As predicted by the Financial Times story Apple announced a 50% price cut on its entry level iPhone. It kept is price levels at $199 and $299 for the newer versions that not only have more capacity but also have better features, most important of which is shooting and editing videos. In the 2X2 map of price sensitivity of phones vs. plans, Apple’s move addresses the segment that has high price sensitivity for phones but leaves out the segments that have high price sensitivity to plan price.
I previously talked about at&t’s reported plan to either cut its cost for data plan or introduce a new plan for $20. It does not make business sense to cut the price of existing plan. So the right option is to introduce a new data plan for $20 but with restricted bandwidth.
at&t should design its versioning and pricing such that those with higher data needs will self select themselves for the higher rate plan. Another factor in all you can subscription pricing is that an average user should consume less than their allocated bandwidth and anyone who exceeds the limit must be penalized such that they are nudged to upgrade to the next higher plan.
Since the new iPhone 3G-S introduced yesterday have features that consume higher bandwidth it is expected that the average data usage on the newer iPhones are bound to be higher than what it is with current iPhones. If at&t were to introduce a lower priced data plan it should limit it to the low-end iPhone. This is also in sync with the positioning by Apple to target the price sensitive segment – the lower left corner of the matrix.
Together, the $99 iPhone and a $20 data plan (if introduced) capture three of the four segments identified and nudge the fourth (bottom right) to move to upper right and hence lead to profit maximization for at&t.