Best Buy Wins the Apple Branding Power over AT&T Distribution

Implications: Best Buy and the iPhone has three factors: 1) Shows the power of the Apple brand and product line; 2) Relegates AT&T to the traditional carrier role; 3) Tests the store-within-a store model.  

Analysis:

Best Buy’s selling the iPhone as the first independent retailer signifies the strength of the Apple brand with other products in a time of slowing consumer sales.  Apple could have negotiated with AT&T to expand the distribution beyond the 190 Apple stores and 2,000 AT&T carrier-owned stores to the 5,000 agent-owned locations.  But rather than pull customers into stand-alone wireless stores with uncertain marketing, Apple decided to push the iPhone through the 970 Best Buy stores with the track record of selling Macs and iPods.  Apple gains the control of promoting the iPhone with uniform merchandising instead of many independent agents. 

The deal was helped by Best Buy’s announcement of record sales since the Motorola RAZR from the Samsung Instinct.  Best Buy appeared to be pulling business to the Sprint Nextel network despite the high customer defections.  Generally Best Buy’s message in wireless has been price-based by advertising older versions of handsets at lower prices such as the RIM Curve for $50 on Verizon or the Palm Centro for free on AT&T.  The exclusive for the Samsung Instinct at $130 and now the 3G iPhone differentiates Best Buy along with its “Walk Out Working” set-up help.          

While Best Buy was announcing its iPhone engagement with Apple, AT&T had no comment about other distribution such as the vast 6,000 Radio Shack locations.  AT&T’s traction in mobile media, content and applications is being compromised.  Apple is perhaps showing that the carrier role as a communications provider does not imply controlling the customer relationship.  And Best Buy Mobile “store-within-a-store” could challenge the model of carrier-owned and agent-operated locations.  Apple could provide co-op marketing funds for Best Buy Mobile to differentiate itself in advertising and merchandising.  Best Buy Mobile has developed an in-store carrier activation process and could become the new model for OEM and carrier relationships.