and hence more consumers will have the opportunity to buy it. With more users, more developers can make money developing for iPhone. These applications, developed only for iPhone users, will help differentiate the iPhone brand and thus help Apple maintain high margins on the iPhone much longer than Nokia, Motorola, LG, Samsung, etc can with competitive products.

Early adopters of the iPhone paid a fair price because they valued the iPhone at $599 or more. If their perceived value of the phone was less than $599, they would not have bought it in the first place. If their perceived value changes because Apple sells it for less, maybe they made a valuation mistake or bought on emotion.

Apple lowered the price to capture the market of buyers that placed a lower utility on the phone. The only people that might have a right to be upset are those trying to make money from arbitrage that purchased the phone at $599 and hoped to sell it on eBay for more, but did not value the phone at $599 for their own personal use. However, that is the risk of arbitrage just as those in the real estate market flipping houses are quickly learning.

Lastly, I want to respond to some comments above and in the story about AT&T. Full disclosure: I personally do not own an iPhone and I am not an AT&T customer. I own a Moto RAZR V3 on US Cellular's CDMA network and a MacBook Pro that can connect to Sprint's EVDO Rev A network. I carry my MacBook and iPod Nano everywhere so an iPhone does not make sense to me at $399 because I can do more with my MacBook Pro at faster speeds and make more calls on RAZR with USCC than with AT&T.

I think it is perfectly fine that the iPhone is locked into AT&T. Even if it was unlocked, in the US, the only other GSM provider is T-Mobile. AT&T created a special voice and data plan that is very very competitive for the iPhone. In fact, if you were to buy a similarly priced phone from Nokia or others unlocked or locked, not only would the consumer miss out on many of the technical advantages iPhone offers (such as 8GB storage), but the TCO of the entire contract for similar minutes and data usage would be around $400 more!

AT&T's 2.5G network that iPhone uses might not be as fast as Sprint or Verizon's 3G networks, but AT&T also has a 3G network thats' just as fast. iPhone just doesn't use it. Likely when component costs come down and also shrink in size, Apple will introduce a 3G version. There is rumor, the IPhone for France will be 3G. For most tasks that the iPhone will under normal circumstances be used for, like reading email, Google maps, and web browsing, 3G does not offer many benefits. Would you pay $100 more to get web pages to load 3 seconds faster? Or would thicker phone been as attractive.

While were on the subject of carriers, why should Apple have chosen anyone else? Sprint is losing customers and just fired their CEO. Verizon wants to control every aspect of phone software with their own interface. They don't want customers buying ring tones from Apple. They want to sell them themselves. T-Mobile in the US only has coverage in major cities and along highways and smaller regional players like US Cellular have rudimentary data networks and even less coverage than T-Mobile. To me, AT&T was the only logical choice in the US.

If the iPhone was perfect, why would you ever upgrade and buy a new one? Apple has to leave something to be desired or otherwise it will get itself in the same predicament as Microsoft with Office and XP where consumers agree, prior versions were good enough.

It's the Guy Kawasaki "Don't Worry Be Crappy" mentality again, ship shoddy, but rush the product out the door before the hype rainbows evaporate.

Then to issue an arrogant, self-congratulatory PR release, it's all charismania and lemmings following a lousy leader. Horrible marketing mistakes in here.

http://twitter.com/vaspers

Regarding Dick Morrison's inquiry: "Did either of you buy at the early & higher price?"

I've heard Joe say that he "is not cool enough to own an iPhone" -- which I see as personally affirming our definition of authenticity in business, namely "purchasing on the basis of conforming to self-image." Those who have no regrets about purchasing an iPhone early and at higher price proudly see themselves as early adaptors; those who later complained and yet remain loyal enthusiasts surely see themselves as having helped their beloved Apple correct its course. Regardless, these reactions too affirm our main point that authenticity now factors into consumer purchase decisions.

And me? I own no mobile phone of any brand or type. I've been without ever since reading a syndicated Bob Greene column a decade or so ago in which he observed that in this hyper-telecommunicating age, being inaccessible is one of life's remaining luxuries. And I see myself as now more highly valuing the (real?) conversations I have with those with whom I am physically present, and more so than so many others who today treat an incoming call -- and initiating a new conversation -- as automatically being of higher priority than continuing the face-to-face conversation they are already in. I'm no Luddite and I'm not anti-Apple: I enjoy my iPod and use it whenever I'm not interested in having any conversation!

Regarding Robb Hughes's statement: "Joseph Pine and James Gilmore are attacking Apple to gain publicity for their book."

Guilty as charged. Of course, we wrote the book believing that those who read it will gain a greater appreciation for how the perception of authenticity factors into consumer behavior and then make better decisions (including those concerning product launch pricing) when they take this into account. To this end, we certainly seek to sell as many books as possible.

A month late on this discussion but I'd like to clarify a misconception.

Symbian phones have been platforms for developers for many,many years already. Years prior to the iphone. Nokia and contemporaries might buy developers and such but that is to add/bundle to their products (most new phones already do more than the iphone so the value of Nokia doing such is value-adding to their offering-which is a good thing). Their mobile phone systems stand alone as a platform by itself.

If you do a simple Google, you'll find 10's of thousands of applications being sold and offered for free for existing mobile phones (smartphones, feature phones), allowing these devices to do some amazing things far beyond what the base device can do by itself. These aren't hacks but applications developed for the Symbian platform.

The iphone is a cool gadget. I am a devout apple fan and like to be on the cutting edge of their product set. However, I was so offended by the partnership with AT&T that I made a decision not to be leading edge with this product. I have rec'd some of the worst customer service from AT&T in the past that I refuse to do anytype of business with them, even if they are the only service provider for this phone. So. . .Mr. Jobs didn't take these sorts of issues into account. Additionally, why would I want to spend valuable time disconnecting one service in favor of another. That is extra cost to me and inconvenient.

Way to go iphone - I'll be picking up the iphone icopy soon at another service provider.