Apple’s shrewd iTactic

I must give it to Steve Jobs for the incredible tactic that Apple pulled recently. Firstly, he reduces the price of the 8GB iPhone from $599 to $399 in order to entice all the customers who have been holding off purchasing the phone due to its cost. This causes a hue and cry over the blogosphere and the Apple discussion forums as irate early adapters such as myself. Loads of posts appeared yesterday and the forums were a havoc! The moderators added fuel to the fire by deleting posts that were anti-apple or had unsavory things to say about Apple. I am sure that they will stick to the defense that they were deleting posts violating the forum’s Terms of Service. However, the posts were not limited to the Apple Discussion forums and loads of articles popped up on Reddit, Digg, Macrumours, and many more. Many people posted articles to CNN, FOX News, BBC, Reuters, and other publications. This gave a lot of unwanted coverage for Apple. But the important thing is that the news media got a hold of it and publicized it. People even filed petitions and were looking for ways to file class actions suits. A crazy day indeed! However, one thing was certain: Apple was in the news and people were getting aware of the price slash and the anger of the early adapters. I am sure that this would have caused a lot of people to buy the newly priced iPhones (same specs, same software, same features, just a lower price). Some people called Apple stores and AT&T to get reparations for this incident. The total would come up to $200 for the price difference, and sales tax (@8.25% in Texas) which sums up to $216.50. A few customers who had bought the iPhone on AmEx with price protection were allowed to file for claims and AmEx vowed to honor their claims, which I must say is really nice on AmEx’s part. Some lucky customers got refunded in the Apple stores, thanks to understanding managers.

Today (Sep 6, 2007), Steve Jobs issued an open letter to all iPhone users. In this letter, he stated,

First, I am sure that we are making the correct decision to lower the price of the 8GB iPhone from $599 to $399, and that now is the right time to do it. iPhone is a breakthrough product, and we have the chance to ‘go for it’ this holiday season. iPhone is so far ahead of the competition, and now it will be affordable by even more customers. It benefits both Apple and every iPhone user to get as many new customers as possible in the iPhone ‘tent’. We strongly believe the $399 price will help us do just that this holiday season.

Sure, it is a good decision. We will soon see how many customers have fallen for this price reduction and bought the same iPhone, albeit at a lower rate. Jobs then went on to say,

Second, being in technology for 30+ years I can attest to the fact that the technology road is bumpy. There is always change and improvement, and there is always someone who bought a product before a particular cutoff date and misses the new price or the new operating system or the new whatever. This is life in the technology lane. If you always wait for the next price cut or to buy the new improved model, you’ll never buy any technology product because there is always something better and less expensive on the horizon.

I agree with him partially. Sure, the technology road is bumpy and there are even a couple of potholes in it (Microsoft Zune comes to mind instantly!). But then popular/good technology has never reduced so much that the price is slashed by 33% within 67 days and a product cease to exist within that time (4GB iPhone). Here is one excel sheet compiled by a diligent iPhone user. many people quoted the Motorola Razr which debuted at $500 and currently is available free. However, one should see how long it took for the Razr to reduce in price. Many others stated examples of cars and homes. The real estate comparison seems to be abstract in nature since we are talking of commodities. In the case of cars, when we make a new purchase and drive it off the lot, we know that there will be a depreciation. In the case of the iPhone and Apple, many of us bought the device though it was really costly since we knew that Apple hardly reduces prices so soon. Some would quote 90 days and above as a good time to slash prices. But with technology being as it is, fixing a deadline would be very hard owing to the dynamics of the industry. Anyways, Steve Jobs ended up by saying,

Our early customers trusted us, and we must live up to that trust with our actions in moments like these.

Therefore, we have decided to offer every iPhone customer who purchased an iPhone from either Apple or AT&T, and who is not receiving a rebate or any other consideration, a $100 store credit towards the purchase of any product at an Apple Retail Store or the Apple Online Store. Details are still being worked out and will be posted on Apple’s website next week. Stay tuned.

We want to do the right thing for our valued iPhone customers. We apologize for disappointing some of you, and we are doing our best to live up to your high expectations of Apple.

This is again a really good ploy! This makes the existing customers feel that Steve Jobs, and Apple really feel for the customers since they trusted Apple, and that they will keep that trust alive. After all, he did say that he wants to do the right thing! In this tactic, Jobs made it clear to customers, Apple or otherwise, that they are different and that Apple takes care of its customers, unlike the other competitors in the market. This move is a sure winner. With so many companies not bothering about the customers, such as telecom companies, and with others forcing people to adjust to what they offer, such as Microsoft, Apple emerges as a really nice company, with a wonderful CEO, who takes the customers’ needs into perspective. Bravo, Steve! You really emerge as the loving and caring CEO. Unfortunately, Apple executives insisted that the price cut had been planned long ago and that the strategy had been conceived in part to keep the iPhone’s pricing in line with its new iPod Touch.

All this makes us wonder! Apple has come out of this even better. The early adapters are not that disgruntled since they are getting $100 credit. New customers will be secure with the notion that Apple looks after its customers. People feel that Steve Jobs is really concerned and is not such a bad guy after all! Everyone in Apple wins. Where does that leave us customers? well, for starters, Apple says that it is going to issue Store credit. This means that the money Apple is reimbursing will eventually go back to itself. And we all know that the store credit is just a gift certificate which will expire after a period of time. Next, Apple will have more sales of its products, thanks to the store credit. This sure will be a good time to buy that new iPod Nano with video features, especially since it will be effectively $100 less from a customer’s point of view. Or maybe the gift certificate will expire by October end, which will make purchasing Leopard really enticing! Why, now, the early adapters will be getting leopard for just $29 ($129 – $100 credit). Or the new iMac, or the MacBook Pro (you get the idea). On the other hand, Apple will not be losing anything in the bargain. Rather, the sales will pick up and us early adapters will be come beta testers, shills, and advertisers for the new products of Apple. And life will go on!

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