As a rule I do not give commentary on a company's business moves. However, I just have to say that the cut in the iPhone price is a good thing. Although I am disappointed that Job's gave in to early adopters who paid top dollar. Hey you knew the price and many said they would pay more so stop your whining. In technology it is a fact of life. And if you bought the phone in the last 12 days go get your price difference refund which is a standard policy.
Now to the more important why did Apple drop the price. There are several reasons a company drops prices
- drop in component cost - your cost is cheaper now so you give your customer a break.
- flagging sales - your sales are down and a price cut might prop up sales
- expand sales - your sales are strong and you want to increase your lead and pressure on the competition
For starters lets assume that the cost was not why Apple lowered the price. In economics supply and demand meet based on price. Raise the price your demand goes down. Consequently lower the price and your demand goes up. The question is how much.
First we have to few figures to really gauge the sales and velocity of sales of the iPhone. We do know that today Apple reported that they have sold 1 million iPhones. What we don't know is how they count sales? Is AT&T considered the customer like most wireless companies? Also one can only guess how many additional phones were sold since the price drop on September 5. However based on some analyst reports you figure a majority of the phones were at the higher price.
Is there anyway we can gauge how the price drop will impact Apple? I decided to use the iPod and measure the average price per unit (APU) against Apple's revenue. Now I will be the first to say this is totally back of the napkin math. I took the prices from Wiki entries on the iPod. Next I did a straight average so the APU is not weighted by actual sales. By the way, that means the APU is higher than the actual and the Delta % is off since the Nano is the Apple's best selling iPod. I then went to MSN and got Apple's 10 year financial information. Finally to make have meanful comparison I used the yearly revenue growth as a percentage and APU delta as a percentage to calculate percentages.
As one can see revenue growth was highest as the price cuts were the deepest. And as the price started to rise revenue growth slowed. So did Apple do the right thing?