Apple's Core Feeling Sore After IPhone Price Slash

Influencers Who Are Key to Company's Marketing Effort Alienated by Move

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Normally an exemplary marketer in the right ways, Apple last week created a case study in alienating brand loyalists.
Apple CEO Steve Jobs and the iPhone, now $399.
Apple CEO Steve Jobs and the iPhone, now $399. Credit: Tony Avelar

The crisis began when CEO Steve Jobs announced plans to spread some iPhone holiday cheer by cutting the price from $599 to $399 for the top-of-the-line 8-gigabyte device. (He also discontinued a 4-gigabyte version that originally was $499.) Of course, a drop in phone prices after launch is pretty common in the telecom business -- albeit the rollbacks are usually more gradual -- but this is Apple, which built its reputation at least in part on high-pricing and an absence of discounting. This move not only risked undermining that record, but also suggested to some that Apple was worried about sales. Wall Street showed its disapproval; Apple shares dropped two days in a row.

Arguably more damaging from a marketing standpoint, however, was the reaction of the early-Apple-adopters -- influencers who most experts would argue are vital to the Apple marketing machine. To many of them, especially those who had shelled out $599 for the phone, this was a betrayal of their loyalty.

One iPhone owner vented in a discussion section of Apple's own website: Mr. Jobs, the entry said, is an "arrogant, rich CEO talking about early adopters as if they are 'the little people'." Another entry was signed "not a proud owner anymore." And, perhaps important, one noted: "Apple is starting to erode their most valuable asset, customer loyalty. That's a slippery slope to start down."

To some experts the whole incident begged the question: How could Apple be so out-of-touch with its core? Avi Dan, a former new business director at Euro RSCG and Berlin Cameron, even went so far as to call it: "A blunder on the scale of new Coke, where an iconic brand mistreated loyal customers and disrupted trust."

Still, to its credit, Apple quickly whipped out the crisis communications handbook. Mr. Jobs reacted within 24-hours with a website letter, part lecture on the bumps to be expected in the "technology lane," but also an up front apology and an offer to all iPhone owners of a $100 Apple store credit.

"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," he said.

That impressed some experts almost as much as the initial blunder astounded them. Dai Tran, creative director, interactive, Brouillard Communications, called the gesture "pretty amazing" and said he expects it will "appease 90% of the masses."

'Feeling like a sucker'
Maybe, but some brand experts said not all the damage will wash away that easily. "They disappointed their most hard-core fans," said Karl Barnhart, managing director, CoreBrands. Before news of the store credit came down, Mr. Barnhart said Apple's "arrogance" came through in the way the price cut was handled, especially because it looked as though the $200 was "pure and utter margin." Apple, in effect, was saying, "We stick it to you loyalists," he said. "Their arrogance caught up with them," and that "is a real concern," said Mr. Barnhart. "You went from feeling awesome to feeling like a sucker."
Price is right?
Research company Compete asked consumers interested in buying an iPhone how much they would be willing to pay. Results showed:
  • 8% of consumers said they would be willing to pay for the iPhone at its original price point of $599.
  • At $399, interest increased almost 2.5 times to 18%.
  • The "sweet spot" of consumer interest appears to be $100-$299.

And the customers themselves were clearly feeling suckered. One group put together an iPetition to Mr. Jobs. Even after the rebate one of them noted: "I said I'd never buy Apple again, Steve. We're only halfway there. I'm still not buying Apple."

But telecom analysts, who are more used to the highly-commoditized sector's foibles, saw Jobs' move as smart. "We're in the process of watching an evolution of the marketing of the wireless phone," said Jeff Kagan, telecom analyst. He called the shock over the iPhone price drop a result of the hype around the phone. "It's just a reality check," he said, adding the iPhone is now "open to a new segment of the market, the millions who would be happy to spend $400."

Roger Wood, senior VP-general manager, Americas Region, Amobee Media Systems, called the iPhone price cut and the new iPod lineup (which includes the iPod touch-screen device) "very intelligent product management on their part," which at the end of the day will "make the iPhone more lethal."

The iPod Touch connects to the web through Wi-Fi and does not make telephone calls over a traditional cell phone network such as AT&T or Verizon Wireless. Eventually, the iPod Touch could connect through Skype or other internet phone service. "It bespeaks a higher understanding of marketing," said Mr. Wood.
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