What is the strategy of Apple's 3G iPhone?
In latest WWDC, Steve Jobs announced 3G iPhone - 16GB at US$299 & 8GB at US$199. It is really cheap in terms of Apple's premium branding.
What do you think base on the price positioning? What Apple's business/marketing strategies would you guess?
Or say... What further step(s) would Apple take on cellphone/mobile-application industry?
Clarification added June 11, 2008:
I was surprised that its price is set at this low level. Is Apple focus on price penetration only? You can give your answer on Apple's marketing mix strategies, i.e. product x price x promotion x place.
Besides the features of iPhone, you can consider more on mobile services, product mix with other Mac products.
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Jeffery W
User Experience Designer at Conceptable
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"What do you think base on the price positioning?"
The price of the device is a lot cheaper ($399 > $199). But consider the overall cost, including the monthly fee of subscription, it is more or less the same or even higher. It gives the hints of the strategy change, service/software focus.
"What Apple's business/marketing strategies would you guess?"
1. Software/Service is more important than hardware.
- The ratio of the cost gives that hints. $199 just a small portion when compared with the subscription fee. Similar strategy found at traditional game console market. e.g. The Wii console is very affordable and the revenue focus on software.
- Hardware is easier to be replicated, but software is not. That is why they open the 3rd party development.
2. Full force on the exploration of new platform.
- Consumer desktop is a well developed, relatively stable market. Apple did pretty well in the recent year. But it still far away from the portion of Windows. But when we look at the mobile market, it is another story. There still no dominator and best practice. The hardware (phone and mobile internet infrastructure) is there but no killer apps to drive the usage. I consider that is similar to the portable music player market before the success of iPod. Mobile is the trend but no one handle it very well yet.
3. Speed up the change of game rules of the mobile market.
- Mobile operators were the gate keeper of the mobile world. They provide service, content, and influencing the devices. Apple would like them become the service provider only. Just like the ISP of desktop internet.
- Content provider - It was the mobile operator, or some company highly related with the operators. In Apple plan, it will be wide open for the world, with the help of Apple App Store and iTunes Store. Even individual producer can reach the end user directly. Consider the old time, individual producer has no method to charge the end user easily if they are not cooperated with the operator. If the operator don't give you support, your application/service will never touch the end user. The WM, Symbian and RIM platform still have no mature way to help the 3rd party developer to deliver their product yet. Lower the device price also lower the barrier to use the iPhone, hence, increasing the user base. It strength the value to develop/provide service on the iPhone. Beside of the PC and Mac, it will be the another huge standardized platform for software development. Jobs' keynote said iPhone user able to use more than 10 functions of the iPhone, it is use to tell the developer, "iPhone users are willing to try, able to learn, and happy to use your great things".
- End user - It is a revolution. Mobile internet is there but most of them never experience the good of it. Just like the time before Web Browser become a must in your software list. This is the first time the COMMON user able to take the advantage of accessing network on the go. And the first time to introduce the USABLE purchase experience on the go. At the old time, this section of mobile market is very poor developing. But iTunes and App Store will solve this problem. Smooth the process between Provider -> Mobile (End user) -> Purchase -> Revenue.
"What further step(s) would Apple take on cellphone/mobile-application industry"
- Promoting iPhone 3rd party development. (They already trying to)
- The iPod sells will be affected by the iPhone, but apple will keep blur the different between them. From my point of view, iPod is going to complete his roles and the focus will shift to iPhone. Apple will keep the iPod line but will trim the products and defined as the lower end of the whole portable music player line. (Consider iPhone is the higher end of the portable music player)
- Increase the number of iTunes store, allows end user to purchase their local content.
Almost a year into the iPhone craze, Apple's strategy, at this point, probably isn't too much different than any other phone maker -- they just want to sell as many phones as possible while iPhone is still the hot product.
Beyond that, the rumored monthly residuals Apple receives from AT&T for each of AT&T's iPhone subscribers would also be a prime factor in Apple trying to sell as many iPhones as possible instead of trying to maximize the per-unit profit margin. Thus, even if Apple's (typically-excellent) profit margins aren't maintained on iPhone sales, the monthly residuals from AT&T could more than make up for any "lost" revenue on the front end.
