Originally Posted by Blastdoor
Unless you have specific information that this is the case, I don't think it's at all clear that this is necessarily the case for either the Radio Shack or the Sams Club discounts. It's one thing for a carrier to discount the phones in order to make money off a long term service contract. But it's quite another for a retailer to discount when they have no other way of recouping the lost money.
I think it's more likely that Apple is behind the Sam's Club and Radio Shack discounts. As I noted in my earlier post, Apple may be trying to learn more about the price-elasticity of iPhone demand in the United States.
I doubt that very much. Most retailers contracts have "most favored nation" clauses. That means other retailers can't buy for less than they can for the same terms. There are also laws requiring this. I was involved some years ago in an e-commerce operation and because we were going to buy so much product, I insisted on lower wholesale prices from the distributors. Turns out because of a lawsuit, they couldn't do that. The wholesale price could only be based upon how much product was purchased in a single order (not even how many units or how many dollars we would buy over the course of a year.) (Of course there are ways around this like co-op advertising credits, but basically, that's the way it works.)
It's not clear to me that Radio Shack and Sam's Club aren't making money on the long term service contract, but even if that's the case, it doesn't matter. They don't have to make money on the iPhone. The purpose of these discounts is to get people into the store to buy other things - they are loss leaders. That's why the Sam's Club promotion ends at Christmas.
I happen to agree with those who think that selling the iPhone through these mass market distributors debases the product. One of the main reasons why Apple opened its own retail is because they were unhappy with how their products were presented and supported in retailers like CompUSA and Circuit City. But they now think Radio Shack and Sam's Club does a good job?
I've never been in a Sam's Club, but I have been in a WalMart twice. And what I've found there is a few good prices surrounded by mostly bad prices, at least for the products that I would consider buying. Electronics, photography and media were all priced higher for name brands than J&R in Manhattan, a large, but independent retailer with a single store. And J&R pays its staff far more than minimum wage. Stores like WalMart and Target get a reputation for low prices by having absurd sales on few select items, but it's actually a big con. Most of the decent products I see in these places are selling for list price. Even when Circuit City went out of business, their "going out of business" prices were higher than everyday prices at B&H Photo/Video (NYC) or J&R, yet people were walking out with the stuff like they were giving it away. Especially when it's so easy to check prices on the web, you'd think people would know better.