Why Did Apple Stock Tank?
Last week Apple announced their new lineup of iPhones: the 5S and the 5C. In the subsequent days, their stock dropped like the apple that fell from a tree and hit Newton on the head.
Why? Most analysts were expecting a lower priced 5C so that it could be competitive in China. At the price it is being offered (over $700 for an unlocked phone), most feel it is too expensive.
Was this a misstep by Apple?
My gut tells me that there was a fair amount of thought that went into this pricing decision. And it may actually work out better than people expect.
By keeping the price a little higher, Apple remains a premium brand. If they created a truly inexpensive phone, it may have cheapen their brand.
But there is a psychological factor at play here, which many consultants know well.
When preparing a proposal for services, it is common for a consultant to provide 3 options. A low cost, bare bones option. A middle option. And a high priced, throw in the kitchen sink option. The middle option is designed to be the one the consultant actually wants to sell.
Most people, when given three options like this, gravitate towards the middle one, avoiding the low cost option, but not wanting to invest (unless they are flush with cash) in the most expensive option.
In the past, consumers in China had three options: a bare bones phone (low cost option), an “inexpensive” smart phone (middle option), or the iPhone (high priced option).
Is it possible, that people will now view the 5C as the middle option? Will the inexpensive smart phones (e.g., Samsung) becoming the low cost option?
Only time will tell us is the 5C and its pricing strategy is a smart one.