A recent survey has confirmed strong consumer interest in Apple’s upcoming iPhone, although not at the planned price of US$500. The survey found that the “sweet spot” appears to be closer to US$200.

In mid January, just after Steve Jobs announced the iPhone, market research company Compete surveyed 379 shoppers who researched an iPod online to understand the iPhone’s impact on their music player and mobile phone buying decisions.

When asked, consumers were widely aware of the iPhone one week after its debut and many were interested in purchasing the device.

Few, however, said they were willing to pay the premium price Cingular and Apple plan to ask. Having to switch carriers, on the other hand, appeared to be a less significant barrier to purchase.

Seventy-five percent of iPod shoppers had heard of the iPhone, and 20% said they would postpone their next cell phone purchase to wait for it. Separately, 20% said they would postpone their next music player purchase, even though the device will not be available for six months.

Among these iPod shoppers there was strong interest in the device, but the expected price discouraged many. Of those surveyed, 26% said they were very likely to buy the device, but only 1.8% of respondents were willing to pay more than $400 for it. Even among those who said they were very likely to buy, only 6% were willing to pay more than $400.

The sweet spot for the iPhone appears to be closer to $200, comparable to the current price of the smaller memory Video iPods and higher end iPod Nanos. Of those who said they would be very likely to purchase an iPhone, 38% said they would be willing to spend over $200 on the product. The $200 price point has proven to be powerful lure for consumers to higher-end devices such as the spate of consumer-oriented smartphones released in the second half of 2006.

For Cingular the news is even better: 58% of non-Cingular customers who were very likely to purchase an iPhone said they would switch from their current carrier in order to purchase the device.

The initial high-price of the iPhone is a standard marketing strategy. “Innovators” (2.5% of the population) and “early adopters” (13.5% of the population) tend to be willing to pay a higher price for new products. As the price comes down, the product becomes more attractive to the ”early majority” and “late majority”. What also tends to happen is that as volumes increase, the manufacturer starts to realize economies of scale, which makes it cheaper to make each product, and easier to reduce the retail price of the product.

This research tends to suggest that at a price point of $500 Apple is initially targeting the “innovators”. While Apple should certainly be monitoring the consumer reaction to price, it’s unlikely that this report is telling Apple anything that it doesn’t already know through its own market research. 

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Entry was posted on Saturday, February 24th, 2007 at 2:54 am under Apple, Media players.

Read more entries by John Pospisil.
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