Why Has Walmart Not Followed Apple’s iPhone 5c Pricing Schemes?
Apple has been known for years as the premier retailer of top-of-the-line smartphones. However, the price tag for these smartphones has never been cheap – until now. The newest member of the iPhone family, the iPhone 5c, comes with a more affordable price tag – only $99 for the 16GB model compared to the $199 16GB iPhone 5s. So what separates the iPhone 5c from the iPhone 5s? The technical differences include the processor speed of the phones (an A7 chip and M7 motion coprocessor for the iPhone 5s compared to an A6 chip for the iPhone 5c), the camera quality (the iPhone 5s includes a true tone flash, auto image stabilization and burst mode), and the storage capacity (there is no 64GB option on the iPhone 5c). The visual differences include the colors (white, pink, yellow, blue, and green for the iPhone 5c compared to silver, space gray, and gold for the iPhone 5s) and the fingerprint scanner included within the menu button of the iPhone 5s.
Apple has long been able to control the pricing of their products sold by other retailers, with some reports suggesting that Apple cuts off supplies to retailers who sell their products below Apple’s suggested retail price. Another reason why retailers likely follow Apple’s pricing scheme is that Apple allegedly provides these retailers with “financial incentives”– though what these financial incentives entail is unknown. While Apple has long been successful in this price-controlling endeavor, Walmart has now begun selling the iPhone 5c for just $45 with a two-year service contract. So how has Walmart been able to dramatically reduce the price of the iPhone 5c without incurring Apple’s wrath?
One theory is that the iPhone 5c has not been selling as well as Apple expected, leading Apple to attempt to sell off their extra iPhone 5c inventory through the heavily discounted rate at Walmart. By allowing Walmart to drop the product’s price, Apple is able to appeal to customers whom have never purchased an iPhone. This is further evidenced by the fact that the iPhone 5s, which sold 9 million phones in the first weekend it was released, is only $10 less expensive (selling for $189) at Walmart compared to the heavily discounted iPhone 5c. This theory seems to be the most likely reason why Apple has not reacted to Walmart’s pricing of the iPhone 5c, especially in light of the fact that Apple recently requested iPhone 5s manufacturers to increase production while decreasing orders from iPhone 5c manufacturers.
Another theory is that Walmart simply can afford to ignore Apple’s pricing demands. Walmart reported $466.1 billion sales in 2012, and the company was able to return $13 billion to shareholders. So, Walmart has the capacity to forgo Apple’s “financial incentives” and sell the iPhone 5c for a lower price. Additionally, Walmart has traditionally had greater access to the portion of the market that Apple is targeting with the lower priced iPhone 5c. Thus, first-time iPhone customers may be more comfortable purchasing the iPhone 5c from Walmart than from Apple’s retail store.
So how will Apple respond to Walmart’s lower pricing scheme for the iPhone 5c? Reduce the iPhone 5c inventory to Walmart? Perhaps, refuse to supply Walmart with all Apple products entirely? We will just have to wait and see.