Walmart Breaks Apple's Hold On iPhone Pricing

Walmart (NYSE:WMT) looks like it's beating Apple (NASDAQ:AAPL) at its own game by undercutting the phone maker on the new iPhone's notoriously hard price. Bloomberg Businessweek reports that the retailer will sell the iPhone 5c for $79 with a two-year service contract, a 20 percent markdown from any other U.S. seller, while the iPhone 5s will go for $189 with a service contract, $10 less than the sticker price.

There's a reason stores haven't done this before: Apple stacks the deck. They give retailers a suggested price that they aren't obligated to match, but have strong incentives in terms of advertising money to price the phones at or above.

Apple has supposedly even cut off some stores that tried to play hardball, but for most there's not much desire to. They buy the phones with such small margins that retailers aren't particularly motivated to sell them at tremendous discounts.

Which raises the question, "How has Walmart managed it?"

Bloomberg's Kyle Stock has a couple of suggestions. The first is that Walmart finally had the leverage it needed to strongarm Apple. With this being the first rollout of a new iPhone with a model targeted specifically at low-income consumers, Apple needs Walmart more than in the past.

"Walmart essentially might have said: Look, you need low-income buyers, and we have plenty of those," Stock hypothesized. "Knock $20 off each phone for us, and you can lock in the bottom of the buying pyramid while maintaining some of your brand's luxurious luster."

Of course, then there's the other option, which is that Walmart just decided to bite the bullet on their margins and hope to make up the difference on marked up phone accessories.

"Honestly, it's just our business model," Walmart spokesperson Sarah McKinney told Bloomberg, pleading ignorance of Apple's pricing incentives. "We leverage our expenses so we can invest in price."

For more:

- See this Bloomberg Businessweek story

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