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article imageiPhone Price Cut: 10 Reasons Why Apple Did It

By Chris V. Thangham     Sep 9, 2007 in Technology
Apple cut the iPhones prices few days ago from $599 to $399 after just two months of launch. Steve Jobs said the only reason Apple cut the price it wanted to sell as many iPhones for the coming holiday season. Others give different reasons.
Many were incensed after the price cut and Steve Jobs responded within a day and gave $100 credit to all the disgruntled customers who purchased iPhones earlier at a higher price. So, why did Apple cut the prices? comes with 10 different reasons for the price cuts from the various responses it saw in the various web sites. They are the following:
1. Sales are slowing, and a price drop will re-invigorate them. This is a market strategy commonly used and could be one of the main reasons for the price cut. It had a lot of buzz early on, but then Apple didn’t get the sales volume it had expected. So, cutting prices will help boost iPhone sales.
2. Other smartphones are entering the market and a $399 price tag kicks those where it hurts. Samsung, Palm, HP are all introducing new smartphones but at a relatively cheaper price, so with $399 entry iPhone will look like a good bargain.
3. iPhone is a classic platinum turkey -- a high-end phone that sells a million units rapidly but then quickly loses momentum. When iPhones were introduced it was off the shelves in a hurry, but now if you go to the same stores you can see plenty.
4. The new iPod touch was likely to undermine iPhone sales. This might be the last of the reasons for a price cut. iPod touch does most of what iPhone does, but if one can afford iPod touch, they sure can afford an iPhone for $100 more. Without a phone iPod touch is just another device, there are better Palm and HP devices with more functions.
5. Apple early adopters would have paid any price. $600 was just short term profit maximization for the launch. Every business has a profit motive, so it got its sales and profit as well with a high initial price.
6. Apple has reached a milestone that can justify a price cut. Development costs have been recouped. Initially Apple must have raised the prices to compensate the costs of research and planning, now since it must have recouped its costs, it may have reduced the prices.
7. iPod Touch and iPhone share certain parts, thus bringing manufacturing costs down for both products. With increased volume, it can demand cheaper price from its manufacturers and hence passes the savings to the customers in the form of price cuts.
8. Apple promised AT&T the price cut if they could offer the iPod touch this holiday season.
9. If Apple learned anything from the Mac war with Wintel, it was that maintaining hardware margins at the expense of market share was a mistake. Apple learned a lesson, next time their prices will never be high or low, and won’t give a price cut in the future. Because of all the complaints, it will be back to iPod strategy, maintain the same price without any discounts.
10. Clearing out inventory to make way for a 3G iPhone ASAP. This is also an unlikely reason for the price cut. There is a rumor about a 3G iPhone for European market, but the prices will high there compared to the US prices. If there is a 3G iPhone many will buy but some networks don’t have it, both types of phone are needed. There is a possibility iPhones with multiple networks options may be offered in the future.
Whatever the reasons, the price cut from iPhone is a good one; now many could afford it at $399 price.
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