Apple's Hands Were Tied on iPhone Pricing: Mohammed

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Sept. 11 (Bloomberg) -- Rafi Mohammed, founder at Culture of Profit, discusses Apple's price points for the new iPhones and how they may help or hurt them in emerging markets. He speaks on Bloomberg Television's "Bloomberg Surveillance."

Everyone was going in looking for a price reduction, investors are disappointed that it is not competitive enough.

What do you think?

I think that apple really deliver the fivec for the in contract price.

I think that the surprise came for the off contract price.

I think that apple has had its hands tied, they have a volume deals with places like sprint and if they offered a low price of contract found it would adversely affect its key suppliers, so they are trying to protect existing suppliers as well as there may be a contractual obligation not to offer a low price of contract found.

I think that is the reason why they came out at an uncompetitive price for the of contract phone.

Yet people are disappointed with this pricing.

I know that you talked about what you would have done differently.

You look that different pricing patterns for the features.

First of all, there is a lot of hype for the gold phone.

Certainly i would have charged higher price on that.

For instance, i once interviewed a senior executive for an automaker and when they resold their used cars, they charged a higher price for white cars because they did not attract heat in the south, higher prices for black cars in the north.

But i would have done differently is this -- look, the on contract price, $100 differential, is not that big a difference in making a commitment to a cellular carrier and if i were apple i would have pushed these carriers to follow a leasing model like cars do.

They could have come out and said that you can get one for $199, plus your monthly contract, but if you do not want even pay $100 and we will add $5 per month, or you could do 0 down and $10 per month.

That kind of pricing choice and flexibility really could have taken care of this problem without ruling out a fought -- 5c. an interesting idea, but when you look at apple's history right now, back in 2007 when they launched the first iphone, $599. people were skeptical, they lowered the price, people eventually paid.

Can apple convince the emerging world to play at bridget pay a higher price while preserving their premium brand status?

The market has certainly changed over the last several years and now there is a great deal of competition and apple does not have that kind of pricing power anymore.

Their key is to be innovative in pricing.

In emerging markets, certainly the price of $600 for a confirmed, unlocked found, that was not well-received, but once again, i would be pushing contracts as the way to sell the iphone in emerging markets and have it stay for a 2 year commitment.

I think that apple missed an opportunity to really come in like a submarine here and do something dramatic in terms of pricing.

Experience tells us that it would have opened up a whole new market for apple, of which so far they have been very careful to -- not avoid, but not go after.

Think you for joining us.

Stay with us for the hour.

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