What Kind of Person Pays $3,700 for an iPhone 5?

By Justin Rohrlich  SEP 26, 2012 10:00 AM

A deep-pocketed Russian who doesn't want to wait until December, that's who.


Editor's note: This article was originally published on September 13, 2012.

MINYANVILLE ORIGINAL Pre-orders for the Apple (NASDAQ:AAPL) iPhone 5 begin September 14 at 12:01 a.m., Pacific time. The device, which will ship on September 21, retails for $649, $749, and $849 for the 16GB, 32GB, and 64GB models, respectively. Buy one on-contract through AT&T (NYSE:T), Sprint (NYSE:S), or Verizon (NYSE:VZ), and those prices drop to $199, $299, and $399.

Live in Russia? That iPhone’ll be $3,700, please.

A longer certification process for smartphones in Russia means the iPhone 5 won’t officially hit the Russian market until mid-December. In the meantime, the “grey market” (products obtained from sources other than the manufacturer or its licensed importer) is filling demand at astronomical prices.

India, China, UAE Also Going Grey

It’s happening elsewhere, too. A vendor in Karol Bagh, India, tells the Business Standard that, “from our previous experience, we have seen people willing to pay even double the official price to get the product within a week of its US launch.”

Chinese consumers are reportedly paying “a minimum of 10,000 yuan,” or $1,500, for the iPhone 5. And in the UAE, retailers are expecting to see iPhone 5 prices as high as $2,700. What’s behind the staggering amounts of money some people are willing to part with for a new gadget?

“If it’s cool, it has to be now. If it has to be now, there’s a time premium on it and that’s something that people – at least some people – are willing to pay for,” Joel Steckel, a professor of marketing at NYU (and founding president of the INFORMS Society for Marketing Science), tells me.

Steckel says this is something that “goes beyond the iPhone, though it certainly applies” and is a reflection on Apple’s carefully crafted reputation.

“These exorbitant premiums are generated by the brand overall,” Steckel says. “That’s why you tend to find the same situation with all Apple products all over the world.”

Dan Burges, director of intelligence at FreightWatch International, a global logistics security firm headquartered in Austin, Texas, says serious problems with grey market technology purchases are few – the occasional warranty concern or an unhappy (authorized) retailer who is losing sales. “Companies deal with plenty of issues regarding grey market sales, but there are no safety issues with technology the same way you’ll see with something like pharmaceuticals,” Burges tells me.

Safety issues aside, the grey market is still plenty vexing to companies that, according to a 2008 KPMG white paper, “unwittingly suffer from price erosion, brand damage, and the hidden costs of handling end-customer issues resulting from inadequate customer service, product handling and installation, lack of warranty cover, or other potential discontent with grey market resellers.”

Considering how many grey market Apple products have been sold over the years, the practice does not seem to have affected the company's reputation at all. Yet, the question remains: Is the iPhone 5 worth four grand?

Looks like we have an answer:


(See also: Critic: With iPhone 5 Launch, Tim Cook Blows Major PR Opportunity.)
No positions in stocks mentioned.

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