Does Apple Store discourage T-Mobile iPhone 5 sales?
Last night, I rushed off to the local mall intent on seeing movie "Oblivion", but the 6:45 p.m. show was sold out. So I walked around and spent time inside Apple and Microsoft retail shops. At Apple Store, I had two objectives: finding out the cost of replacing a shattered iPhone 5 screen (not available, refurb phone is $229 option) and observing how the company sells T-Mobile models alongside those from AT&T, Sprint and Verizon. Pink's unlocked phone costs less upfront compared to Blue, Red and Yellow and is financed for 24 months. Apple presents T-Mobile iPhone 5 as costing considerably more.
Apple Store provides product information on iPads, which is a subtle way of promoting the devices. The marketing page presents 16GB iPhone 5 as selling "from $199" for AT&T, Sprint and Verizon and "from $649" for T-Mobile, which is technically true but also misleading. The $199 represents the big three's upfront price. T-Mobile asks about half as much, $99.99, upfront. But Apple lists T-Mobile's price as $450 more. Who wants to pay $649 when the others charge $199?
By not showing consumers the real upfront price, Apple presents T-Mobile pricing unfairly by the metric most consumers care about -- what does the thing cost me now. The big three's pricing requires 2-year contract, T-Mobile's 24 $20 monthly payments.
The time period of consumer commitment, whether contract or monthly payments, is effectively the same to the consumer. For example, AT&T charges a $325 early termination fee, which amount goes down monthly (ETF divided by 24). T-Mobile interest-free financing is similar, in that the amount owed on the phone decreases every month of payment.
By the way, Apple's no-contract price is more than what T-Mobile charges ($579.99, whether all at once or over 24 months). Apple offers financing, too, through Barclaycard with approved credit. So purchasing option for "from $99.99" is available from Apple, but there's no distinction made in the in-store marketing material most buyers casually see.
The question to ask: Why doesn't Apple present T-Mobile's upfront price in the same manner as the other carriers? It's easy to put: "iPhone from $99.99", which is as accurate as "iPhone from $649". Today, an Apple Store employee told me that the presentation is what T-Mobile wants because of financing and that Pink prefers to sell the phones directly, something I can't independently confirm on a Sunday. Apple's financing option isn't interest-free, unlike T-Mobile's, which could explain why the carrier might prefer to sell direct.
Certainly, T-Mobile's no-contract approach is mitigating factor. Last month, the carrier adopted new plan pricing that is considerably less than Blue, Red and Yellow. Additionally, T-Mobile started selling phones without subsidies, which is where the lower upfront pricing with monthly payments comes in.
Subsidies are hugely lucrative for Apple and hide devices' real cost to buyers. That $199 Jane Consumer pays for 16GB iPhone 5 isn't the phone's real cost, which is $649 to the carriers. They recover the subsidy by locking buyers into 2-year contracts and making data plans required. For example, 20 bucks a month on AT&T for puny 300MB. How funny. Apple marketing uses the unsubsidized pricing to whack-a-mole T-Mobile.
Apple has no obligation to help T-Mobile sell phones, and no incentive either if Pink pays for inventory up front (which is logical presumption). If the one store clerk is correct, then Apple merely follows T-Mobile's wishes.
Bottom line: Regardless of why the presentation, there is direct benefit to the big three carriers, which are more important customers to Apple than T-Mobile. They move more volume and surely wouldn't want Pink "from $99.99" alongside their "from $199" pricing. Upfront does matter to many potential buyers. If T-Mobile holds on to more customers and churns more from competitors, other carriers lose money. "From $649" puts Pink in the negative, rather than the positive.
Perhaps T-Mobile really wants Apple to sell iPhone 5 this way in its stores. I can't yet say. But I know this: As a buyer comparing prices inside Apple Store, T-Mobile's iPhone 5 appears to cost considerably more than what Blue, Red or Yellow charge.
Photo Credit: Joe Wilcox