In a blog post on Saturday (How to Spend $20 Million), Seth Godin noted that Steve Jobs should NOT have given early adopters of the iPhone a $100 store credit when Apple lowered the price of the iPhone by $200 last week. Giving early adopters pseudo price protection is not the way to run a profitable business.
First, giving that store credit will cost Apple some $20 million. Second, the $100 store credit feels like a weak effort (it's only half of the price cut). Third, no matter how it is phrased, a half store credit feels like the early adopters were taken advantage of.
The key, Seth noted, was not pretending to guarantee price protection but making the early adopters feel more exclusive rather than less. To accomplish that, Seth suggested one of the following three options:
1. Free exclusive ringtones, commissioned from Bob Dylan and U2, only available to the people who already had a phone. (This is my favorite because it announces to your friends--every time the phone rings--that you got in early).
2. Free pass to get to the head of the line next time a new hot product comes out.
3. Ability to buy a specially colored iPod, or an iPod with limited edition music that no one else can buy.
I think the first option is the best, because it really does offer something exclusive. It would have continued to signal to latecomers who the hot people (early adopters) were. Plus, of course, the cost would have been minimal.
The second option is too vague. What if, as an early adopter, you have no interest in the next hot product. The free pass, then, becomes an empty promise. While most Apple lovers would never think that Apple would create an unwanted product, the reality is that Apple has done that more than once.
The third option, like the first, offers a sense of exclusivity. But why would anyone want another iPod when the iPhone already functions as a great iPod? With the suggestion of some limited edition music, though, the offer might work. But the price would also have to be right. Otherwise, you not only paid $200 extra to get the iPhone first, but you have to pay more for the exclusive iPod.
I believe most early adopters did not feel abused by the price cut. They had the early adopter prestige for more than two months plus the use of a great phone. If I had been able to buy the iPhone, I would not have cared what happened later. In the world of technology, prices always go down.
Alas, for me, I didn't get a chance to be "abused" because Apple chose to work with ATT which has a huge gaping hole of coverage in the Rocky Mountain area. Once you are off any of the interstate highways, you have no coverage via ATT. Now, of course, I have a chance to buy the new iPod Touch. Neat!
Now, back to the theme of this post. How do you keep people happy? Simple, give them a good deal. Or give them exclusivity. During its lifetime, Apple has rarely offered a great deal, but they have always offered wonderfully designed products that always offer an air of exclusivity.