iPhone Subsidies Could Be Apple’s Ticket to the Mainstream Market
Written by Elaine Warner (contact - e-mail) -- May 21st, 2008 |
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Rumors have been flying this month that Apple and/or AT&T will begin subsidizing iPhone sales, which could total up to 50% of the device’s current selling price. That would mean getting an iPhone for $199 with a two year contract, the kind of price consumers have come to expect for standard high end handsets.
Back in June 2007, just before the original iPhone was released (has it been a year already?!), Compete published a study on the potential consumer impact of the iPhone. One question asked of online shoppers interested in purchasing an iPhone was how much they were willing to pay for the device. We saw the following:
According to these data, there’s a clear sweet-spot in terms of price. 71% of survey respondents said they would be willing to pay more than $100 for an iPhone. Considering the iPhone’s initial price of $599 and subsequent price cut to $399, it appears that further price cuts could tap into a much larger group of interested consumers.
Now, AT&T and Apple aren’t talking about the costs are or margin structure is for the iPhone, and I don’t know if current economic issues may shift consumers’ willingness to pay. And I’m also not convinced that large subsidies are consistent with Apple’s high-end, highly-controlled brand image. But, if Apple truly wants to go mainstream with the iPhone and see market share numbers closer to what the iPod family of devices enjoys, lowering the iPhone’s price (again) may be just the ticket.
We should find out Apple’s short-term iPhone strategy in June when Steve takes the stage for his keynote at Apple’s Worldwide Developers’ Conference. Until then, the speculation continues. What moves do you think Apple will make? Leave a comment and start a discussion with Compete.
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May 21st, 2008 at 2:51 pm
I’ve also been hearing lots of rumors that the next gen iPhone, complete with 3G, is going to be released in June. Do you think talks of subsidizing may also have to do with figuring a way for 1st gen. iphone owners to be able to “upgrade” to the new handset without forking over another $400 or $500? Do you think that subsidizing would be a good way to limit the backlash that will inevitebly come when a new generation iphone is released?
May 21st, 2008 at 3:11 pm
That’s an excellent point Becky. If Apple releases a newer version of the iPhone at a reduced price (and likely remove the current version from the marketplace altogether) your thinking could be right on target. And depending on how favorable Apple & AT&T’s revenue sharing agreement is, it may be worth it to subsidize hardware to get users to sign up with AT&T and earn their money that way. More like the overall carrier / handset model is. Plus, it spreads some goodwill among Apple fanatics.
May 22nd, 2008 at 3:18 am
About 8% of respondents have said they’d be willing to buy the iphone at 400+. About 6M have done so to date.
Perhaps I’m affected by NNT’s Black Swan which I’ve recently read, but I’d venture that folks went out and spent more than they’d ever have imagined spending on an iphone and it isn’t reflected in a survey, because the iphone dislodged the “anchor” people had for cell phone prices. It was different enough that comparisons with other products don’t apply, and when Apple mentions a price, it sticks in ones mind as a reasonable (if expensive) price for the item. I’d go further and say that this is Jobs’ secret sauce: his products are far enough ahead of what the public’s imagining can come next that it breaks free of price expectations.
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