Turley Muller

Enough Noise About Apple!

I totally agree, it makes sense. Hi-tech products are almost always marketed with a price skimming strategy. Since these type products are unique and differentiated, there is no direct competition on the onset as it takes time for other firms to respond with a competing product. A High Initial price and accompanying profit margins aid in recovering up front development costs and other fixed costs. Lowering the price in increments to "skim" drives volume which lowers variable costs helping maintain profit margins on a lower selling price. Think of any new tech based product when it was released- the original price versus now. An example: the Razr, or Blackberries, or DVD players etc. Firms have to keep reducing the selling price to stave off potential competition and drive economies of scale.

The handset industry is brutally competitive, Instead of getting to the new reduced- price by skimming two or three layers, Apple just went ahead and knocked it one swoop. The economy looks if its on shaky ground. Consumers need some inducement, and so many were waiting to the price to come down. Maintaining a high selling price doesn't due anybody any good when consumers are waiting on the company. So sooner or later, Apple would but the price. If Apple were to gradually reduce the SP, then people may get the idea the price continue to go lower if Apple made a habit of frequent but smaller reductions. I am of the camp, "do it and be done with it" The Telephone market isn't conducive to implementing a price skimming strategy for a long time period. Things move quick. Thus, there is a need to switch to a penetration strategy. With consumers pulling back and focusing on paying down debt. (especially those option-arm borrowers who have been making the minimum payment), adoption will be slow, and that's a big invitation for competitors to rush in an offer a price consumers are willing to pay. Additionally, Apple receives service revenue from ATT, especially on new accounts, so driving volume will increase the service revenue even though product revenue is lower. With the shared costs of the iPod touch, increases in unit volume will achieve economies of scale thus increasing margins.

Essentially, the path that Apple took, happens with every new product. Except Apple was quicker and more aggressive because of a tiring consumer and plenty of pent-up demand at a fairly lower SP. I don't understand what the uproar is about. I bought an iPhone, and I could care less about the rebate. I know how the tech industry operates especially during a slowing economy. What Apple did was the normal course of business for any firm reacting to the economic climate and potential buyers' price they are willing to pay. I am looking at a computer monitor I paid nearly 3k and then a year or so later it was selling for less than a grand. My old man bought a TV for nearly 10k that my younger brother bought 2 or so years later somewhere around 3k. Yeah, it sucks but that;s how the industry operates. You can't tell me that there are people that bought an iPhone and didn't expect the price to drop later. Enough of the noise ! Enough of the ranting of about how this will hurt Apple's image. It's not. If a consumer paid 600, then that's what it was worth to him or her. Apple didn't take that money from them, they gave it to Apple. And if they didn't want to pay 5-600 then they are idiots for paying it. For all of those saying Apple didn't care about their customers and mistreated them, that;s hardly the case when Jobs is giving 100 back, Not just that, he is now making the iPhone more affordable for those who have been wanting them. We have all experienced buying a good that right after drops in price. Most of the time we don't know about it. But in the times we do, I wish i got a rebate on my DVD player, or my Dell HDTV monitor.... or my old blackberry... Inkjet printer... Like i have been saying, quick and drastic price reduction are inherent to new technology products especially under circumstances of increasing competition and lower discretionary spending.

Here are my comments regarding the benefits from the price reduction: financial-alchemist.bl...