Also, just as a follow-up to a prior comment, I've had an 8GB iPhone since the week they were released last year and it's been outstanding. Battery life hasn't been an issue for me at all, and I've read that Apple has been good about exchanging iPhones for people who had issues. (Part of the problem with iPhone is that it does so many things, it can be tough to quantify good or bad battery life. This was a hot topic last year when they were first released.)
Clarification added June 9, 2008:
AT&T just released more info. that renders some of my above reply moot. According to AT&T, Apple will no longer receive monthly residuals from AT&T for each iPhone subscriber. Pricing info. for the new iPhone 3G is set at $199 (8GB) and $299 (16GB), but those are apparently end-user prices for AT&T subscribers. As of right now, the new iPhone can't even be pre-ordered at the online Apple Store, so $199/$299 aren't necessarily Apple's true per-unit prices. Rather, it appears the $199/$299 prices are subsidized by AT&T, with Apple's per-unit profit margin probably higher than it might appear at first glance.
(Also, the new iPhone 3G will be available on 7/11. Rumors of Mr. Wahl's involvement with that choice of shipping date are unconfirmed.)
I hope to believe its because of decreased spending by the American consumer and more accessibility to Asian markets where a $400 product may not necessarily sell as much as the same one by the same company for $200.
I am not in favor of the new price positioning by Apple and IMO this new model is in many ways actually anti consumer.
Apple has been able to offer the new pricing model by cutting a deal with AT&T under which the carrier has changed the terms of payout to Apple to keep the price of handset low therby enabling Apple to offer new model to the masses. According to NYT and trade analysts, it is estimated that AT&T will pay Apple at least a couple of hundred dollars more an iPhone than it will charge customers. To offset that subsidy, AT&T’s consumer data plans for the new iPhone will cost $10 extra a month than for the unsubsidized, first-generation iPhone, which is available for as low as $399. The new iPhone’s contract terms are also less forgiving if consumers want to upgrade to a next-generation iPhone before their contracts end.
So much for the ‘paradigm shift’ in the way US consumers get their cell phones and service. Logic dictates that monthly plan prices creeping up more and more. And if I have an original iPhone, it looks like AT&T will be breathing on my neck to see I want to upgrade. As someone pointed it out the catch - new iPhone "APPEARS" to have a lower selling price, but in fact, is pretty much the same.
In an interesting take on the deal, CNET commented that by allowing AT&T to subsidize the iPhone and go without a cut of the monthly revenue might be indicative of a change in the Apple-AT&T exclusivity contract. The writer was speculating that this move is the first step in a loosening of the exclusivity agreement that will allow Apple to shop the iPhone around to other companies before the five-year exclusivity contract is up.
It is a shame that the iPhone isn’t sold unlocked by Apple for use wherever. It remains to be seen what terms Apple sets when it launches iphone in developing economies like India, where it enjoys immense brand equity vis -a vis competitors.
May be I will wait for a yet cheaper iPhone 3.0 or Android!!
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Jim W
Talent Acquisition Manager
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I have the 8GB iPhone, which I affectionalety call my iCrap. The battery life is horrid. They probably realized that they could only get so many fools like me to pay $400
Now that the low hanging fruit is gone Apple realizes that it has to lower their price a little to gain more market share. They could even play off on the economy "Apple understands hard times and we have lowered the price on the iPhone" or something to that effect.
Gary C
Director Strategic Partners at LibreDigital
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Sell lots of devices. Control the smart phone market
Clarification added June 9, 2008:
I love my iPhone. Best phone I have ever owned and I will purchase a new one and give this one to my son. Rock solid device
Innovation Leadership
First I want to see the price in entire Europe AND the Asian market, especially the Japanes where there's only 3G available.
As they've lost the entire Japanese market due to too slow network (Edge) but the design is loved by many. So with the iPhone 3G they finally can attack other and interesting markets with a simple update in speed, a 3G chip and A-Gps in combination with the 2.0. Also very interesting to see that most countries in Europe (are fully 3G capable (data-subscriptions = €€€) are getting the iPhone 3G thanks to Orange and VodaFone.
Strange that the iPhone 3G doesn't offer video-calling (=> iChat).
I use an unlocked iPhone (no iPhone in Belgium (yet) imported from the US and I love my iPhone. Now I only have to wait for the 2.0 and I can activate pushmail on it (active sync).
Another interesting point is that you can only get the iPhone 3G WITH a 2 year contract (even with AT&T, with the previous iPhone you could buy iPhones without signing, only activating through iTunes); maybe a way to say "bye bye" to the hackers who try to make money out of it (by selling on eBay for example).
