iPhones Are Very Expensive These Days and Will Get More So

iPhone X

Last year, Apple introduced the iPhone X which starts at US$999. This caused quite a ruckus, but customers made it Apple’s top selling iPhone. This trend isn’t going to change.

iphone x front back
Apple cashes in on iPhone X features & allure.

If Apple can demonstrate to customers that they’ve made a really great, finely crafted, secure iPhone in any given year, and customers are highly satisfied (they are), then it’s very likely they’ll continue with that product. There’s a sense of pride and confidence in the future.

This happens with other kinds of products, notably cars and pickup trucks. Customers tend to be loyal if the product satisfies and the service is great. Even though car prices tend to go up a little every year, the customer sees this as the cost of staying with a favored product.

From time to time, you may see an article that suggests $1,000 or more is too much to pay for a smartphone and that Apple will suffer in the long run. I see that more as wishful thinking rather than keen insight into market reality.

This week, I’ve seen several convincing analyses that the future looks good for Apple iPhones while the negative analyses tend to be more emotional and self-centered.

Intent to Upgrade

Gene Munster and Will Thompson at LoupVentures actually asked potential customers about their plans. “iPhone Intent to Upgrade Survey Suggests Slight Upside to Street Numbers.” Key findings were:

  • This survey showed a surprisingly high intent to upgrade, suggesting 48% of current iPhones owners intent to upgrade to a newer iPhone in the next year, compared to 25% in June of last year.
  • This 48% is an outlier, and therefore should be tempered (intent to buy vs. actual purchase conversion varies cycle to cycle), but the survey is nonetheless a positive indicator of upcoming iPhone demand.
  • 19% of Android users surveyed indicated they plan on switching to an iPhone in the next year, compared to 12% last year.
  • Survey’s bottom line: there is greater interest in this upcoming iPhone cycle than we had anticipated.

Remember, first, that we expect Apple to, in its new trio of 2018 iPhones, offer a slightly lower cost 6.1-inch LCD display model, giving many customers a justifiable out if they want to be a little more conservative. But slightly less than $999 is a matter of perspective. It’s still a lot of money.

Remember, also, that Apple has a huge customer base of iPhones, just under a billion. In the spectrum of owned iPhones, going back to the iPhone 8, 7, and 6 series, there will be a significant number of customers eager to replace an older iPhone and partake in the latest (and now proven) “X” technologies. Neil Cybart has done some analysis, and Philip Elmer-DeWitt reports: “Cybart: New iPhone X, X+ will spur upgrades not seen since iPhone 6, 6+

Value Proposition

In one of Apple’s recent earnings reports, Apple CEO Tim Cook said, essentially, that Apple priced the 2017 iPhone X based on the customer’s perception of value. The remark was delivered in Cook’s customary off-hand way, but it genuinely reflects smart pricing, market savvy, and customer psychology.

Cook knows what works, and the sales numbers continue to reflect that understanding of Apple customers. It won’t matter if journalists whine. Apple succeeds anyway, not by accident but by design.

Finally, while it’s true that there is a considerable iPhone markup over the cost of materials, that doesn’t negate either Apple’s cost of doing business nor the appreciation of how the customer perceives value. Again, wishing for a super-high-tech iPhone that protects the user’s privacy and security but is cheap is just another avenue into click-bait, I’ve-been-wronged headlines.

Watching how Apple conducts this process, understanding the customer appreciation of value, paying attention to the right analysts, and actually using Apple’s iPhones for good use properly leads to a well-considered understanding of Apple’s continued success.

4 thoughts on “iPhones Are Very Expensive These Days and Will Get More So

  • John,

    I think you’re right but I hope you’re wrong!

    I’m fine with Apple catering to those who have more money to spend than I do, as long as they don’t forget about those of us for whom price is a concern,

    I’m using (so is my wife) a now almost 5 year old iPhone 5S … it’s been paid off for 3 years and a lower monthly phone bill has been very nice. The last two phones we’ve both bought have been the 4S and the 5S … $499 phones, which my wife – not incorrectly – sees as a lot of money.

    So if Apple can’t release a lower-cost model of the iPhone that hits a no more than $699 price point we’ll end up getting iPhone 8’s … or 7’s … or something reasonable.

    Old UNIX Guy

    1. For that same $499 you can get an iPhone 7 (32GB) from the Apple Refurb store. They replace the outer shell and the battery on every refurb and they are warrantied for 1 year. I’ve had great luck with Apple refurbished phones and Macs.

  • I don’t know if it’s a case of Cook knows what works rather it’s looking at obvious trends. The iPhone is the main business machine for many people. They don’t have to sit in front of a computer or carry a laptop to work so they can justify a higher price tag if they can eliminate other equipment (and write it off). And if there’s a percentage of the population that just wants to have the shiniest new product to look good, regardless of the cost, so be it.

    On the first point, Ebenezer is following Adobe’s thinking. They charged dearly for the disk versions of Creative Suite because that was their only time to get a piece of the action from professional artists – “If she’s making $50K by using our software, we want a piece of the action.” Many might say that is the Adobe philosophy and I would say it’s Apple’s as well – think of the high price tag associated with “Pro”.

    As Adobe has gone to a leasing model, I expect Apple to do the same. Why buy a product that will be outdated in a year or two? Think leasing of cars. If you want the latest greatest, lease it from us. We’ll take your old model back (and palm it off on a third world country at full pop thus making money on the same product and cornering the resale market) and set you up with a brand new model. And you won’t have to pay full sticker price – just a 50% downpayment. Of course, under the terms of the agreement, only we can service the equipment with genuine Apple parts. After the term, you bring it back to us and we will put you into a new model with a “modest” fee. And then you can go back out and impress your friends with having the newest model iPhone. Look at Apple’s policy of users repairing their own equipment and their new policy on repairing vintage equipment. Consider the lockout procedures, iCloud activation and passcode – what if you bought a used car only to find it wouldn’t start because the ignition was locked to the former owner? Ebenezer is trying to squeeze all the milk out of the turnip. That’s what Cook thinks works.

  • “Finally, while it’s true that there is a considerable iPhone markup over the cost of materials”,

    There is a lot more to the price of a product than the cost of material. Research and Development, manufacturing and shipping costs, marketing, warranties and so on. This is not to say that Apple doesn’t make a profit from the sale of an iPhone, iPad, or whatever.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.