Case Study

Apple iPhone Price Cut:

Is it a Right Strategy?
Lekha Ravi*

The first adopters always pay a premium. I am one of them. I am used to that. But that
one was too soon, too harsh.1
– Steven Wozniak, Cofounder of Apple Computers
Apple Inc., one of the most renowned companies in the world for computer technology,
ranked 121st in the Fortune 500 in 2007.2 Apple Inc., with its focus on design and manufacture
of consumer electronics earned revenues of $19,315.0 mn3 in 2007. Apple products include
Apple TV, iPod and iMac. These products have earned a reputation for being highly priced
and also of high quality. On June 29, 2007, amidst much fanfare and keen anticipation from
its customers, Apple launched the iPhone.4 The iPhone was touted as a revolutionary device,
which combines the features of a mobile phone and an iPod for the convenience of the user.
Within two months of the gadget’s entry into the market on September 5, 2007, Apple
lowered the price of its 8-gigabyte (GB) storage iPhone from $599 to $399.5 This created a
furore among customers and other players in the industry. In the technology industry, where
the product lifecycle is short and the market is highly sensitive, many experts ponder if the
price cut was the right move.

iPhone: A Revolutionary Invention

The technology influencing mobile phones sprang into prominence in the mid 20th century.
“Mobile phones are becoming absolutely indispensable in the developing world”,6 said
Robert Conway (Conway), Head, Global System for Mobile Communication (GSM)
Association.7 The first mobile telephony service started in Sweden was a form of radio

* Team Leader, IRC (IBS Chennai Research Center, Chennai, India. E-mail: lkhravi@gmail.com
1
Steven (2007), “Apple Legend Woz Blasts iPhone Price Drop and Refund Policy”, http://www.crn.com/
hardware/202100333, September 22.
2
“Fortune 500”, http://money.cnn.com/magazines/fortune/fortune500/2007/full_list/101_200.html
3
Ibid.
4
“iPhone Premieres this Friday Night at Apple Retail Stores”, http://www.apple.com/pr/library/2007/06/
28iphone.html, June 28, 2007.
5
“Apple Sets iPhone Price at $399 for this Holiday Season”, http://www.apple.com/pr/library/2007/09/
05iphone.html, September 5, 2007.
6
“Mobile Phone Technology Turns 20”, http://news.bbc.co.uk/2/hi/technology/6983869.stm, September 7, 2007.
7
GSM Association founded in 1987, is a global trade association representing over 700 GSM mobile phone
operators across 218 countries of the world. It plays a pivotal role in the development of the GSM platform and
the global wireless industry.

© 2009 The Icfai University Press. AllThe

46 Rights
IcfaiReserved.
University Journal of International Business, Vol. IV, No. 1, 2009
telephony tested by the Swedish police for use in police cruisers. This form of radio telephone
was a two-way radio, which was widely used in taxis and police cruisers. In 1946, American
AT&T and South-western Bell8 brought out the first commercial mobile telephone service,
which was used in communication devices. The ‘modern’ mobile phone was developed,
researched and experimented in the 1970s.9 In the late 1980s, the mobile phone industry
started developing rapidly, attracting more users. In 2003, there were approximately 1.52
billion mobile phone users around the world.10 The technology is experiencing a fast growth
and mobile phones are getting more and more sophisticated (Annexure 1). Applications of
mobiles are expanding as mobile phones assist in security systems and surveillances. According
to Conway, “The technology is a gravitational force that brings into its orbit a huge amount
of innovators.”11
Adoption of technology has only increased the number of users using different gadgets
and showed no signs of slowing down even in the developing nations. As consumers advance
through different stages of their lives, the interest levels, usage patterns, spending habits,
and brand preferences for mobile and other technological products and services constantly
change. Understanding the changes in lifestyle and the consumer demands is the key element
in forecasting the target market in mobile technologies and services.
The iPod, for example, was a new revolutionary model from Apple. Apple was the first
company to fully exploit the home computer market and launched the iPod, bringing
digital music to the masses. With the introduction of the iPod, the company created a user
friendly product, where the user could download music from the Internet and transfer it to
the player. Apple uses its technological expertise to improvise its products based on
consumer needs. According to Richard Jameson, analyst, GfK NOP,12 “Apple’s history
proves that it has the magic touch when it comes to product development and marketing”.13
After its launch, Apple totally redesigned its iPod and introduced the iPod nano, a
full-featured iPod in a small size that changed the rules for the entire portable music
market. After the introduction of iPod nano, the iPod continued its run as Apple’s single
most successful product. As the market was moving towards convergence between various
devices, the most fashionable amongst Apple’s products, the iPod nano made a strategic
move, with optional accessories including lanyard headphones.14 The iPod nanos also
came with a price drop. A 4 GB version of the device was priced at $149, $50 below the

