Why Does the iPhone Price Remain Constant for 12 Months While Other Smartphone Prices Drop?

CNN Money’s David Goldman asks and answers:

Why all smartphones are $199

Many popular smartphones including the 16GB iPhone 4 and various Android phones are often priced at $199 with at associated 2-year contract. David notes that carriers often price smartphones precisely at $199 and do not price phones in small increments above or below it to avoid the perception that phones are a little better or worse. He notes that there are less expensive smartphones. In fact, a quick check shows that there are several smartphones that are free with 2-year contracts.

The question that he doesn’t ask and answer is potentially more interesting: Why do all smartphones except for the iPhone tend to have dramatic price drops just months after their release? And, conversely, why doesn’t the iPhone have that same pricing trend? There are, I believe, a couple of factors involved.

First, every other platform and manufacturer creates model churn by introducing model after model that trumps the previous release. The newest model always reduces the perceived value of the previous model. This is even true for firms like RIM that is the single source of BlackBerry phones. The Motorola Droid introduced last November was the first Android superphone. However, it was eclipsed just months later. It was no longer the best superphone and its selling price dropped accordingly. The iPhone, on the other hand, essentially has only one superphone model for 12 solid months before the next “big thing” emerges. So, the iPhone’s perceived value remains relatively constant over a longer period of time. And, its retail price reflects this by never going down until the next model is released the next year. In the meantime, Apple can promote and rely on a relatively simple brand awareness campaign. Every other phone maker, on the other hand, has to tool up new marketing campaigns every few months. This is inefficent and expensive.