The latest moves indicate that Apple has really bought into the idea that it represents an upscale brand. Just last week, Apple lined up its latest devices and they are thousand-dollar phones, not to say that it dropped its least expensive model at the same time. This kind of action makes it clear that the company no longer concerns itself with customers who have limited means.
New Luxury Brand
The iPhone manufacturer seems to have adopted a new creed, that it is the Louis Vuitton of consumer electronics. If we were to talk about near-term profits, then we can safely say that so far the strategy had worked for Apple, even if not too long ago it registered more than a trillion-dollar market cap. When it comes to long-term, however, it may prove to be a bad bet because people may show up in fewer numbers to buy their first iPhone or other devices from Apple.
Of course, Apple didn’t completely switch gears because, as we know, it always dipped into the side of the market pool that was more affluent. For example, the Mac computers have always been more expensive than their Windows counterparts. iPhones, as well, always carried a premium when compared to their competing phones that featured a similar performance.
However, Apple tried for years, at least when Steve Jobs, the former CEO, was in charge of things, to appeal to more mainstream customers. At the time when the iPod was the primary point of focus for the company, Apple provided a model such as the Nano or the Shuffle which came with prices that made them available for average customers.
When the first iPad was launched, its $500 price tag was considered a bargain. When the company introduced a new iPhone to the audience, it always discounted the older ones, making them available for a wider range of users. As of late, the company seems to have decided to turn away completely from the past strategies.
iPhone X Price
During the company’s press event which took place last Wednesday, Apple’s intentions became crystal clear. After last year it launched the iPhone X, its first $1000 phone, Apple introduced another thousand dollar phone, the iPhone XS, and its jumbo-sized version, the iPhone XS Max, comes with the price of $1100.
The third phone that was launched last week is the iPhone XR, which starts at $750, making it look like a bargain when compared to the other two high-end devices. This appearance disappears when we remember last year’s iPhone 8, which had a starting price of $700. Apple’s move to the higher part of the market wasn’t just promoted by what was seen on stage.
While it was launching the new lineup, Apple chose to discontinue the iPhone SE, which up until that point was the least expensive model, selling for $350. After the latest move, Apple offers the least expensive model, the iPhone 7, at $450.
These moves might benefit Apple in the short term if we were to be guided by its recent experience. This past year, Apple saw its revenue from smartphone sales jumping 13% from the same time last year, which can most definitely be attributed to the iPhone X and the other devices. On average, Apple marked its revenue per iPhone sold at $724 in its most recent quarter and two years ago, it didn’t go past $600.
In a long time, however, this focus on the high end could take a turn for the worse. If the iPhones will keep getting more expensive, the customers will tend to hold on to their phones for a longer period of time. Also, they will choose to upgrade less often and choose lower-priced models when they have to replace their devices.
In terms of demand, Apple has already experienced stagnation. In the last four years, it sold the same number of phones and during the year-long period which ended in June the number of phones that it sold was 2% lower than what it managed to sell in the same period of 2015. It occurred during a booming economy with low unemployment but if a downturn should hit, Apple might be exposed.