8
Southwestern Bell Telephone is a wholly owned subsidiary of AT&T founded in 1920 to take over the
telephone operations of southwestern telegraph and telephone Co. and the Bell Telephone Company of
Missouri.
9
Hill Ian (2005), “Mobile Phone—Everyday Clever”, http://www.abc.net.au/southqld/stories/s1482448.htm,
October 11.
10
Ibid.
11
“Mobile Phone Technology Turns 20”, op. cit.
12
GfK NOP is a leading market research organization, providing cutting edge quantitative and qualitative surveys
and fact-based consultancy.
13
“Apple iPhone too Expensive, Say Consumers”, http://www.telegraph.co.uk/connected/main.jhtml?xml=/
connected/2007/11/23/dliphone23.xml, November 23, 2007.
14
Lanyard headphones are ones that can be conveniently hung around the users’ neck.

Case Study 47
cost of the current version with the same memory. An 8 GB version was priced $199, also
$50 less than the current model.15 Following the phenomenal success of its music player,
the iPod, Apple planned the launch of the iPhone, a combination of an iPod and a mobile
phone. Apple wished to make a breakthrough with consumers in terms of design and user
interface with its iPod.
The launch of iPhone provoked so much hype and debate like no other product launch in
the past. The hugely anticipated new technological gadget iPhone was launched on June 29,
2007 and revolutionized the tech-savvy market. Apple’s iPhone entered the highly volatile
cell phone market combining telephony, MP3, web surfing and video watching. The iPhone
was a gadget, which was most awaited, by both the technology enthusiasts and mainstream
media. The shipments during the holiday season of 2007 were expected to top the previous
year’s 21 million units.16
iPhone proved to be a revolution as it had reformulated the way people interact with
computers. The iPhone had the following features: 2-megapixel camera, headset and audio
jacks, an iPod dock, Wi-Fi ,17 stereo Bluetooth and a speakerphone (Exhibit 1). The iPhone
weighs about 135 g, which is a little heavier than a standard mobile phone but lighter than

Exhibit 1: The Apple iPhone

Features
♦ Multi-touch support 3.5-inch 480 × 320 touchscreen
display.
♦ 2 megapixel cam.
♦ 4GB or 8 GB of storage.
♦ Bluetooth 2.0 with EDR and A2DP.
♦ WiFi that automatically engages when in range.
♦ Quad-band GSM radio with EDGE.
♦ Runs OS X with support for Widgets, Google Maps,
and Safari, and iTunes (of course) with CoverFlow
out of the gate.
♦ Five hours of battery life for talk or video, with a full
16 hours in music mode.

Source: Ziegler Chris (2007), “The Apple iPhone”, http://www.engadget.com/2007/01/09/

the-apple-iphone/, January 9.

15
Crum Rex, “Apple Revamps Entire iPod Line, Cuts iPhone Price: Shares Drop on Worries about Low iPhone
Demand; Touch-Screen iPod Debuts”, http://www.marketwatch.com/news/story/apple-shares-fall-iphone-price/
story.aspx?guid=%7b1AD005D1-E60C-4564-98C3-9842358467B7%7d&print=true&dist=printTop,
September 5, 2007.
16
Krazit Tom (2007), “Apple’s iPhone Takes Center Stage”, http://www.news.com/Year-in-review-Apples-iPhone-
takes-center-stage/2009-1041_3-6222156.html, December 17.
17
Wi-Fi is a wireless technology brand owned by the Wi-Fi Alliance intended to improve the interoperability of
wireless local area network products. Its applications include Internet and VoIP phone access, gaming, and
network connectivity for consumer electronics such as televisions, DVD players, and digital cameras.

