In a previous post, I reacted to the argument by some that the iPhone price margins (at 53%) were too high. Now, only two and a half months after launch, there has been a massive drop in the iPhone price with the 8GB model falling from $599 to $399 (a 30 percent price cut). At these crazy prices, surely they will walk out the door.
The implied margin (based on a $280.83 unit cost) is now 29%. This translates into an imputed price elasticity for the iPhone of 3.37. That means that for every one percent fall in price, Apple expects to increase its sales by 3 percent.
Now all this seems related to the new iPod touch; tape it to a mobile phone and you pretty much have an iPhone. The 8GB model is $299; $100 less than the iPhone now is. That means that the value of the ‘phone’ part to a typical customer is about $100; not too different from the price of a separate mobile phone. But Apple is likely getting more than that as it probably receives a share of AT&T call revenues and I can’t imagine AT&T would have been happy with a low priced, almost substitute, coming out without a corresponding price drop on the iPhone. Anyhow, the delayed price drop has net Apple at least another cool $200m from leader adopters. Not too shabby for the shareholder value thing.