Mind Your P’s
By now, everyone on the planet is aware that a substantial price drop has rubbed some of the shine off of Apple’s iPhone. In my July 25 post, I wrote that if the iPhone failed, it would not be because it is a convergence device (as Al Ries contends), but because of flaws in 1-3 of the 4 Ps.
I’m going to revisit what I considered the iPhone’s potential drawbacks with updated commentary.
- “The Product does not live up to its hype, or it is not substantially different than other Smart Phones.”
A beautiful, breakthrough device, the iPhone has a major drawback: it cannot run on AT&T’s fastest cellular data network, which means it is far slower than offerings from competitors Verizon and Sprint. Worse, initial models cannot be upgraded to use the faster networks.
The speed issue is a huge competitive disadvantage, and a clear barrier to switching phones.
Not insuring that the phone can operate at maximum capability is something like selling a Triple Crown winner for dog food – pennies on the pound – instead of raking in millions on stud fees.
- “The Price is too steep (up to $599 is a little pricey for a unique fixer-upper).”
Shortly after the $200 price cut, Steve Jobs wrote, “We can’t wait to get this revolutionary product into the hands of even more customers this holiday season.”
The iPhone was priced too high from the start. Other cell phones usually come cheap or for free because carriers have long subsidized the cost when customers sign up for their services.
Charging extra for things like Ring Tones created bad buzz as well.
- “Placement becomes an issue due to the exclusivity deal with AT&T.”
There is a double-whammy here. Unless you’re in an area where AT&T (nee Cingular) has excellent coverage, an iPhone purchase is somewhat moot. Further, many Verizon, Sprint, T-Mobile, or other customers will not immediately switch because they are loathe to eat the remaining balances on long-term contracts with their existing providers. Thus, exclusivity becomes a self-inflicted wound to sales by limiting the potential customer base.
- “No one can argue with how Promotion has been handled.”
No one could argue with the pre-launch pub, but Apple has botched their post-price cut PR blitz. The high price, greed gamble, has backfired. Media reports no longer hype how cool the phone is. All the talk now is about “sluggish sales” or the phone’s other potential shortcomings. And, while Steve Jobs’ response to early adoption anger was fairly honest (we want to sell more iPhones), the manner in which he did it has left Apple vulnerable to stepped up assertions of corporate arrogance.
Any product or service – no matter how cool – will ultimately fail when the strategic or tactical approach to the Four Ps is flawed. In the case of the iPhone, gaps in geographical coverage and speed (customer solution), high initial price (customer cost), AT&T Exclusivity (lack of convenience), and poor post-launch PR (communication) bode ill unless immediately addressed. The iPhone can still become the monster success almost everyone envisioned prior to its introduction, but not until Apple realizes that it must do a better job of considering customer need before its own.
iCulpa is iBad
Monday’s announcement by Apple® that it has sold its one millionth iPhone ™ is good news and bad news. The good news is that they sold their one millionth iPhone. The bad news is they now have their one millionth angry early adopter!
Last week, in an open letter, Apple® CEO Steve Jobs responded to customers “upset” about the company dropping the phone’s price by $200 two months after it went on sale. After explaining the company’s rationale for such a move – and in an attempt to assuage angry buyers – Jobs offered up a $100 store credit towards the purchase of any product at an Apple Retail Store or the Apple Online Store.
It reminds me of a moment in Caddyshack when Carl the Greenskeeper (Bill Murray) shares a story about his experience caddying for the Dalai Lama: “So we finish the eighteenth and he’s gonna stiff me. And I say, ‘Hey, Lama, hey, how about a little something for the effort?’ And he says, ‘Oh, uh, there won’t be any money, but when you die, on your deathbed, you will receive total consciousness.’ So I got that goin’ for me, which is nice.”
Apple just stiffed their loyal, early adopters, oh, uh, there won’t be any money, and it’s beyond the company’s power to grant total consciousness. Instead, they’re offering their customers in-store or online credits. So they’ve got that goin’ for them, which is nice. Or is it?
Mr. Jobs wrote, iPhone is so far ahead of the competition, and now it will be affordable by even more customers. It benefits both Apple and every iPhone user to get as many new customers as possible in the iPhone ‘tent.’ We strongly believe the $399 price will help us do just that this holiday season.
