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Sorting out a week¿s worth of iPhone wackiness

Apple truly is a company apart. Who else could create such a tempest over something so mundane as a price cut on a single product?

After the initial shock of last week's $200 iPhone price reduction wore off, the media fed on the reaction of angry early adopters. The next day Steve Jobs uncharacteristically apologized to said customers and offered them an olive branch in the form of a $100 coupon good for any Apple Store purchase.

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Wall Street saw all this as a sign that Apple had stumbled badly in its cell phone strategy and punished the stock for the rest of the week. By Friday, AAPL had slipped from $144.16 to $131.77, a drop of 8.59 percent. But give Apple credit for knowing how to play investors. After it announced the sale of the millionth iPhone yesterday, the stock recovered $4.95, more than half of last week's loss.

Over the weekend pundits, both on Wall Street and in the Mac community, alternately argued that last week's erratic developments either portrayed Apple in a panic or the company had artfully planned out the entire sequence of events weeks ahead of time.

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I surmise Apple had intended an iPhone price cut before Christmas, but saw slowing sales numbers and decided that taking action sooner would spur more holiday sales – just as Jobs said. I don't think Jobs considered the customer reaction at all; the price cut was purely a business decision. Reading Jobs' apology letter, I believe he was genuinely surprised by the ferocity of the reaction. A large number of iPhone customers, many of who were among Apple's most loyal customers, genuinely felt the company had betrayed them. The sentiments expressed in those e-mails, punctuated by the heavy media coverage, got to the normally impenetrable Jobs.

Faced with the necessity of immediate action, the company could not have devised a better response than the $100 Apple Store coupon. It should placate a majority of the angry customers, most of whom can find plenty of things they'd want in an Apple Store. It costs Apple some money, but all of it will be spent with Apple anyway. And the media thoroughly covered the whole affair, helping rescue Apple's reputation as a company that cares about its customers.

Fundamentally, the iPhone price cut was a shrewd business move. I don't think Apple is sacrificing as much on its profit margins as Wall Street at first feared; Jobs hinted last week that economies of scale and falling component prices had helped bring down the cost of manufacturing the iPhone. And imagine what the $200 price drop will do for sales volume. Apple has positioned the iPhone to succeed – if you don't think so, just wait until Jobs announces the device's holiday sales numbers at Macworld San Francisco in January.


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