48 The Icfai University Journal of International Business, Vol. IV, No. 1, 2009
many devices with a QWERTY18 keyboard. The thin design has a touch screen and does not
have a keypad. Users have to use on-screen soft keys to dial numbers, enter web addresses
and type e-mails and text messages. All menu navigation and data entry from typing messages
to dialling phone numbers is done on the touch screen which makes it appealing to the less
tech-savvy user. The phone also supports a digital-music player that syncs with iTunes.
Apple’s voicemail system formulates good use of its visual interface to let the user pick just
the message he wants to listen to. The iPhone has a built-in rechargeable battery that offers
a talk time of up to eight hours and standby time up to 250 hours. However, browser
sessions on General Packet Radio Service (GPRS), rapidly depletes the battery. The battery
life would be shortened if the iPhone is used as an iPod music player by users.
The Apple iPhone has unique features and does most functions with single contact and
works with long standby time unlike other phones. It supports features like multi tasking
wherein the user can read a web page while downloading e-mail in the background over
Wi-Fi or Enhanced Data rates for GSM Evolution (EDGE). The interface is unique with a
large multi-touch display and innovative new software that allows controlling everything
with the touch of a finger. It combines the features of multiple tools into one handheld
device and appears with a grid of colorful icons, with the four chief functions—Phone,
Mail, Safari web browser and iPod—in a separate strip along the bottom. All these
sophisticated features made the iPhone a much sought after device. There was, however,
tough competition from the other players as well. Though there were overlapping features
amongst the top mobiles, the Apple iPhone continued to enjoy a niche market (Exhibit 2).

Exhibit 2: Comparison of Features of Popular Mobile Devices

Apple iPhone Blackberry Nokia e-Series
Imate 8150
(8 GB) Pearl (8100) (E61)
Appearance: • Dimensions is 107
• Multi-touch x 51 x 14.5 mm • 320 x 240 pixels, • 1.75 inches wide,
support 3.5-inch • 90 g1.3 58 x 45 mm - 4.25 inches long,
480 x 320 MegaPixels, QWERTY keyboard and about 0.75
touchscreen • Camera, memory with Five-way scroll inches thick with
display card slot, music key joystick
• 2 megapixel cam player, and voice • 117 x 69.7 x 14 • 176 x 220 65 K
• QWERTY keyboard dialing mm, 108 cc and color reflective TFT
• QWERTY weight 144 g screen, and IrDA
Keyboard
Browser and • Network with GSM
Technology 850|900|1800|1900
• Wi-Fi that • EDGE data, • UMTS/GSM 850/ • 120 MHz, ARMv5
automatically 900/1800/1900· processor,
Bluetooth 2.0,
engages when in Edge with 10, • 16 MB RAM, 32
SureType text 236.8 kbps
range MB ROM

(Contd...)
18
QWERTY refers to the arrangement of keys in odd fashion to prevent jamming on mechanical typewriters by
separating commonly used letter combinations keys.

Case Study 49
 Exhibit 2: Comparison of Features of Popular Mobile Devices (...contd)
Apple iPhone Blackberry Nokia e-Series Imate 8150
(8 GB) Pearl (8100) (E61)
• Runs OS X with keypad, and push • Wi-Fi 802.11i/e/g, • Unlocked
support for email VoIP over WLAN Quad-Band
Widgets, Google • 1.9 GHz and 800 • MP3/AAC/MPEG4 3G/EDGE/Wi-Fi
Maps, and Safari, MHz digital player
and iTunes (of
course) with
CoverFlow out of
the gate.
• Quad-band GSM
radio with EDGE.
• Bluetooth 2.0 with
EDR and A2DP

