Selling the iPhone: Or how Apple changed the mobile phone market
Like the rest of the country, my last six months have been spent reading every bit of tattle that snuck out from Apple HQ about the iPhone. My biggest concern was that, as a Cingular customer the iPhone would be off limits to me until my contract was due for a new device. That I wasn't kept from buying this amazing new phone is the least heralded but one of the most significant impacts of Apple's entrance into the mobile phone market.
Before last Friday, if you wanted the latest cell phone you either needed to pay retail, know an importer from South Korea, or be eligible for the discounted price. The cell phone retail market is based on the idea of device price competition and price competition means discounts. Free. $29.95 with a two year contract. Get the phone and we'll throw in a pretty case. These gimmicks enable the authorized retailer to unload his or her inventory of devices and take their cut of your contact with the big cell provider.
In this market, the manufacturers are largely cut out of the process and their hard-fought brands are undermined. The Motorola RAZR is a perfect example of this cannibalistic process. Three years ago, the RAZR was hot. It was a new sexy product that everyone wanted. More importantly, an increasing number of people were willing to pay a premium for a slim sexy device that didn't do more than the average phone.
As quickly as it came on the scene, the glamorous RAZR fell from its perch. It became available on almost every network and they began competing with each-other to see who could offer it for less. In no time at all the RAZR was being given away for free. Its cachet was gone.
The RAZR came out of nowhere for Motorola and they have since failed to understand what happened to them. Subsequent devices have lacked that special something. The "Q" fell flat. The KRZR, and its unpronounceable brethren, barely registered. Now Motorola is planning a RAZR 2 in a desperate attempt to resuscitate their brand.
My point is that Motorola's predicament is not entirely their fault. It is that they cannot exert enough influence on sellers in the marketplace to hold a price point that will keep people coming back for more. They design for glamour and end of in the discount bin.
Apple realized this and forced At&t to play nice. Instead of presenting the customer with two prices, full retail and the discounted contract price, Apple brought the iPhone to market at one price: retail.
This move prevents the kind of death spiral that killed Motorola's brands. But it also does one more thing: It let's people like me buy iPhones.
Because retail is the only price offered to everyone, anyone is able to purchase the device. This matters because it allowed not only me, but literally everyone I know to either buy or try to buy an iPhone. That's why they sold out all over America last weekend. No matter how good the iPhone is, and it is amazing, it wouldn't have sold half as well if all the early adopters were penalized for buying one.
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