Turley Muller

Several Advantages To Apple's iPhone Price Cut

User107661-
I totally agree with your comment. The low volume-high margin (high price) strategy, or skimming, allowed Apple to test their new product among the most loyal Apple consumers. This way, any flaws etc. would be downplayed by this consumer segment because they are biased due to their love of the Apple brand.

The limited market allows Apple to test and confirm their product quality before rolling out to the mass market, If Apple had initially used a low price/high volume strategy, and there were flaws, then the bad reputation would haunt Apple on their subsequent iPhone releases. Even if they had cured any issues, the bad word of mouth may linger and impede sales.

Also, just as you said, and as I alluded to in my article, when Apple is confident that there is sufficient demand, then a lower price (margin) strategy to drive volume will result in scale benefits. Scale and learning curves allow Apple's cost to fall thus recapturing some of the lost margin from the selling price reduction.

Additionally, the lower price drives adoption and subscription fees and revenue that Apple receives from AT&T. This further offsets the margin decline from a lower selling price.