Storage
• 64 MB flash • Standard battery,
• 4 GB or 8 GB of
Li-Po 1500 mAh
storage memory
(BP-5L)
• 5 hours of battery • Battery with 900
• Stand by Up to 260 h
life for talk or video, mAh Li-Ion
• Talk time Up to 7 h
with a full 16 hours • 360 hours stand 128 MB shared
in music mode by memory

Price
$399.00 (Reduced $229.95 $357 $799.95
price)

The iPhone combined the features of an iPod music and video player with that of a
mobile telephone and was available through AT&T Wireless Services. The iPhone had been
locked by the service provider AT&T in the US in a two-year service agreement. In countries
like India customers cannot use the iPhones even if they purchase it in the US or UK, as they
have to reload the software to use it. The demand for iPhone was relatively strong and it has
been rated higher than the demand for any other Apple product that has ever been shipped.19
According to iSuppli,20 iPhone was the best-selling handset, among the 2,70,000 smart
phones and feature phones sold to the US consumers during the first month of its sale in July
2007.21 Market analysts pointed out that Apple had created a strong brand and customer
loyalty, which it capitalized on by adopting a skimming strategy in pricing. They also felt

19
Krazit Tom (2007), “Apple’s iPhone Price Cuts Leave Mixed Feelings”, http://asia.cnet.com/reviews/mobilephones/
0,39050603,62032012,00.htm, September 10.
20
iSuppli corporation is a market intelligence company that helps clients improve performance in the electronics
value chain by providing them with the facts, analysis and advice they require to know precisely how to
succeed.
21
“Apple’s iPhone Price Cuts Leave Mixed Feelings”, op. cit.

50 The Icfai University Journal of International Business, Vol. IV, No. 1, 2009
that Apple’s customers accept its highly priced products with equanimity. To go a step
further, they consciously expect it to be so.

iPhone: Banking on Pricing

The iPhone had entered the market with a stock of about 3,00,000 iPhones and a
manufacturing capacity of roughly 1,50,000 a month.22 The 8 GB iPhone was available for
$399 in the US through Apple’s retail and online stores and AT&T retail stores. The iPhone
4 GB models were sold only till the supplies lasted.23 It had launched its iPhone during
the holiday season (when spending is on a high) to make it affordable for more customers.
The Apple iPod, which was launched in October 2001 was a success story and was priced
at $349 (as of 2007) for 160 GB. Though relatively high priced for an MP3 player, it was
hugely demanded and remains popular till date though there was a price slash in 2005.
The new ipod shuffle with 512 MB, which was introduced later, has a unique appeal and
its price starts at $99 and $149 for 1 GB.24 Joe Wilcox, analyst at Jupiter Research25
observed that the lower-priced iPod is part and parcel of Apple’s new mass-market strategy,
which went on to sell its one-millionth piece before the end of September 2007.26 Similar
to the price cut of the iPod, two months after the launch of the iPhone, Apple lowered the
price of 8 GB storage iPhone from $599 to $399 on September 5, 2007. The price cut
evoked a sharp response from many quarters.
Steve Wozniak, Cofounder of Apple Computers, said, “Nobody expects a product to
drop that much in price in such a short time”.27 He criticized Steve Jobs (Jobs) the chief
executive of Apple Inc., for his decision to drop the price of the iPhone by $200 within 68
days of its launch. Jobs, in his letter on the company’s website, acknowledged that Apple
had disappointed some of its customers by the sudden price cut of the iPhone’s 8-gigabyte
model and said he had received hundreds of e-mails complaining about the price cut.
According to Apple executives, the move had been planned long ago and felt that the
pricing strategy was conceived in part to keep the iPhone’s pricing in line with its new
iPod Touch. But the sharp price cut suggested that even Apple, which has long lived in a
pricing bubble insulated from other personal computer makers, is not immune from the
brutal pressures of the cellular phone business.28 “My suspicion is that they got to 7,50,000
really quickly, and then it started to slow down”,29 said Van Baker, an industry analyst at

