Retailers Cut iPhone Price in a sign that Apple's ability to command premium prices is weakening.

Retailers Cut iPhone Price
Wal-Mart, T-Mobile US to Offer Discounts

Wal-Mart and T-Mobile US plan to offer discounts on the iPhone 5C in a sign that Apple's ability to command premium prices is weakening.

By Ian Sherr, Drew FitzGerald, Thomas Gryta

Apple Inc.’s new entry-level iPhone is getting a price cut.

Wal-Mart Stores Inc. and T-Mobile US Inc. said they plan to offer discounts on the iPhone 5C in a sign that Apple’s ability to command premium prices is weakening.

Apple offers the 5C for $99 with a two-year service contract, or $549 without. Wal-Mart said it would offer that model for $79, a discount of $20, while T-Mobile said it plans to offer the device for $528 through its financing plan. Other re-sellers, including carriers Verizon Wireless and AT&T Inc., are expected to match Apple’s pricing.

Such discounts, while not unprecedented, tend to undermine the Cupertino, Calif., company’s status as a luxury brand. Eli Portnoy, head of the branding strategy firm CultureRanch, called discounting “a huge mistake” under the circumstances.

A perception that Apple may be competing on price rather than the features of its handsets hurts the iPhone’s prestige, he said. Apple’s premium image also isn’t helped by the fact that iPhones are increasingly found beyond outlets like Apple’s own stores, with their aura of a hip and high-end lifestyle. “You don’t get that at Wal-Mart,” said Mr. Portnoy, an Apple customer and stockholder.

An Apple spokeswoman didn’t respond to a request for comment.

Analysts say manufacturers often use a variety of ways to influence retailer pricing, though it is unclear whether Apple has been doing so. In any event, it makes sense for Apple to take a permissive stance toward discounting, said Gartner analyst Van Baker. “It’s a much more competitive environment now for Apple than it was a few years ago,” he said.

The gadget giant unveiled the 5C earlier this week, along with the high-end iPhone 5S, and began accepting preorders on Friday. Both models go on sale Sept. 20.

Wal-Mart used discounts last year when it launched the iPhone 5 for $189.97 with a two-year contract, a $9 discount.

Sarah McKinney, a Wal-Mart spokeswoman, called its price for the 5C “good for our customers and good for our business.” Wal-Mart will make a profit on each phone it sells, she said.

Wall Street, so far, has been more worried about high prices than discounts. Investors were disappointed when they learned of the iPhone 5C’s price tag, which more than 50% higher than the $350 predicted by some analysts. Many Apple watchers were looking for signs that company would try to reach a broader audience in emerging markets with a new, lower-priced handset.

The challenge Apple faces stems in part from its iPhone strategy. Aside from the iPhone, Apple has historically created new product models at a variety of prices to appeal to different market segments.

After releasing its iPod music player line in 2001, for example, the company unveiled less-expensive Mini, Nano and Shuffle models that sold well. Before the iPhone 5C, Apple hadn’t added to its lineup since the original in 2007. And the 5C largely takes the place of older-model iPhones in Apple’s pricing strategy.

Like Wal-Mart, T-Mobile has discounted iPhones before. When the carrier launched the handset on its network in April, it sold the base model iPhone 5 for $580 before raising the price by $50 a month later. The list price for the unsubsidized product at Apple’s website was $649.

The carrier has been experimenting with new pricing schemes as part of a turnaround strategy. They include interest-free financing on the full price of a new phone paired with lower service fees, which contrasts to the standard industry practice of offering service contracts and higher monthly charges in exchange for a lower phone price.

But other iPhone sellers haven’t been quick to follow suit with discounts. Best Buy, for example, will charge the listed price for the new iPhones. Spokeswoman Shandra Tollefson said the electronics retailer’s locations will “have inventory in stores on launch day for customers.”

RadioShack also will offer iPhones at the same price Apple lists, a spokeswoman for the retailer said, noting the company distinguishes itself with a more flexible smartphone trade-in plan and knowledgeable store employees.

Wal-Mart, by contrast, is better known for its aggressive pricing.

“They lead with low price and that works well with their brand,” said the spokeswoman, Merianne Roth. “For RadioShack, we have convenience, we have selection.”

Write to Ian Sherr at ian.sherr@dowjones.com, Drew FitzGerald at andrew.fitzgerald@wsj.com and Thomas Gryta at thomas.gryta@wsj.com


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