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Apple Consigns iPhone 3GS to Wal-Mart's Bargain Basement

By Erika Morphy MacNewsWorld ECT News Network
May 25, 2010 11:57 AM PT

Wal-Mart has begun selling the 16 GB version of the iPhone for US$97 with a two-year AT&T contract -- an approximate $100 price cut for the model, which is still retailing at $199 in other locations.

Apple Consigns iPhone 3GS to Wal-Mart's Bargain Basement

It is a deep enough discount -- even for Wal-Mart -- to raise eyebrows. Even more surprising, the cut comes right before Apple's Worldwide Developers Conference is set to kick off on June 7. CEO Steve Jobs will be delivering the keynote address, which is widely anticipated to include the formal introduction of Apple's fourth-generation phone.

In short, Wal-Mart is deviating from a well-worn strategy: Usually, retailers cut pricing after a new model is announced. Nor is this a case of Wal-Mart jumping the gun.

"Whatever it is doing with pricing, it surely has Apple's blessing -- it keeps an iron-clad grip on pricing in all its dealings," Rob Walch, host of Today in iPhone, told MacNewsWorld.

So, what is Apple/Wal-Mart up to? Most likely, a combination of factors prompted this move -- from excess inventory that Wal-Mart would like to clear out to Apple's hype machine experimenting with a new tactic.

"If nothing else, Apple knows how to create buzz," Walch said.

Wild Card

There is one unplanned development, though, that could throw off whatever strategies Cupertino and Bentonville may have devised: The market already knows a lot about the next iPhone, courtesy of Engadget and Gizmodo.

Could Apple wind up inadvertently sacrificing some sales of the fourth-generation iPhone as a result of 1) losing the momentum it usually gets with the buildup in anticipation of the new device's specs, and 2) a darn good bargain from Wal-Mart?

The answer is probably yes. Apple likely will lose some sales of its next new iPhone to bargain hunters who snap up the current model -- but any such losses can easily be shrugged off.

"Sure it will lose sales. People can always be tempted with a deal, but it is not going to make that much of a difference to Apple," Walch said.

Indeed, the $97 3GS price point will probably benefit Apple in the long run, suggested Todd Day, a mobile and wireless communications analyst with Frost & Sullivan.

"The more users there are out there, the more app developers come to Apple, the more apps are created -- leading to even more people wanting the device," he told MacNewsWorld.

Apple is basically taking a page out of the time-proven marketing model known as "the razor blade strategy," Andy Abramson, CEO of Comunicano, told MacNewsWorld. "Give away the razors -- let them buy the blades. By lowering the retail price point, Apple has made the iPhone more accessible."

The RAZR Model

Another question to ask, though, is will a sub-$100 price point for one of Apple's top-of-the-line devices tarnish its brand? Could the iPhone follow in the footsteps of Motorola's RAZR, for example?

"Initially, [the RAZR] was such a high-end brand, people were willing to pay top dollar for it," Azita Arvani of the Arvani Group told MacNewsWorld. "After a couple of years, you could get a RAZR for $50 or even free with a new contract, and that really affected the RAZR brand. In that way, it may tarnish the iPhone brand."

However, people who buy tech products from Wal-Mart are a different market from those who have to have the latest gadget when it first comes out, she went on to observe. "So, ultimately I don't see a conflict here," Arvani said.

Side Show

The $97 price -- possibly even some accompanying brand erosion -- will prove to be a side story, at best, to the news coming out of the conference conference, Arvani said.

It had better be relegated to minor news status, she observed, considering what Apple is up against with the Android. Basically, Steve Jobs is going to have to dazzle at his conference keynote -- and not just because Apple's thunder has been stolen with the leaked specs and photos of the next iPhone.

"This WWDC conference is different than the previous ones," Arvani said. "The iPhone is in a different world now, going against a formidable competitor that had higher U.S. sales numbers in Q1. At the WWDC conference, Steve Jobs must show how the new iPhone goes beyond what Android can offer in terms of technology, form factor and user experience."

Of course, Apple might have other hot news to announce -- perhaps an agreement with Verizon, suggested David Bernard, managing director of DB Marketing Technologies.

"There is incredible pent-up demand for an iPhone on Verizon, and [if he were to make such an announcement], Steve Jobs would have a huge impact -- not only on Apple's PR machine, but also on customer behavior," Bernard told MacNewsWorld.

"Those considering purchasing an HTC Incredible (Verizon's latest Android handset) will likely put off that purchase," he said, "for a future iPhone on Verizon."

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