22
Howe Karl (2007), “Apple’s iPhone Price Cut is Smart Marketing”, http://seekingalpha.com/article/46620-
apple-s-iphone-price-cut-is-smart-marketing, September 7.
23
“Apple Sets iPhone Price at $399 for this Holiday Season”, op. cit.
24
Jennifer LeClaire (2005), “Apple Shuffles Price Strategies with New iPod Model”, http://
www.macnewsworld.com/story/39590.html, November 11.
25
Jupiter Research provides research analysis and advice, backed by proprietary data, to help companies profit
from the impact of the Internet and emerging consumer technologies on their business.
26
“Apple Shuffles Price Strategies with New iPod Model”, op. cit.
27
“Apple Legend Woz Blasts iPhone Price Drop And Refund Policy”, op. cit.
28
Darlin Damon (2007), “Apple Cuts iPhone Price and Revamps iPods”, http://www.nytimes.com/2007/09/05/
technology/05cnd-apple.html?em&ex=1189310400&en=1e18a6b4c2fb4789&ei=5087%0A, September 5.
29
Ibid.

Case Study 51
Gartner Group.30 Following the price cut, share price of Apple dropped by 5% and stood
at $136.76 on September 5, 2007.31
Jobs issued an apology after the consumer complaints on September 6, 2007, the next
day after its price cut for those who purchased the product at high price (Annexure 2).
It refunded the $200 difference for those who bought the phone within 14 days of the
reduction. After protests over the decision to reduce the price of the iPhone the company
offered $100 credit at Apple stores in a move to make peace with those who had purchased
the higher-priced phone before that period.32
Protests against Apple went to the extent of consumers filing cases against the company.
Dongmei Li (Li) a customer of Apple filed a case on September 24, 2007 in the US District
Court, against the company for violating price discrimination laws claiming that it should
stop selling the $499 4 GB model.33 Li had waited for the launch of iPhone and then
found that the store only had 4 GB iPhones in stock and had subsequently purchased one.
Much to her chargin, Apple then slashed the price of the 8 GB iPhone and stopped selling
the 4 GB model. 100s of customers like Li who paid the full price did not expect the
sudden reduction and complained bitterly. Li went on to sue Apple on the grounds that
the price reduction badly affected early purchasers, as they could not resell the product for
the same profit as those who bought the cell phone following the price cut. The complaint
mentioned that Li was only offered the
$100 store credit while those who had Exhibit 3: Retail Price of 8GB iPhone
purchased their iPhones two-weeks
prior to the price cut were refunded Countries Initial Price Release Date
$200 in cash. The historical analysis US $599 June 2007
of Apple’s stock price (which Li UK $537 October 2007
provided in the 8 page complaint)
Germany $553 November 2007
outlined Apple’s incredible stock-
India – 2008
market gains in the time period
following the price cut. Apple, Australia – 2008
however, had no financial reason to cut
Source: Krazit Tom, “iPhone debuts in UK, Germany”,
prices, but to gain more customers http://www.cnet.com.au/mobilephones/phones/
during the holiday season.34 By the end 0,239025953,339283635,00.htm, November 29, 2007\
and ‘iPhone Release Date’, http://www. iphone
of September 2007, Apple had sold 1.4 releasedate.net/
million iPhones and also launched the

30
Gartner Group is an information and technology research and advisory firm headquartered in Stamford,
Connecticut. Gartner clients include many large corporations and government agencies, as well as technology
companies and the investment community.
31
“Apple Cuts iPhone Price and Revamps iPods”, op. cit.
32
Robertson Jordan and Wong May (2007), “Apple’s Jobs Sorry for iPhone Price Cut”, http://
www.washingtonpost.com/wp-dyn/content/article/2007/09/06/AR2007090601766.html, September 6.
33
Jose San, “Woman Sues Over Apple’s iPhone Price Cut”, http://abcnews.go.com/print?id=3676420
34
“Woman Sues iPhone trio Over Price Cuts—Steve Jobs, Apple, AT&T all Named in Latest Lawsuit”, http://
www.intomobile.com/2007/09/29/man-sues-iphone-trio-over-price-cuts-steve-jobs-apple-att-all-named-in-latest-
lawsuit.html, September 29, 2007.