In reality, what Apple has is a $200-million oops on their hands. I may be wrong, but I believe that people who paid the original $599 price tag could care less how many new customers will buy at the more affordable price or what a great deal others will be getting during the holidays!
Read between the Open Letter lines, and you might conclude (as I have) –
- Betting on the power of their brand, Apple gambled on a higher-than-otherwise-justified price, and lost.
- Apple and AT&T (their exclusive iPhone partner) must more than double average daily iPhone sales to hit their published goal of 4.5-million units sold by year-end. Their best chance to accomplish this is to slash prices and try to cash in on upcoming holiday gifting.
- Mr. Jobs wrote that there is always change and improvement, and there is always someone who bought a product before a particular cutoff date and misses the new price or the operating system or the new whatever. The problem with this statement is that the iPhone is two months old and there is no new operating system or new whatever, just a new sense of urgency to sell more iPhones.
- Apple’s This is life in the technology lane, we’re slashing the price, so what, get over it attitude may provide a short-term shot-in-the-arm for iPhone sales, but create a long-term hangover by reinforcing the Apple is arrogant perception held by many or damaging its brand equity by eroding trust in the company and its motives.
This pricing issue, and the Steve Jobs response to it (borderline contempt), may – deservedly so – come to be regarded as a huge blunder. As Oscar Wilde once said, “The cynic knows the price of everything and the value of nothing.”
Al Ries is Wrong, Part 2
In my last post – on a dare to evaluate an Al Ries video – I launched into a rather lengthy rant about why the internet would lead to the eventual obsolescence of traditional TV. Leave it to one of my colleagues (thank you, Justin) to make my point much clearer: “It’s not about the convergence of technologies, but the convergence of mediums.”
The main thrust of the Ries Report video was not really about TV-PC convergence, but used it as an example of convergence hype gone awry. He mainly employed the concept of convergence to predict the failure of Apple’s iPhone. “All hype, all hot air, no sales in the long run.”
Let me explain. No, there’s no time. Let me sum up. Al Ries believes that divergence is good; convergence is bad.
To demonstrate divergence, Mr. Ries uses several examples, including telephones: first there were regular phones, then cordless phones, walkie-talkies, and cell phones. He forgot two cans with string stretched out between them …
Convergence? “Well, with all the hype, everyone in the world is running around trying to put two things together that don’t belong together.”
As examples of the dangers inherent in the urge to converge, Mr. Ries – and this was hilarious – runs down a list of convergence failures: a Refrigerator-TV, Radio-Binoculars, Radio-Toaster, Camera-Printer, a Hamburger Hotel (a personal favorite), and MP3 Sunglasses.
Mr. Ries compares Apple’s iPod (divergence) with the iPhone (convergence). The iPod is a divergence device because it was the first high-capacity MP3 player unlike the original, low-capacity, versions. He implies that the iPhone is just another cell phone, and is thus doomed to fail. And here is where – if we use his own thesis – he is wrong.
With the iPhone, Apple has created an interactive user experience that surpasses other smart (cell) phones. Its large, touch screen user interface and internet browsing feature represents true innovation (divergence). Every iPhone feature is a simple touch away, and its screen does not offer a menu bar or other confusing buttons.
If Apple’s iPhone fails – as Mr. Ries suggests – it will not be because it is a “convergence device,” but because of flaws in 1-3 of the 4 Ps (no one can argue with how Promotion has been handled):
- The Product does not live up to its hype, or it is not substantially different than other Smart Phones.
- The Price is too steep (Up to $599 is a little pricey for a unique fixer-upper).
- Placement becomes an issue due to the exclusivity deal with AT&T.
Despite all of its recent marketing coups, don’t forget some Apple blunders: the Apple Lisa (1983), or the more relevant point, their refusal to share the Apple operating system with generic (or other) PC manufacturers, which opened the door for Windows and the explosive Microsoft growth that nearly buried them! The AT&T deal could prove to be equally limiting to the product’s success.
In my opinion, the easy to use, interactive experience with fewer features make the iPhone a divergence device not, as Mr. Ries insists, a convergence one. Look for it to be a big hit.
