Apple Applies Pricing Pressure

At the Apple Event, yesterday, and in continuation of Steve Jobs’ Master Plan, Apple extended its pricing strategy to its mobile devices. This is a preemptive strike against would-be competitors and leaves Apple ahead at each and every price point. Let’s take a look at what happened.


Product Lineup

  1. iPod Shuffle – $79 for 1 GB solid-state.
  2. iPod Nano – $149 for 4 GB / $199 for 8 GB solid-state.
  3. iPod Classic – $249 for 80 GB / $349 for 160 GB hard drive.
  4. iPod Touch – $299 for 8 GB / $399 for 16 GB solid-state.
  5. iPhone – $399 for 8 GB solid-state. (Phased out 4 GB model).

As you can see, the only hard drive solution is the iPod Classic. This keeps those audiophiles [and videophiles], that must carry their entire song collections around, happy. This also ensures that Apple has the largest storage device, at that price point, on the market.

As to the remaining iPods and the iPhone, they all store everything in solid-state flash memory. Apple remains the largest consumer of flash memory and with that they receive the best volume pricing. No one can compete with them on price for solid-state devices (with the possible exception of Samsung, the largest manufacturer of flash memory).

Except for the iPod Shuffle, Apple dropped prices on all iPods and the iPhone ($200 drop after just launching a few months ago) yesterday. Competitors should take notice.

It was also announced, earlier in the week, that all new iPods include OS X (the same as the iPhone). As talked about earlier, this is a huge competitive advantage. It makes the iPod more of a PDA or computer than just a music player.

Alternate Streams of Income

  • iTunes Wi-Fi Store
  • Ringtones
  • Starbucks Partnership

As Apple has repeatedly shown, it is unafraid to cannabilize their own product line. When they are in a lead position, they can hurt the competition by new features and price drops. This has been shown by killing of the iPod mini and replacing it with the iPod nano; the release of the iPhone; the release of the iPod Touch and the price drops yesterday.

Apple has no serious competitors for the iPod Touch and iPhone. By keeping prices low, these products are no-brainers for the consumer to automatically purchase when they are looking to purchase a portable media device. This guarantees a serious blow to competitors.

iPod Touch

To offset the price drops, Apple is betting that consumers will purchase more media (songs, movies, tv shows) from their iTunes Store now that it can be accessed from the iPhone and iPod Touch.

iTunes Wi-Fi Store

On top of that, additional revenue will come from customizable ringtones (which requires you to purchase the song as well). The ringtone market is $600+ Million a year in the US alone! And several billion dollars world-wide.

iTunes ringtones

In addition, their partnership with Starbucks ensures more Wi-Fi locations for the iTune Store wireless purchases.

Starbucks logo

The pricing pressure should increase the volume of iPhones sold. Remember, Apple gets a cut of AT&T’s iPhone service plan charges each month. This is BIG money. Increase the iPhone share, increase the iPod share, increase the iTunes share, increase the ringtone share, increase the media share.

Think Different.

5 replies on “Apple Applies Pricing Pressure”

Considering Apple’s pricing mistake, which its critics points out, it makes a quick decision to cut the iPhone price after its debut in June. It is a bold, corrective action for Apple to ensure that it gets the big share in the market early on.

Yes, and it won’t cost Apple $100. Apple products have fairly high margins. So Apple won’t take much of a financial hit refunding the iPhone early-adopters. At the same time, it wins goodwill and continued loyalty from their customer base for future products.

In other words, early-adopters of the iPhone feel that Apple met them halfway by offering them back a $100 store credit (with the $200 price drop of the iPhone), but it doesn’t actually cost Apple $100. Smart move.

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