52 The Icfai University Journal of International Business, Vol. IV, No. 1, 2009
device in the UK, Germany, and France.35 In Asia and Australia iPhone was scheduled to
be released during 2008 (Exhibit 3).
Apple has indicated in the past that its ‘one price fits them all’ strategy is to assist the
evolution of the youth market and make this form of buying more attractive to consumers36
(Exhibit 4). Apple no longer accepts cash purchases for iPhone and it limits the sale of the
cell phone to two per person to stop people from reselling them.

Exhibit 4: Price Comparison of Different Brands

Products Price of Different Brands
Laptop Apple Sony Dell HP Pavilion dv6500tse
$1,999 $1,760 $1,424 $1,522
iPod and Mp3 Apple Sony Samsung Creative
$290.90 $173.11 $303.01 $200
iPhone Apple LG Prada Nokia Blackberry Pearl
$599 US$780 $276.64 $229.95

While the company was dealing with the price cut controversy, its competitors were
working on developing models that could compete with the iPhone. Apple’s competitor LG
was working on iPhone ‘killers’, its new product Prada phone KE850 will attempt to offer
unbeatable combinations of style, features and price.37 It costs £300 ($614) (Annexure 3).
Nokia with its N800 was already a tough competitor to Apple’s iPhone with a niche market.
The iPhone price cut caught the media attention in a big way and raised questions about the

Exhibit 5: Excerpts from “Several Advantages to Apple’s iPhone Price Cut”

1. Attract more non-AT&T (T) customers to switch carriers. Apple receives bonus revenue for
new subscribers. Eventually, Apple will have to offer the iPhone to other carriers, but while it’s
exclusive to AT&T Apple can capture high margin revenue. Service revenues fall straight to the
bottom line, thus it makes sense for Apple to ramp up adoption as much as possible before
their exclusive carrier agreement expires.
2. A high initial price meant that the early adopters would be mostly ‘die-hard Apple loyalists’.
This consumer segment has significant Apple bias, thus those users will talk very positive
about the product, hence generating significant buzz. In addition, loyalists won’t focus on any
drawbacks, for they focus on all the strong points of the device. Thus, Apple is less likely to
receive negative word of mouth from the product release.
3. The initial high selling price means fat margins that can be allocated toward the recapture of
up-front development costs. The sooner these development costs are recovered, future margins
will expand at a faster pace.

(Contd...)

35
“Apple’s iPhone Takes Center Stage”, op. cit.
36
Delahunty ‘Dela’ James (2007), “NBC Denies Apple’s Claims”, http://www.afterdawn.com/news/archive/
10950.cfm, September 2.
37
MacLeod Murdo (2007), “All I want for Christmas Is the Smartest Mobile Phone”, http://
www.macnewsworld.com/story/iphone/59572.html, September 30.

Case Study 53
 Exhibit 5: Excerpts from “Several Advantages to Apple’s iPhone Price Cut” (...contd)

4. The new iPod Touch is essentially an iPhone, without the phone capabilities. Thus, both the
new iPod and iPhone will share the same components, which will drive scale efficiencies. The
shared costs between the two products will aid in offsetting the margin decline stemming from
the lowered selling price. Increase in volume spreads fixed costs over more units, which
improves the incremental profit margin per unit.
5. The lower price point of the iPhone should dramatically boost adoption. According to a
ChangeWave Alliance survey of 3,000 non-owners, one-third stated ‘high price’ as the reason
for not buying an iPhone. Roughly 25% of those respondents indicated they would ‘likely’
purchase an iPhone in the future, while one-third said they were waiting for the price to come
down.
6. Apple is switching from a price-skimming strategy to a market penetration strategy. Apple will
be able to expand market share quicker; this will strengthen competitive barriers.

