$100 Credit is Worth More to Apple than You @ tk here on Friday, September 07, 2007 2:57 PM
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Friday, September 07, 2007

$100 Credit is Worth More to Apple than You

Recently at 'The Beat Goes On' event, Apple announced a $200 price cut for iPhones and the phasing out of the "older" 4GB iPhone. Now if you didn't know that the iPhone was just released 2 months ago, you could be forgiven for thinking, "Well, that's life", or more bluntly, "Haha, suckers".

However, armed with the knowledge that the iPhone is a new product, would you have bought an 8GB iPhone if you knew that the price would drop by 33% (200/599 * 100%)? In fact, would you buy any product that would depreciate that quickly (a rate of 0.55% a day)? Repeat this simple procedure with the 4GB iPhone and you're looking at a 40% drop.

What's worse it that the iPhone you bought isn't even worth that much anymore, since it's a 2nd hand item. Assuming a secondhand 8Gb is worth $349 (based on refurb iPhone prices), your iPhone value has just dropped 42% in a few weeks (I don't even need to whip out my calculator, since Apple has kindly done the calculations and states "Save 42% off the original price").

Granted, no one can predict the future, but surely Apple had made plans for an event that was only 2 months away from the iPhone launch?

With these figures, you can see why iPhone customers were fuming. Some called it the "iPhone early adopter tax". Others decided to take matters into their own hands and storm Apple outlets to demand refunds (I may be exaggerating but you get the idea).

Which is why Apple responded with an open letter to their loyal customers. In it, the CEO, Steve Jobs, notes that people weren't too happy and justifies the decision to lower the iPhone price in order to target the holiday season, which I'm sure is well received by potential iPhoners.

There's also a paragraph about how technology prices are constantly in flux and suggests how early adopters will probably lose out one way or another. And then he offers a $100 store credit to iPhone users who aren't getting any kind of refund.

That's when you realize Apple may actually be doing something nice for their customers. You think so? Think again. A $100 store credit is not the same as $100 back in your pocket. When Apple sells something for $100, it costs them less than $100 to make it. That's how they stay in business.

Giving out $100 credit encourages people to check out their store and splurge cash on items that they may not have bought if it were $100 more. And there are quite a number of items (hint: new iPods) that may just catch the attention of iPhone users. Which means more business for Apple.

Even if none of them bought anything above $100, the loss to Apple would be less than giving out $100 handouts. Plus, the publicity from this open letter is certainly worth something.

This is a good example of how Apple took a few bad apples and made them good, which shows how shrewd a businessman Steve Jobs is. Anyone who plans on becoming the next Steve Jobs should take note.

And just in case anyone forgot, the price reduction was $200.

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