iPhone could disrupt, if price is right: Consumer survey says $300 or less could cause churn

A survey of American online shoppers suggests that Apple Inc.’s yet-to-be-launched iPhone has penetrated consumer awareness, unlike other handsets before their launch. At a price between $200 and $300, the device could lead consumers to switch carriers, according to the survey. Moreover, once these consumers switched to the iPhone platform, they may be more likely to stick with it on their next handset purchase.
The results of the survey, conducted by online consumer research firm Compete Inc., tend to confirm some musings on the elusive device-although unfinished prototypes have been demonstrated in public, it is scheduled to launch in June-while reinforcing some doubts. The survey leaves little question, however, that Apple in general and CEO Steve Jobs in particular have succeeded in penetrating consumer awareness and even piquing interest in a mobile handset-an unusual feat, according to Compete.
“At the right price, the iPhone has the potential to be a major hit in the United States,” said Miro Kazakoff, analyst at Compete, which presented its findings last week on a conference call with analysts hosted by Bear Stearns. “The iPhone could demonstrate that consumers who purchase it identify more with their device than with their service provider.”
While the Motorola Inc. Razr has been credited with driving traffic to Cingular Wireless L.L.C., where it launched, and to other carriers that subsequently added it to their portfolios, the iPhone platform has the potential to lure subscribers and keep them when they upgrade, Kazakoff said. Cingular has an approximately 18-month exclusive deal to sell the iPhone, beginning in June.
The central caveat for Apple, Cingular and most conclusions drawn from the survey, however, depend on the iPhone’s price. Apple and Cingular have announced that the device will sell for $500 or $600, with 4 gigabytes or 8 GB of memory, respectively. iSuppli Corp.’s early analysis has calculated that those price points provide Apple with a 50-percent margin, which some observers suggest is Apple’s favored margin-but allows it to reduce the price, should it see an advantage to that strategy as a new wireless market entrant.
Whether Apple would see fit to cut its announced launch price in half lies in the realm of speculation. Kazakoff, however, pointed to the company’s pattern with the iPod digital music player. The product launched at ambitious price points, but successive iterations have come down in price.
“The iPhone’s potential threat to wireless handset vendors and carriers is limited, if it launches at the announced price,” Kazakoff said. “And Apple has rigorously defended its retail prices. That said, if the device is a hit, and Apple and Cingular can convince consumers that the device represents the combined purchase of a mobile phone and an iPod, the sweet spot between $200 and $300 could go higher.”
Kazakoff said that questions from analysts on the Bear Stearns/Compete conference call reflected interest in the nature of Apple’s agreement with Cingular. Details of that agreement have been closely held, despite a USA Today article last month citing Verizon Wireless’ own negotiations with Apple, which resulted in no deal based on Apple’s demand for product control, according to Verizon Wireless executives. Analysts’ speculation also focused on whether Apple had enough room in its iPhone gross margins to cut the price and, if so, whether it would.
To generate the cited data, Compete identified iPod shoppers in December, following up with them after Apple’s iPhone announcement to gauge their awareness of, interest in and willingness to pay for an iPhone. Fully 75 percent of iPod shoppers surveyed had heard of the iPhone. Twenty-six percent were likely or extremely likely to purchase it when available. Among that 26 percent, only 1 percent would pay more than $500 for the device, but 42 percent said they’d purchase if the price fell between $200 and $300. Fully 59 percent would switch carriers to buy the device. “Above $300, we see interest drop off substantially,” Kazakoff said. “If the device launches at its announced prices, we see the threat as limited.”