Source: Muller Turley (2007), “Several Advantages to Apple’s iPhone Price Cut”, http://seekingalpha.com/
article/46827-several-advantages-to-apple-s-iphone-price-cut, September 10.

device’s continued success. However, there are also some advantages to Apple’s price cut
(Exhibit 5). The price cut has raised the question as to whether Apple needed to stimulate
demand as it is the most valued gadget in history, by reducing the price drastically soon after
its release. Experts observe that Apple is switching from a price-skimming strategy to market
penetration strategy. They felt that it would be able to expand market share more rapidly and
competitive barriers could be strengthened through the change in strategy.

Road Ahead
In spite of its popularity, the iPhone is said to suffer a few shortcomings. Apple iPhone lacks
some features like user-changeable battery, voice dialing, voice recording, video recording,
instant messaging, Multimedia Messaging Service (MMS), copy and paste and common
Bluetooth file transfer OBject EXchange (OBEX). It is hard to use the on-screen keyboard
because of its small sized surface.38 Further, the iPhone is available only through AT&T
service provider and not through third parties. It comes with a two-year service agreement in
the US. In countries like India even if iPhones are purchased customers cannot use them, as
they have to reload the software to use it. Many users opine that though it boasts of a very
clear and sharp screen, Apple’s user interface is finger driven and the screen rapidly becomes
covered in unsightly fingerprints.
Apart from these limitations, Apple had to tackle the consequent criticism following the
price cut of the iPhone. Stephen Hoch, marketing professor at Wharton University, observed,
“The reversal on Apple’s iPhone may have been more dramatic because the company has marketed
itself as consumer friendly. People have strong positive feelings about Apple. They feel they are
part of the Apple family. When Jobs announced the price decrease, people felt betrayed”. 39

38
“Apple iPhone”, http://lifestyle.headlinesindia.com/nokiaphone/apple-iphone.html
39
“The Price is Right: But Maybe It’s Not, and How Do You Know?”, http://knowledge.wharton.upenn.edu/
article.cfm?articleid=1813, August 21, 2007.

54 The Icfai University Journal of International Business, Vol. IV, No. 1, 2009
 According to Wharton faculty and analysts, the iPhone episode reveals the perils of
pricing in a marketplace where constant innovation, fierce competition and globalization
are changing the rules of the game.40 John Zhang, marketing professor at Wharton
University, said, “The product lifecycle is short and the market is moving quickly. You
don’t have a lot of time to learn from your mistakes. You have to price the product right
the first time”. 41
Jobs, while speaking to reporters, defended his move stating that his price cut was
directed to attract new customers in the holiday season with more aggressive pricing. He
added that it benefits both Apple and every iPhone user to get as many new customers as
possible in the iPhone ‘tent’.42 Jobs observed, “…even though we are making the right
decision to lower the price of iPhone, and even though the technology road is bumpy, we
need to do a better job taking care of our early iPhone customers as we aggressively go
after new ones with a lower price. Our early customers trusted us, and we must live up to
that trust with our actions in moments like these.”43 Greg Joswiak, Apple’s worldwide
vice president of iPod and iPhone product marketing, also agreed with Jobs and observed
that there was no better time for the price cut and he also added that it was that time of
the year that was most important and an opportunity to come into the holidays with a
fresh and aggressive product line.44
Keeping in mind Apple’s range of high priced products which gives it an ‘aura’ of
exclusivity, was Jobs decision to reduce the price a right one? As demand for the elusive
iPhone soars, analysts are closely watching the fallout of the price cut. Jagdish Rebello,
Director and principal analyst, iSuppli, said, “With a 50% gross margin, Apple is setting
itself up for aggressive price declines going forward”.45 

40
“The Price is Right. But Maybe it’s Not, and How Do You Know?”, op. cit.
41
Ibid.
42
Krazit Tom (2007), “Apple to Offer $100 Store Credit to iPhone Customers”, http://www.news.com/8301-
13579_3-9773207-37.html, September 6.
43
“To all iPhone Customers”, http://www.apple.com/hotnews/openiphoneletter/
44
“Apple Revamps Entire iPod Line, Cuts iPhone Price: Shares Drop on Worries about Low iPhone Demand;
Touch-Screen iPod Debuts”, op. cit.
45
“Analysts: IPhone Prices May Go Down”, http://www.washingtonpost.com/wp-dyn/content/article/2007/01/
18/AR2007011801360.html, January 18, 2007.

