Before You Cut Prices – Part 2

One of the previous articles has the same title and it talked about the need for incremental profit analysis before cutting prices to increase sales.  Yesterday Apple announced a $100 price cut on its iPhone 3G model when they introduced the new iPhone 3G-S. Why is this a better move?

The price cut is only on the low-end version which not only has lower capacity (8GB) but is also limited in its benefits compared to  iPhone 3G-S.  So the price cut is not a generic, across the board price cut, rather a narrow one targeted at those who want an iPhone but are not willing to pay the $199. This brings in new segments who otherwise would not have bought an iPhone.  A majority of those who already have an iPhone and eligible for upgrade will  choose the newer version (otherwise they could simply stick with the version they have ). So this does not affect their premium segment that is willing to pay for the features of iPhone 3G-S.

This is a great move because it creates multiple versions of the product at different price points that grows the market share without losing profits from other segments.