The Price is Right?

Setting prices for products and services is a challenging exercise. The goal is to maximize profits without pricing out of your target customer's budget.

The danger of low margin pricing:

- Lost Profits,

- Cash Flow Challenges, and

- Limited Working Capital for R&D, Customer Service and Marketing.

The risk of high margin pricing:

- Losing customers to competitors,

- Lack of supplier control, and

- Inability to gain significant market share.

Steve Jobs has great instincts for setting prices. His firm stance to price songs at $.99 on iTunes is a great example of this. iPod prices were also near perfect. Apple was able to dominate the MP3 player market, while still making healthy profits to fuel the continued dominance of the iPod franchise.

That is why the iPhone price correction is surprising. For months leading up the much hyped iPhone release, analysts were concerned that the $499 and $599 prices were far too high. Now that Apple has dropped the price of the 8GB iPhone to $399 ($200), it appears that Apple is looking to sacrifice profits in order to garner significantly higher market share. Conspiracy theorist are wondering if this entire price and reprice of the iPhone may be a well orchestrasted strategy by Jobs. Time will tell whether $399 is the sweet spot for the iPhone. Although Apple could have milked huge profits at the $499 and $599 price levels, those prices were clearly hurting sales volumes. Whether or not the iPhone price correction was a correction or a premeditated strategy, one thing is certain, prices matter.