[SOLVED] On September 5, 2007, Steve Jobs, the

On September 5, 2007, Steve Jobs, the CEO of Apple Inc., announced that the spectacularly successful iPhone would be reduced in price by $200 from $599, its introductory price of roughly two months earlier.1 Needless to say, he received hundreds of emails from irate customers. Two days later, he offered early customers who paid full price a $100 credit good at Apple’s retail and online stores. Was this decision to mitigate the $200 price decrease and the manner of doing so appropriate from an ethical perspective?
iPhone Analysis
The ethicality of this iPhone marketing decision can be analyzed using different ethical theories, and, interestingly, the conclusions are not the same. Ethical theories help to frame a question, and they help in highlighting aspects of the case that might be overlooked if the case were analyzed in purely economic terms. The theories can also help in explaining and defending the option you ultimately choose. But, in the end, you must have the courage of your convictions and make a choice.
Utilitarianism
Utilitarianism argues that the best ethical alternative is the one that will produce the greatest amount of net pleasure to the widest audience of relevant stakeholders. In this case, pleasure can be measured in terms of customer satisfaction. Presumably, the customers who bought the iPhone at both the higher and the lower prices are satisfied with the product function, so there is no product dissatisfaction. The only dissatisfaction is the effect among the customers who paid $599. They were upset that they paid $200 more than the current customers, who were purchasing the identical product at $399. Steve Jobs received over a hundred emails in the two days after the price was dropped.
Does the dissatisfaction of the $599 group outweigh the satisfaction of the $399 group? Presumably, there are a larger number of customers purchasing the iPhone at the lower price, so, all other things being equal, there will be a greater number of satisfied customers at the $399 price than the number of dissatisfied customers at the $599 price. So, the conclusion would be to do nothing.
However, utilitarianism requires that you examine the consequences to all stakeholders. The dissatisfied customers voiced their displeasure to Steve Jobs through their emails to him. This presumably lowered his feeling of satisfaction. These dissatisfied customers might also take their anger out at the sales representatives at the Apple stores. More important, they may show their dissatisfaction by not purchasing any additional Apple products. To mitigate this, Steve Jobs should offer rebates to the $599 customers that are equal to their level of dissatisfaction. That is, the rebates should be sufficient enough to ensure that these customers return to buy other Apple products rather than take their business to the competition.
Deontology
Deontology looks at the motivation of the decision maker rather than the consequences of the decision. Are you willing to make it a universal rule that whenever prices fall, all previous customers should be subsidized? The iPhone was launched in June 2007 at a price of $599 per unit. Customers willingly paid $599 for the product. Nevertheless, two months later, on September 5, the price was dropped to $399. Presumably, the costs of production had not decreased during the summer, so the $200 price reduction was because the iPhone was initially overpriced, even though customers were purchasing the product at $599 per unit.
Thus, the deontological question becomes, Should rebates be given whenever products are incorrectly priced too high and the price is shortly thereafter lowered and the price reduction is not due to product efficiencies? That is, is it ethically correct to compensate those who have been overcharged? It would appear that Apple thinks so, and as result, the company was willing to give an in-store rebate to anyone who bought the iPhone at the higher price. If the company did not offer a rebate, then it would be treating its initial customers merely as a means of generating abnormal rents (i.e., profits). From a deontological perspective, a rebate should be offered because otherwise you are treating the first group of customers opportunistically, as a means to the company’s end.
However, by offering a rebate, has the company set a bad precedent for itself? Every time the price of a product falls, should all the customers who paid the higher price receive a rebate? Technological advances are so rapid that the manufacturing costs of electronics are constantly decreasing. As a consequence, the price of electronics tends to decrease over time. The iPhone version 2.0, launched in June 2008, one year after the original iPhone, has more features than the original phone and is priced at $199 per unit. Should all those who paid $399 for the original iPhone be given a rebate too?
It is clear that the 2008 model is different from the original 2007 model. But what if the differences were not readily apparent to the consumer? Assume that the selling price decreases because of production efficiencies. Are you prepared to make a rebate every time the current price falls because the current costs of production have decreased? This may be the perception of Apple customers if the company begins to pay rebates.
Remember, from a deontological perspective, the consequences are unimportant. What is important is that the decision was made for the right reasons. The fact that customers cannot differentiate between overcharging and production efficiencies is irrelevant. The only relevant aspect is that the decision maker knows the difference between overcharging and production efficiencies and that the decision maker makes a rebate in the former case but not in the latter. The fact that the presence or absence of a rebate may influence future sales is irrelevant.
