Always one of MUDGE‘s favorite reads, Daniel Gross enlightens us about the true nature of our economy, in this Slate story regarding a couple of recent very visible pricing actions.
The alarming lesson of the iPhone price cut.
By Daniel Gross
Posted Thursday, Sept. 20, 2007, at 4:31 PM ET
Crazy Eddie, the electronics retailer who advertised insanely low prices, went out of business nearly 20 year ago. But the company’s spirit is thriving in blue-chip American corporations. On Sept. 5, Apple sharply cut the price of the 8GB iPhone from $599 to $399. Last weekend, Hovnanian, the big home-builder, held a highly promotional “Deal of the Century” campaign, slashing prices for 72 hours on new condominiums. In some Hovnanian developments, prices were cut by up to 25 percent. Other builders are now following suit. Welcome to fire-sale nation!
High-profile price-chopping tends to occur whenever companies freak out about the vicious combination of a slowing consumer economy and the prospect of getting stuck with big inventories of unsold goods. The tactic often works in the short term. The hype over insanely low prices functions as a form of free advertising, and the lower prices tend to attract buyers. Apple announced on Sept. 10 that it had sold its 1 millionth iPhone. Hovnanian’s preliminary results show that it notched sales of 2,130 units over the weekend. (The company reported inventory of about 3,200 homes on July 31.) For the entire third quarter, Hovnanian delivered about 3,500 homes.
I’m not an iPhone user (see below) but who could miss all of the hype, which during all of 2007 has rivaled or even exceeded the last Harry Potter for consumer interest?
And, how did it make you feel, iPhone owner or not, to hear that the price was suddenly reduced by $200, and in (partial?) assuagement present owners would receive a $100 store credit?
As Mr. Gross puts it, I would probably be iPissed. (WIWICWLT!)
But, in true economist fashion, from this example, as well as the Hovnanian (not a name this observer knows — must be less active in the Midwest? Or perhaps it’s because this writer has never purchased a new-built home?) home price cuts, Gross builds a convincing case for how damaging this tactic is for the companies, and for perhaps the economy at large.
[Per L-HC’s reformed process, please click the link below for the complete article — but then please come on back!]
From my many exhausting and tortured years in entrepreneurial business, I know too well that there’s no such thing as too low a price, and if price is the only grounds for competition, you are doomed to bankruptcy.
Gross points out the domestic U.S. auto manufacturers as perfect examples of the walking dead, the zombie behavior caused by selling a product no one will pay full price for.
Ask a bank that writes auto leases what it thinks of Detroit-origin cars, compared to Toyotas and Hondas, which may have spot incentives to correct the occasional inventory imbalance, but usually never very high in comparison, nor very long.
Now about that phone.
This is not meant to start warfare: I simply have always been resistant to Apple’s lovely, but oh so expensive charms, be it computers, music players, and now smartphones.
When it came time for me to upgrade my personal cell (it’s a BlackBerry 8703c for work, tyvm) I found that I had En-V envy.
Yes, it’s the LG 9900, known for some reason as the En-V. Candy bar (a fat one) on the outside (nice 2MP camera opposite), and it flips open to reveal a pretty fair keyboard and nice large display. MUDGElet No. 3 likes to text — now I can text back.
It’s been two months; I like it. Call quality (it is, first and foremost, meant to be a phone, after all!) is best I’ve ever had, regardless of network (and in MUDGE‘s part of the world, Verizon’s is pretty good).
The camera produced that ad hoc shot I shared after the Boston conference.
For a larger view, click here.
The navigator feature gave us spoken turn by turn instructions to a restaurant, complete with a changing map on the bright display as we drove. Not too shabby.
And with a 2-year contract (is there any other way these days?) and loyalty discounts, it was $50. $599 or even $399 for a phone? Not this curmudgeon. Can’t feel like a chump, no matter what happens to the price from here!
That’s the best pricing power a consumer has, really. Finding a good, maybe great product, at an everyday competitive price. I’m not bankrupting LG (the phone, popular as it is, has been out for most of a year, very mature for technology these days, so you have to figure they’re making piles on it), nor Verizon (per the 2-year contract), nor, hopefully, myself.
It’s it for now. Thanks,