PRICE DISCRIMINATION AGAINST "EARLY ADOPTERS"

When technology product manufacturers release a new product that has been heavily pre-promoted, they know that it will be in the highest demand immediately after its initial release, or even before, as thousands of eager consumers camp outside of retail outlets hoping to be among the first to acquire the latest innovation in digital cameras, cell phones, or other digital equipment. This high demand allows manufacturers to set prices artificially high based on the cache of being the first to own a high-profile product. In most instances, the same products drop substantially in price very shortly thereafter.

A particularly good example was the 2007 debut of the Apple iPhone at a retail price of $599 (Dalrymple, 2007). Barely two months later, Apple reduced its price to $399, prompting bitter complaints from many consumers who paid the higher price after waiting outside Apple stores, in many cases, overnight, just for the privilege of being the first wave of consumers to purchase the product. Consumers could have anticipated that price reduction based on the earlier example of the iPod which debuted at $399 only to be reduced $100 in price within a year for a model with twice the storage capacity as the original model (Dalrymple, 2007).

Product manufacturers and retailer know that a certain segment of consumers (often referred to as "early adopters") are willing to pay a premium for no other reason than the bragging rights and the social attention that often corresponds to the newest digital products, especially those that have been heavily promoted in advance. While some early adopters realize that they will pay the highest price for products immediately after they are released, many others are angered when they realize that they paid so much more than consumers who bought the same product only a few months later. In the case of Apple's iPhone, the consumer backlash was so significant, that Apple issued $100 vouchers to purchasers who had paid the first release price to keep their patronage (Dalrymple, 2007).

Reference

Dalrymple, J. "Lessons Learned From the iPhone Price Cuts: What consumers and companies should have learned from the recent Apple iPhone price cuts and subsequent backlash." Macworld (Sep 11, 2007). Retrieved January 27, 2011 from:http://www.pcworld.com/article/137046/lessons_learned_from_the_iphone_price_cuts.html