Anchored
Michael S. Rosenwald at The Washington Post creates the inaugural post on his new blog “The Financial Lobe” and he addresses an issue that I wanted to address but did not have time or, probably, experience to address: why it is that a $199 iPhone sounds like a better deal than a $399 iPhone when, if you look at the total overall cost over even as short a time as a year, the average iPhone 3G consumer is going to pay at least $20 more than those that bought the original. It’s a good read and raises some excellent points but I think it still falls short in some ways.
An Incomplete Analogy
As far as Mr. Rosenwald’s restaurant analogy is concerned (read the article and you will understand what I mean), I think that it misses the mark a bit. The situation he refers to assumes that the restaurant patron is sitting down already, scanning the menu for a dish he or she prefers. At that point one is a bit of a captive audience. You’re hungry, you’re there and I am assuming that there are few people, once they decide they are going to eat at a restaurant, who are going to get up and leave because of prices. They are, instead, going to look for some menu item that will fit their budget. There are more people that will be willing to walk out of an AT&T store because they are, maybe, unhappy about how much they are going to have to pay for their phone and contract, iPhone or not.
The Cost of Entrance
Furthermore, even though I am happy that someone addressed this subject I still have a problem with the current popular analysis. I think Mr. Rosenwald’s article continues to place the consumer into the role of the unwitting victim of marketing manipulation. It assumes, I think wrongly, that the consumer is being played as they blindly fall prey to their iPhone lust. I think that, for the most part, those that choose to buy the most recent edition of Apple’s seminal phone effort, having eschewed the first edition, are not victims of marketing but instead are making a conscious decision based on the cost of entrance.
I would like an iPhone. I have wanted one since they came out. I think that I could, indeed, justify the monthly expense of owning an iPhone if I could just afford to get one. $600, even $400, was a steep amount to shell out all at once simply to gain entrance into the iPhone market. $199? Now that I might be able to do. And even though it is going to cost more, over time, to own the phone, that increased cost is going to be diffused, paid in small increments over a long period of time and that, my friends, is alot easier to handle than one large chunk of cash, shelled out all at one time, just to save $20 per year. Yeah, Mr. Rosenwald — and everyone else who has followed this same line of thinking — I am indeed thinking about utility.
I was thinking, while I was watching the keynote (via liveblog), that If anyone was the victim here it was Apple and maybe, now that some time has passed, even more so, AT&T. First, it is entirely possible that Apple came to the conclusion that there was no way they were going to reach their sales goal for the iPhone while retaining such a price premium and, so, slash the price they did. Planned at the birth of the iPhone or not, they realized that for the iPhone to explode in the U.S. market, the price needed to come down.
Second, AT&T has flatly stated that their profits, and therefore their stock price, are going to take a bit of a hit now that the decision has been reached that the iPhone is going to follow the same subsidization model every other phone they (or anyone else, for that matter) offer follows.
I am not saying that there are not some people out there blindly throwing themselves at the new iPhone but I also don’t think that the bulk of the people that are excited that the latest iPhone is cheaper to acquire than the old one was, are just brain-dead receivers of magical marketing signals. I think they we deserve a bit more credit than that. In fact, we may just deserve the credit for the presence of a $199 iPhone in the first place. Maybe.
Once again, thanks go to Daring Fireball for the link.
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