Skip to main content

A slippery slope

So many companies have learned the hard way that once you start down the slippery slope of price cuts it is very hard to wean consumers off the drug. The auto manufacturers know this all too well. We all know that if we wait just a bit longer the car we want will come handsomely equipped with a $3,000 cash back or 0% APR.

This week Macy's admitted its attempt to wean customers off the drug had backfired. The New York Times reported that Macy's tried to pull back on coupons and discounts after the company consolidated over 11 department store chains around the country under the Macy's brand. Macy's CEO Terry Lundgren admitted that abruptly curtailing discounts like coupons was Macy's biggest misstep, contributing to four consecutive months of falling store sales this spring. Macy's now pledges to offer plenty of coupons in time for the upcoming holiday shopping season.

Which brings me to Apple. For years Apple was a master of competing on price without overtly discounting. Each fall, to stoke demand for MacBooks among college students, Apple offers a free iPod with every MacBook. Classic strategy -- add value, don't discount. After the iPod first appeared Apple adeptly covered a range of price points by continuously introducing new models at lower prices (Mini, Nano) while simultaneously offering more expensive models with more content (video). This strategy left little room for any competitor to steal share with a lower price.

Which is why I'm still stunned at Apple's decision to cut $200 off the price of the iPhone. Apple sent a message that its most loyal early adopters are being overcharged and that, in the future, we should simply wait a couple of months before buying Apple's next big thing. Apple, to its credit, was quick to respond with Steve's open letter and rebate offer. But the debate in the blogoshpere is still raging. (My iPhone was the butt of jokes at a recent dinner party. When was the last time anyone was ever ridiculed for buying an Apple product?) I, for one, hope Apple doesn't become just another consumer electronics company that launches, discounts and abandons. I love the brand and hope it has learned from this mistake.
Labels:

Comments

PURE Studios said…
Indeed...this move by apple has created a very interesting conversation. More than a handful of colleagues have told me (with a straight face) they are convinced the price cut - and subsequent open letter and rebate for early adopters - was a well executed PR initiative (i.e., all the actions and timing planned well in advance). Hmmm.

Diggin' this blog David. Looking forward to your future posts.
October 2, 2007 at 10:52 PM
David Murphy said…
I hope that isn't true. If it is true then Apple is beginning to behave in a very un-Apple way. Pre-planned price cuts? Locking customers' phones? Apple exhorts us to "think different" but is beginning to behave just like every other big corporation. (PS: I agree with Apple's decision to lock the phones of customers who hacked it to bypass AT&T -- Apple's contractual partner. But locking phones of those customers who added cool content?? Isn't that the creativity that Apple preaches? Apple is supposed to be the person throwing the hammer at the screen, not the dude in the screen.
October 3, 2007 at 9:32 AM
mahuti said…
Apple is consistently lambasted for under producing product. In this case, they knew there would be a shortage of product and inflated the price well above where you'd expect, based on the raw costs of components & an average of R&D for the device. At the original price they were making above 50 points on the iPhone, which is a bit unusual for a higher priced electronic device. The artificial price inflation on the front end reduced demand and showed Wall Street that they could comfortably meet demand. I DO think the disccount was preplotted, but I'm sure they would not have offered a credit had there been no backlash. Turns out there was, they offered a credit, and still made a tidy profit on the initial "nerd tax" (no offense, I own an iPhone too.) I don't think that Apple is succumbing to discountomania, I think they made some very shrewd economic decisions, which had mixed results. Ultimately their stock made barely a wobble through the whole thing and is now trading at record levels. Looks like they have the show pretty well figured out.
October 3, 2007 at 6:18 PM
Post a Comment

Popular posts from this blog

What makes a premium brand premium?

I was thinking the other day about the DNA of premium brands . One thing is certain -- it's a relative idea. For example, Hyatt is not a premium brand if you're used to staying at a W or a Ritz Carlton. But if your vacations to date have been holed up in a Holiday Inn, then by all means a stay in a Hyatt is a premium experience. Another thing is certain -- a brand is considered premium only when we believe it is worth the price. And that's where we can dig deeper. Why are we willing to pay more for a product when there are others that provide the same service or function at a lesser price? I have spent a good part of my marketing career developing strategies and ideas for a wide range of  premium brands, including American Express, Sony, Callaway Golf, Hilton, Jaguar, Land Rover – even the Toyota Prius.  Through these experiences I have come to believe that a premium brand is built upon specific tangible and intangible attributes that give it a sense wort
12 comments
Read more

Super game. Dull ads

As a passionate Giants fan it is safe to say that I had a good time yesterday. But as an advertising professional I felt a bit underwhelmed by the caliber of the advertising . Many were entertaining. But few possessed that intangible Super Bowl-ness...big, pop-cultural, fun. Even fewer seemed to have anything relevant to say about the brand, such as the Planters "uni-brow" spot. I loved the Bridgestone "screaming animals" spot, but it would have been a much better spot for the Saab featured in the spot than the tires the car rode upon. As for Bud, good spots, but I've seen the dog and horse thing before. Tide's talking stain was funny, but did it have Super Bowl-ness? My fav? The Coke "balloon float" spot. It was classic Coke (for Coke Classic). Big. Entertaining. Unexpected twist. Utterly charming. And Charlie Brown finally won something. Coke is about smiles. And that spot was just that. The Audi spot that I wrote about last week liv
2 comments
Read more

Will this be your first recession rodeo?

In a previous article I referenced Mark Twain’s quote, “history doesn’t repeat itself, but it often rhymes.”    If true, then this is a poem about marketing in a recession by reflecting on lessons which I will attempt to freshen... Ok, no more poetry. I recently revisited the WikiBranding articles I wrote during the 2008-2009 meltdown that spotlighted best practices from a range of marketers.   It struck me that  those of us who guided businesses through The Great Recession can  share  lessons we learned with managers for whom this downturn might be their first.  (Bob Barrie, Stuart D’Rozario and I had just co-founded BD’M; learning how to navigate the recession was not a choice!)     Who decides if we’re in a recession?     Spoiler alert:  the consumer decides.   News stories about the economy lead us believe we’re in a recession – the “R-word” is having its moment.     Economists might say otherwise, based on their often used definition of a recession, i.e., two consecutive quarters
Post a Comment
Read more