$100 credit for early iPhone adopters mystifying

Posted by Pierre Igot in: Macintosh
September 7th, 2007 • 1:34 pm

I must admit that I find the decision made by Apple to issue a $100 credit for early adopters of the iPhone before the $200 price cut rather mystifying.

I am not one of those iPhone early adopters (although I might be tempted to become an early adopter of the newly announced iPod Touch), so maybe there’s something obvious that I am missing here. But the truth is that I have been an early adopter with Apple products on a number of occasions, and have been “punished” for it in various ways (hardware flaws, price premiums, etc.). So I feel that I do speak from experience.

And as an experienced early adopter, I simply do not see what the fuss is/was about. Of course you are going to pay a premium. Of course the price is going to come down, sometimes rather dramatically. (I remember a one-time price drop for the 23″ Apple Cinema Display that was way more than $200.) But that does not give you a right to complain. Early adoption brings its own rewards (early access to new technology, bragging rights, etc.). If you decide that it’s worth the money, then it’s entirely your decision, and all you can do after it’s made is regret it.

The company that sold you the product does not “owe” you anything. It is fundamentally an issue of supply and demand. If you are complaining about the price drop, you are effectively making very public noises about how foolish and stupid you feel for having been weak and having succumbed to the sirens of early adoption.

Amazingly, this time, Steve Jobs and Apple have decided to respond to these public displays of distress by issuing a $100 credit at the Apple store for early adopters. It contradicts what Steve Jobs himself had said earlier about the matter (“life in the technology lane,” etc.).

But more important, it seems to set a dangerous precedent. It effectively means that, from now on, Apple will have less flexibility in its pricing choices. One of the possible side-effects is that we will once again experience major supply problems when new products are announced and released. There was a time, not too long ago, when this was really a major problem with Apple. They would announce these exciting products, at reasonable prices, tons of people would want them, and they wouldn’t be able to meet the demand for weeks, if not months.

Under Steve Jobs II, things have got much better in this area. But this new hoopla with the iPhone might be a significant step back.

I also cannot help but think that one of the major reasons behind this reversal is the fact that Apple can actually afford it. The cost of this decision is estimated to be between $27 and $100 million. For Apple in 2007, it is indeed a fairly low cost. So maybe the reasoning here was that they would buy themselves some good publicity by pretending to be really nice and understanding, etc.

I don’t know. But I still think it’s a rather risky move for Apple and its plans for future innovative products such as the iPhone.

5 Responses to “$100 credit for early iPhone adopters mystifying”

  1. apple4ever says:

    Its not mystifying at all. While most early adaptors expect to pay a bit a premium, $200 is a lot, especially after only two months. We felt betrayed. Its one thing for the drop to happen after 6 months- that’s technology. But this is unprecedented. Apple realized their mistake, and offered a messure of making it up- taking care of the their customers as Steve said.

  2. Paul Ingraham says:

    It’s not unprecedented, apple4ever … it’s just never happened with such a hyped product before. But Apple’s product release cycle has been accelerating, and price cuts have been coming faster and bigger.

    I was impressed that Steve had the tact and skill to placate a few thousand of his most irritating customers, simultaneously giving them what they wanted while politely telling them that they are wrong. Fascinating!

  3. Arden says:

    I think the issue is this: Apple released the iPhone in 2 capacities at the very end of June for $499 and $599 (before taxes). Two months later, they dropped the price on the high-end model below that of the low-end model (and dropped the low-end model entirely). Two months is not nearly enough time to make the iPhone-building process cheaper, and although it’s probably long enough to pay back all their programmers and engineers who worked on it, that’s not really an issue when it comes to pricing. So why can Apple suddenly afford to sell at $399? What does that say about the net profit they’ve been earning on the iPhone up until now? Are there suddenly so many more iPhones on the market, or enough that haven’t been sold yet, that they need to give people a better incentive to buy?

    Personally, I’m quite satisfied with my decision (the fact that I have to send it in because of a faulty car charger that screwed up the power system is irrelevant). I saved my pennies and bought when the time was right, and I don’t regret it at all. If Apple had announced a new iPhone on the 5th, with more and better features like 3G, then I would be demanding a new one… but they didn’t, and I’m not. As many have said so far, Apple really doesn’t “owe” us anything — they are doing this because of all the overwhelming fervor the announcement caused, likely more than they’ve ever seen before. Plus, with the iPhone being a consumer-level device (the price is quite low compared to something a company is more likely to buy for you than you would buy yourself as a consumer, such as a Mac Pro or a 30″ Cinema Display), more people who need to really stretch their budgets to justify the purchase, as well as people who are simply cheap or have a sense of entitlement, have bought iPhones, and are now speaking out.

    In any case, think about Apple’s solution: they are giving us $100 in store credit. That is the real genius behind all of this. They’re not handing out Benjamins and saying, “Walk off with our cash” — they are essentially forcing us to buy more Apple stuff. How many iPhone early adopters do you think will buy more than $100 worth of goods at the Apple store, and apply their rebate to the total? Because that’s what we’ve been given, a rebate, not a refund. And that, I believe, is the key to all of this: we’re still tied in as customers.

  4. AlanY says:

    I agree with you Pierre. Though Apple’s response here is understandable… the blowback on the pricing drop (which was supposed to be spectacular in a positive way, as it was introduced as Steve Jobs’ “one more thing” at the end of the presentation) overshadowed all the press over the actual product announcements. That’s not the kind of media attention anyone wants. They actually have marketing firms which specialize in dealing with this kind of blowback, and Apple’s rapid handling of the situation has been good. The “open letter to our customers” strategy ending with a carrot is a classic type of response to this kind of situation. Compare it to the Intel FDIV Pentium problem circa 1995, and how Intel delayed for two weeks before publishing the “open letter to our customers” and announcing a remedy which involved out of pocket spending from the company. That, comparatively, was a poor response. I’m glad Apple acted here, and rapidly, even if it doesn’t necessarily make logical sense. Protecting customer goodwill is critical, however irrational it may be. Word of mouth is more powerful than anything else, and it’s been important in fueling the recent rise in popularity of Macs. Compare that to the word of mouth everyone is hearing from friends about Vista, which is overwhelmingly negative. No amount of advertising can counteract word of mouth once it gains momentum, so it’s important to act quickly.

  5. Neil Anderson says:

    Jobs is buying a lot of free advertising with his latest moves.

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