Case Study 55
 Annexure 1
Evolution of Mobile Phones
1946 1981 1983

First Mobile Telephone First

Mobile Phones, used in Transportables or Luggables
DynaTAC 8000X
Chicago (Portable)

1989 Current Design Camera Phones

In-Built or Snap-on Cameras

Standard and Larger Screens for
GSM Digital Phones Open Flip Top Viewing
Convergent Devices 3G Next Generation Phones Concept Phones 1

Mobile phones can also be Designers work on the future

used as PDAs, MP3 players, to try and predict what
and games consoles and as Camera and larger screens technologies and styles will
devices to surf the internet. with video. be common.
Concept Phones 2 Concept Phones 3 Concept Phones 4

56 The Icfai University Journal of International Business, Vol. IV, No. 1, 2009
 Annexure 2
Apology Letter Sent by Steve Jobs to iPhone Customers

To All iPhone Customers

I have received hundreds of e-mails from iPhone customers who are upset about Apple dropping
the price of iPhone by $200 two months after it went on sale. After reading each of these
e-mails, I have some observations and conclusions.

First, I am sure that we are making the correct decision to lower the price of the 8 GB 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.

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. The good news is that if you buy
products from companies that support them well, like Apple tries to do, you will receive years
of useful and satisfying service from them even as newer models are introduced.

Third, even though we are making the right decision to lower the price of iPhone, and even
though the technology road is bumpy, we need to do a better job taking care of our early
iPhone customers as we aggressively go after new ones with a lower price. 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.

Steve Jobs

Apple CEO

Source: ‘To all iPhone Customers’, http://www.apple.com/hotnews/openiphoneletter/

Case Study 57
 Annexure 3
Competitors of iPhone

Samsung F700 LG Prada Phone KE850 Linux Based FIC-GTA001

Features: 5 megapixel camera,

Touch pad technology, 7.2 Features: 3-inch LCD touch Features: 2.8-inch VGA
Mbps impressive downloads, screen display, 2 megapixel display, multi-touch sensor
QWERTY Keyboard, 2.78" camera, microSD memory card recognition, GSM, GPS and
Color Display, Bluetooth slot MP3 playback capabilities

Nokia Aeon Concept Phone Neonode N2 TouchScreen BenQ-Siemens Black Box

Concept Phone

Features: 3GSM MiniSD card,

MP3 Player (MP3, WMA, Wav),
Calender and Adress book
synchronized using ActiveSync, Features: 2.8-inch VGA
GSM Quadband 850, 900, display, multi-touch sensor
1800 and 1900 MHz bands, recognition, GSM, GPS and
Features: Touch phone MP3 playback capabilities
technology GPRS, LCD: 2,0” (176 x 220
pixels)
Neo1973 Asus Aura Concept Phone Meizu M8

Features: QWERTY keypad, Features: 57x105x11.5mm,

2-megapixel camera, 3.9-inch 3.3-inch (720x480 pixels)
Features: Touch-sensitive touch screen display and is only display, Bluetooth, 3-
VGA display, GPRS data, 9mm thick, GSM net- works, megapixel camera, TV-out, line
Bluetooth, 128MB RAM, AGPS 3.9-inch touchscreen display, in/out, video recording
(Assisted GPS), and 64MB of Bluetooth, a microSD card slot capabilities of 30fps at
Flash and miniUSB connectivity. 720x480 resolution.
Source: “Top Ten List of iPhone Competitors”, http://www.mobilewhack.com/top-
ten-list-of-iphone-competitors/

Reference # 48J-2009-02-04-02

58 The Icfai University Journal of International Business, Vol. IV, No. 1, 2009