A slippery slope

So many companies have learned the hard way that once you start down the slippery slope of price cuts it is very hard to wean consumers off the drug. The auto manufacturers know this all too well. We all know that if we wait just a bit longer the car we want will come handsomely equipped with a $3,000 cash back or 0% APR.

This week Macy's admitted its attempt to wean customers off the drug had backfired. The New York Times reported that Macy's tried to pull back on coupons and discounts after the company consolidated over 11 department store chains around the country under the Macy's brand. Macy's CEO Terry Lundgren admitted that abruptly curtailing discounts like coupons was Macy's biggest misstep, contributing to four consecutive months of falling store sales this spring. Macy's now pledges to offer plenty of coupons in time for the upcoming holiday shopping season.

Which brings me to Apple. For years Apple was a master of competing on price without overtly discounting. Each fall, to stoke demand for MacBooks among college students, Apple offers a free iPod with every MacBook. Classic strategy -- add value, don't discount. After the iPod first appeared Apple adeptly covered a range of price points by continuously introducing new models at lower prices (Mini, Nano) while simultaneously offering more expensive models with more content (video). This strategy left little room for any competitor to steal share with a lower price.

Which is why I'm still stunned at Apple's decision to cut $200 off the price of the iPhone. Apple sent a message that its most loyal early adopters are being overcharged and that, in the future, we should simply wait a couple of months before buying Apple's next big thing. Apple, to its credit, was quick to respond with Steve's open letter and rebate offer. But the debate in the blogoshpere is still raging. (My iPhone was the butt of jokes at a recent dinner party. When was the last time anyone was ever ridiculed for buying an Apple product?) I, for one, hope Apple doesn't become just another consumer electronics company that launches, discounts and abandons. I love the brand and hope it has learned from this mistake.