Apple Limits iPhone Sales to Two Per Customer

Oct.28.07 | About: Apple Inc. (AAPL)

By Carl Howe

One of my readers wrote in Thursday with the following very interesting story:

I am a regular [at the Apple (NASDAQ:AAPL) store] and was talking with one on the higher-ups when he told me about a change in policy effective yesterday (10/24) regarding the sale of iPhones. Effective immediately, there is a limit of 2 iPhone purchases per person (not, the individual was clear to tell me, per transaction). No cash, no checks. Additionally, they are checking transaction histories on individuals, to insure that they are not violating the 2 per customer limits.

I was told that this was expressly done to cut down on the "unlocker's" market. So far, I was told that this was not much of a problem (in 2 days) but he was expecting real problems this weekend with the increased traffic.

Given that Apple estimated in its earnings call that about 250,000 iPhones have been sold to unlockers, and that Piper Jaffray's Gene Munster estimates that Apple earns about $432 per AT&T activated iPhone, I can see how Apple might want to take this approach. But it does suggest a possible problem for particularly well-heeled Christmas shoppers who may want to buy an iPhone for everyone on their gift lists.More worrisome from a business point of view, though, is the "no cash" policy. Last time I looked at my US currency, the bill had printed on it: "This note is legal tender for all debts, public and private."

I am not a lawyer, but that notice signed by the US Treasurer would suggest that a person or business can't legally refuse to take cash simply because that is your preferred method of payment. Should Apple actually intend to implement this policy in all its stores, I think it will have a hard time making it stick. They can require proof of credit-worthiness for the AT&T contract (and iTunes in fact does that), but I don't see how they can legally refuse cash for the original purchase. (UPDATE: Commenter Jeffrey notes that the US Treasury says that businesses don't have to accept cash for goods and/or services. Who knew? So much for the sanctity of the US Dollar).

All this said, I suspect that these restrictions have less to do with squelching the unlocking business, and more to do with Apple's holiday marketing and sales strategy. If Apple lets consumers buy five or ten iPhones at a time, it runs the risk of 1) depleting limited stocks of iPhones over its critical holiday selling season, and 2) having those resold phones, which get sold for very high prices with possibly buggy unlocking software, sully Apple's consumer experience and brand image. That would be, as people in consumer marketing business would say, bad. Want proof? Ask Nintendo how much fun it was last year not to have stock of Wiis at Christmas.

Despite what seems like an endless iPhone launch, the iPhone has only been on the market for four months now, and Apple's manufacturing capacity is probably still only about 500,000 iPhones a month, if that. With the iPhone launching in Germany and the UK in two weeks and in France in a month and with holiday shopping demand ramping up, the last thing Apple wants to happen is to run out of iPhones for any of its markets.

In my opinion, Apple is just trying to make the most sales to real customers who will generate additional carrier revenue payments and might later become repeat customers of other Apple products. Apple can't do that if it runs out of iPhone stock during the holiday season and disappoints those same consumers. It also can't do that if amateur resellers poison its consumer market. And while I said above that this is just marketing and sales, it's really more than that, because if it gets these strategies wrong, the effects of missteps could dramatically hurt its 2008 iPhone business. And while the policies may seem draconian (and sometimes perhaps wrong), you have to give Apple managers credit for not leaving retail success to chance.

Update: Apple confirmed that it is limiting iPhone sales to two per customer and that cash sales will not be accepted. The AP article provides details:

The new policy started Thursday, said Apple spokeswoman Natalie Kerris. Before then, there was no cash restriction and the purchase limit was five per person.

"Customer response to the iPhone has been off the charts, and limiting iPhone sales to two per customer helps us ensure that there are enough iPhones for people who are shopping for themselves or buying a gift," Kerris said. "We're requiring a credit or debit card for payment to discourage unauthorized resellers."