Walmart Discounting Apple Products: Gloom or Boom?

This past Friday, Walmart announced on its Facebook page that it was rolling back its iPhone and iPad pricing for a limited time. Within minutes, the announcement flew around tech blog circles, quickly reaching mainstream publications such as ABC and CNN.  

The discussion soon took a new direction as bloggers began to wonder if Walmart’s discounted pricing actually meant Apple was imploding; unable to sell supply due to lackluster demand.  One blogger summed up that attitude well, writing: 

"Apple has finally thrown in the towel on pretending there is a supply shortage and admitted there is simply not enough demand at the given price point, by proceeding to sell the margin flagship iPhone 5 at a third off the original price, at the bargain basement commodity expert Wal-Mart of all places….And just like that, the “niche premium” magic of the once uber-cool gizmo is gone, not to mention AAPL’s profit margins, very much as the stock price has been sensing over the past two months…”

The blog known as Reuters added additional fuel and mystery to the Apple bear argument, in their usual naive style:

"Apple has focused on high-priced, premium gadgets for many years and has strictly enforced its prices with retailers and other distributors. However, a Wal-Mart spokeswoman said on Friday that the discounts were arranged with Apple.

'We worked together with them on this,' the spokeswoman, Sarah Spencer, said. 'They are a great partner.'

Why is Walmart Discounting Apple Products? 

Third-party retailer discounts are nothing new.  Best Buy and RadioShack routinely sell entry-level iPhone 5 units for less than $199 (Best Buy is currently selling the 16 GB iPhone 5 for $149.99).  Apple’s wholesale pricing and margins remain intact as these third-party retailers eat the discount (ignoring differences between wholesale and retail prices). Similar campaigns are seen with iTunes gift card promotions, where retailers offer free iTunes gift cards when purchasing Apple products. Best Buy is also well known for promotions similar to “Buy $100 of iTunes gift cards for $75”  - where Best Buy (not Apple) is responsible for the discount.

Diving into Walmart’s latest iPhone and iPad price discount campaign sheds additional light.

1) The promotion is only valid in-store. For brick and mortar retailers, store traffic and same-store sales metrics are important. One of Walmart’s ultimate goals in discounting iPhones and iPads is having customers travel to a Walmart and make their way through the store before finally reaching the iPhones and iPads (conveniently not located near the store entrance). Walmart feels confident that it will be able to sell additional items to these customers, similar to placing milk and eggs at the back of a supermarket so that a customer has to walk through the entire store just to buy a few essentials. In addition, many consumers will narrow their holiday shopping destinations to a few stores over the next week and Walmart wouldn’t mind making that exclusive list - using discounted iPhones and iPads as the carrot for getting people into the stores.

2) The promotion is only good while supplies last.  Many consumers have flocked to Walmart’s Facebook wall to point out that quite a few Walmart locations don’t have iPhones or iPads in stock. Walmart receives good press coverage from discounting popular items, while not losing much money as product supply limits sales; sneaky, but efficient.

3) Brand awareness. By advertising discounted iPhones and iPads, Walmart is using the promotion as a marketing campaign to strengthen consumer’s association between Walmart and Apple. Many consumers don’t think of Walmart as the first place to visit for iPhones and iPads. I can only imagine how many people now have Walmart at the top of their destination list in search of that perfect Apple gift for the holidays. 

What about that little gem from Reuters indicating Apple was working with Walmart on this discount?  On the surface, it sounds somewhat damning for Apple, but in reality, it doesn’t mean much; only that Apple is okay with Walmart eating iPhone and iPad price discounts. Sounds like an iPhone and iPad boom to me. 

Anti-Apple Militia's Shifting Tactics; Attacking Apple's Cool Factor

A few years ago, I coined the phrase “anti-Apple militia” to describe the disjointed and incoherent group of SAI commenters that were not happy with Apple’s growing success. As Apple’s increasing dominance became clearer, the anti-Apple militia would desperately think of a new plan of attack,  often shifting themes within weeks. Some of my favorites were:

1) iPhone 3GS will flop because it looks just like iPhone 3G.

2) Palm Pre will crush the iPhone.

3) People don’t want a curated Apple App Store.

4) Android will crush Apple in the U.S.

5) iPad will flop because it’s just an oversized iPhone.

6) No one is buying iPhone 4 because of Antennagate.

7) No one is buying iPhone 4S because it looks like an iPhone 4. 

8) No one is buying iPhone 5 because of Maps.

Recently, I’ve seen the anti-Apple militia shift tactics and instead of attacking a specific iPhone or iPad feature, the detractors are going after the intangible; Apple’s popularity and coolness. Many anti-Apple comments are falling under the same genres, including:

"My daughter says all of her classmates are switching to Samsung and Windows phones. iPhones just aren’t cool anymore.” 

"Has anyone gone to an Apple store lately? They are empty and the only people I see are older folks. Meanwhile, Microsoft stores are packed with kids. So crowded."

"I was at the market yesterday, and some kid came up to me and couldn’t stop asking about my kick-ass Samsung phone. Youth just aren’t interested in the Phone anymore."

I think one of the main catalysts for this new attack campaign was Samsung’s ads that mocked people waiting in-line for the iPhone 5, including the scene of a son holding a spot in line for his parents. Samsung is going after one of Apple’s largest competitive advantages: it’s coolness. I look at these shifting attack tactics as desperation.  If using the battlefield analogy, Samsung and the anti-Apple militia are firing all remaining ammunition in the general direction of the enemy hoping something will stop the advance.

In reality:

1) Kids can’t get enough of iPhones and iPads (literally - parents are often not willing to buy new iPhones for their children until at least 8-9th grade).

2) College students continue to embrace Apple products at an alarming rate. 

3) Apple stores are more packed now than ever, with some complaining about how loud the stores have become.  Will the anti-Apple militia soon proclaim “no one goes to Apple stores because they’re too loud”?

4) Despite much broader product roll-outs, including massive pre-order allotments, people are still lining up for new Apple products.

Apple competitors see the writing on the wall. Not only is Apple continuing to broaden its reach across the world, including advances into enterprise and education, but it’s coolness factor is actually expanding.  As for the surveys and guesstimates showing Apple’s market share is getting trounced in China and markets where Apple has a weaker presence;  a true battle is one where both sides are present.