Now you have to sign otherwise you can't buy an iPhone.
The price setting is normal for Apple, the macbooks or iPod newest generartion's start-price is also lower. Lower cost for the "precious" but subscription cost/month is nothing too neglet (in Europe).
Next step for Apple will be a new ultra portable MacBooks (maybe a tablet mac? "mactouch") in my humble opinion.
Josee K
Writer, editor and translator at De Taalscholver
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My guess is that they hope for substitution purchases by current iPhone owners. The price is a kind of alib: you get more for relatively less and I can see afficionados might fall for that.
In the Netherlands the phones are likely to be priced 199 and 299 euros respectively, which is quite a bit more expensive than in the US.
Cheers, Josee->
Dave H
iPhone Entrepreneur, CEO of Avatron Software
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Apple excels at "optimizing demand curve utilization," which is MBA-speak for getting the most money possible from customers on different positions on the spectrum between early adopters and technology laggards.
Apple accomplishes this feat by introducing a high-priced item first, because the price-insensitive early adopters and innovators will buy it. Then, when the early adopter segment is saturated, Apple lowers the price of that item, but introduces a next-generation better, faster offering, at the earlier high price point. This brings in the late adopters at the meaty belly of the adoption curve, while selling high-priced upgrades to the early adopters.
This is what Apple did with each generation of the iPod. The twist in the iPhone case is that the new iPhone APPEARS to have a lower selling price. But in fact, iPhone 2.0's price is pretty much the same, but structured differently. AT&T's monthly fees have increased by enough to compensate for the lower selling cost. It makes no difference to Apple, which amortizes its sales over eight quarters anyway. But to consumers, it's a big deal because it spreads out the cost over time.
At about this time next year, watch for an iPhone 3.0 at $199 to $299, released simultaneously with a cheaper or free phone that's roughly equivalent to iPhone 2.0. iPhone 3.0 might sport, say, a second forward-facing camera for video chat, a higher-resolution camera with zoom and/or flash, and maybe wireless charging. Who knows. But it has to be compelling enough to induce early adopters to upgrade.
Cheers!
Dave
Clarification added June 11, 2008:
Actually the net present value of the new pricing structure is almost exactly the same (over two years) if you assume a cost of capital of 10%.
To expand their market. Not everyone can afford to spend at least $400 on a cell phone. However, most people likely will not look too closely at how much it will cost for even the most basic voice and data plans ($70 per month). So while the barrier to entry (the cost of the phone) has gone down, the operating expenses (monthly payments) have gone up. It will be interesting to see how this all plays out in the coming months.
This is an awesome forum and I am learning a lot from business professionals. wow! damn facebook and phototags!
I am a Marketing student and here is my point:
All Apple wants to do is to spread its products from laptops to phones through two price points to the hands of the consumer. Low-price point vs. High Price Point. To make sure that it's purchased by anyone and seen anywhere.
This is why i think the next step is going to be a more advanced product extension to the Iphone just like it has with the ipods (nano, touch, etc.) and the laptops (macbook pro and macbook)
The new one is going to stay in the market as the lower end product. this is going to be the lower end phone and the next one is going to be the higher end.
In Canada, Iphone has signed up with two different service providers. Fido and Rogers. Fido offers value packages with cheaper phones and Rogers has more expensive products. (The two are owned by the same company but never shared phones before). I am guessing that the next Iphone (at a high price point) will only be available at Rogers and Fido is going to be selling the lower ones.
So why cheaper? because expensive ones are yet to come.
It's wht I think.
Good night
You'd have to be a fool to believe that a strategic genius and branding giant such as Apple did not have this price-drop strategy planned from before the initial launch. Everyone knew that a gadget as highly anticipated as the iPhone would explode out of the gates and that avid Apple followers and professionals would not hesitate to drop $500 for it, despite its limitations. However, Apple knew within a year after the launch, that "new-toy-high" would start to wear off and consumers would soon realize that this glorified Blackberry with a Mac platform did in fact have limitations and was in fact overpriced for its features. So, with intuitive foresight, Apple bled the market for as long as they could, and almost a year from the launch date, decided to appease the disgruntled and unconvinced with an upgrade and a price-drop, knowing full well it would be just enough to draw the intially unconvicned and that loyal consumer infatuation back to their registers in eager mobs.
