September 24th, 2007
Steve Jobs proves you can't please all the people all the time
The iPhone price drop debate rolls on. Over the weekend Apple co-founder Steve Wozniak waded into the discussion saying that the price drop was “too soon, too harsh.”
As that $200 was knocked off the price, the iPhone was transformed from a luxury item to an item that was within the price reach the masseThere’s no doubt that the price drop was too quick and too much, even within the context of technology where prices drop at a speed that’s enough to make your head spin and things become obsolete at a pace that is staggering. But what the backlash against Apple’s price drop shows is that Apple isn’t in the technology business, it’s in the luxury goods business, and companies dealing in luxury goods just don’t do drops.
A good example of this rule in action is the luxury watches. The CEO of Rolex was once asked how the watch business was going. “I have no idea,” he replied with a snort, “we are not in the watch business, we are in the luxury business.” Companies such as Rolex and Omega keep their authorized dealers on a tight leash and any in-store discount that you are offered is a token gesture (as I discovered when buying an Omega Seamaster Professional Planet Ocean earlier this year). Another given is that prices rarely drop (except on end of lines, and even then it’s usually the dealer that initiates the discount in order to get rid of old stock). In the “if you have to ask the price, you’re in the wrong shop” segment of the market, prices usually stay fixed or go up. This is what makes the goods “luxury.”
This is how I see Apple. People don’t buy Apple products because they’re cheap; they buy them because they feel they are getting a quality item and that this gives them membership to an exclusive club populated by like-minded individuals. If you want cheap, look elsewhere buddy. This is a great business model if you can pull it off, and for years now Apple’s managed it brilliantly. But when it came to the iPhone it seems that Apple changed the business model. Initially, given the price of the iPhone (especially when combined with the service plan), it was, without a doubt, at the luxury end of the market, but as soon as that $200 was knocked off the price, the iPhone was transformed from a luxury item to an item that was within the price reach the masses. Anyone who had bought an iPhone expecting it to be a symbol of their status got a slap across the face.
Now, I’m not saying that the price drop was wrong. Personally I think that the iPhone was prices too high but that’s not what matters, because if people are willing to pay the price, that’s fine. What’s wrong with the price drop is that it’s changed how many iPhone customers perceived the product - as a luxury item. I don’t think that the uproar has much to do with the size of the price drop itself but more to do with the fact that the price drop changes the status of the iPhone from luxury item to just another piece of consumer electronics.
Thoughts?
Adrian is a technology journalist and author who has devoted over a decade to helping users get the most from technology. He also runs a popular blog called The PC Doctor. See his full profile and disclosure of his industry affiliations
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