Justice & Fairness
Distributive justice argues that equals should be treated equally and that unequals should be treated unequally in relationship to their relevant inequalities and differences. Are all customers equal? This would depend on your time frame. If you assume that there will be no repeat business from any customer, then they are not equal.
A fair price is defined as one that a willing buyer and a willing seller would accept in a noncoercive arm’s-length transaction. Assuming there was no undue sales pressure, then the customers who bought the iPhone at $599 thought that that was a fair price. The ones who bought the iPhone at $399 also, presumably, considered that to be a fair price. So, both groups were willing to pay fair value for the product at the time of purchase. There is no ethical reason to reverse those transactions. Both were fair albeit different prices.
On the other hand, if a business is attempting to establish an ongoing relationship with its customers who will be buying numerous products over a long period of time, then all customers are equal. As such, they need to be treated equally. This means that a business does not want to alienate any of its customer base, so it will offer a rebate to make everyone equal.
Rawls argues that social and economic inequalities are just if these inequalities are to everyone’s benefit. This means that a price differentiation is just if it relates to production cost differences. Assume that the cash flow from the $599 sales was used to fund production efficiencies that permitted the company to maintain the same profit margin while reducing the price of the product to $399. If this had been the case, then the price inequality would be to everyone’s advantage. The higher price permitted the lower price to occur. However, the actual price decrease occurred two months after the launch of the product. Presumably, there were no production changes during the summer. So, this price differentiation is not to everyone’s advantage and as such would not be considered just.
Virtue Ethics
Virtue ethics focuses on the moral character of the decision maker. What values does Steve Jobs want his company to project? The website of Apple Inc. has separate pages concerning responsible supplier management and Apple’s commitment to the environment. The company projects an image of high quality with high ethical standards. The last thing this company wants is criticism that it is not behaving responsibly.
Two days after the price of the iPhone was dropped to $399, Steve Jobs publicly apologized for the pricing error and offered a $100 in-store rebate to those customers who had paid $599 for the product. What values is Steve Jobs demonstrating by making a public apology? By admitting his pricing error and atoning for the error by offering a rebate, he is demonstrating rectitude. By being honest and straightforward in his apology, he is taking personal responsibility for the mistake.
On the other hand, you might say that he is not demonstrating integrity because he is recanting under pressure. This was not a free decision. He was reacting to public pressure. He had received hundreds of emails from irate customers. Further- more, he waited two days before succumbing to the pressure. Instead, he should have demonstrated courage by not offering a rebate. He could have said that the $599 was a fair price at that time and that $399 is a fair price at this time. No one was coerced into buying the product at either price.
Moral Imagination or Marketing Ploy?
Moral imagination means coming up with a creative and innovative solution to an ethical dilemma. The price of the iPhone was dropped to $399 in order to better market the product during the holiday season. Was offering a $100 rebate an example of moral imagination, or was it simply another marketing ploy?
Both sets of customers paid fair value for their iPhones, which implies that no rebate should be offered. But if a rebate should be offered, then presumably it should be for $200, thereby making the sales price to both sets of customers equal. So, the two options are to provide either no rebate or a $200 rebate. However, Apple chose a third alternative: not to give a rebate but instead to give a partial credit. The $599 customers were given a $100 in-store credit toward future pur- chases. Such a credit costs Apple far less than a cash rebate of $100. Furthermore, the $100 is half of the price decrease. So, if the $599 price was incorrectly set too high and Jobs was truly contrite about his pricing error, then why did he not offer a full cash rebate of $200? An argument can be made that Steve Jobs was willing to admit his pricing mistake, but he was not willing to suffer the full financial consequences of his error. By adopting this compromise position, he managed to deflect customer criticism without having to make an actual cash settlement. Cynics may say that this third option was mostly motivated by marketing concerns and very little by ethical concerns—that it was a marketing ploy to appease irate customers and that Apple is appearing to be ethically responsible with- out having to bear the full economic consequences of its decision.
In conclusion, a decision maker would be wise to consider how consumers, employees, and others will react to a proposed decision. Will it fulfill their ethical expectations of what is right or wrong? Ethical theories can provide useful perspectives that should be weighed when arriving at an overall conclusion about the ethicality of the decision.

Question: On September 5, 2007, Steve Jobs, the