advertisement
advertisement

Apple stopped jacking up its sky-high iPhone prices. Here’s why

Apple may be trying to bolster its flagging iPhone sales while simultaneously providing a better platform through which to show off its new gaming and television subscriptions.

Apple stopped jacking up its sky-high iPhone prices. Here’s why
Apple team members demo the new cameras on iPhone 11 Pro for guests. [Photo: courtesy of Apple]

At Apple’s product announcement event in Cupertino on Tuesday, the company’s shiny new iPhone 11 series came with faster processors and an incredible camera update—but without the customary price hike. Over the past few years we’ve gotten used to progressive price increases from Apple, especially in its premium smartphones. But there wasn’t any sign of that on Tuesday, where Apple announced big upgrades to its most premium phones at the same price as last year.

advertisement
advertisement

Why would Apple hold off on raising the price for the iPhone 11 Pro phones, as it has done consistently for years? It may be because the company is aiming to boost flagging iPhone sales as it attempts to shift its center of gravity away from phones and toward its services business.

Creative Strategies analyst Carolina Milanesi says Apple might be using lower prices to welcome people into its services ecosystem. Apple, she says, wants to get people using recent iPhones with powerful processors and good displays so that they can appreciate services like TV+ and the new Arcade games to the fullest. If iPhones and other iDevices are increasingly just vending machines for Apple services, they should have the freshest technology to make the company’s offerings stand out from competitors.

Tim Cook on stage at Apple’s September 10, 2019 event. [Photo: courtesy of Apple]
The new iPhones that Apple announced this week either maintained or lowered last year’s price points. The entry level iPhone 11 starts at $50 less than last year’s iPhone XR. The other two phones—the iPhone 11 Pro and iPhone 11 Pro Max—start at exactly the same prices as their predecessors, but they’re jammed with more features, including an extra camera. They still cost $1,000 and over, but they appear to be superior devices.

The price drops extend to the company’s older devices: the price of Apple’s tenth anniversary phone, the iPhone X, has been reduced to to $599, $400 less than its original price. The iPhone 8’s price dropped to $449.

Apple also priced a couple of its newest services to undercut competitors. The company will sell subscriptions to its TV+ (Apple original content) for just $4.99 a month, which is a steal compared to other streaming services. Another new service, the Arcade subscription gaming service, will also go for $4.99 a month. TV+ may have needed to keep the price low since it hasn’t yet released any television shows. But Apple is making it especially easy to sign up, especially since anyone who purchases a new iPhone, iPad, or Mac will get a year of the subscription for free—a clear play to hook people on Apple’s big move into content.

A price ceiling on high-end smartphones

A few years ago, Apple began aggressively pushing up the prices of its premium smartphones. Analysts say that Apple was jacking up the cost of these flagship phones as a way of offsetting declining unit sales. The strategy seemed to be working in 2017 and 2018 when Apple reported flat unit sales but higher smartphone revenues. Sky high prices that consistently went up seemed like the new normal for Apple’s biggest flagship phones.

advertisement

But that may have changed. A Strategy Analytics study shows that consumers are growing less tolerant of premium-priced phones: Smartphone owners now keep their phones for an average of 33 months, up from 27.5 months in 2018. As a result, iPhone unit sales have slowed significantly and iPhone revenues were down 12% from last year during the June-ending quarter. In last year’s all-important holiday quarter, iPhone sales fell to 64 million units from the 73 million devices sold in 2017’s holiday quarter.

“Demand for high-end smartphones has slowed at a greater rate than demand for mid-range and low-end smartphones,” said Gartner senior research director Anshul Gupta in a statement. Why? The Strategy Analytics research indicates that many smartphone buyers feel like they are paying too much for just a little real innovation. If Apple’s prerogative is to convince as many people to upgrade as possible to both keep its iPhone business healthy and provide the most optimal platform possible on which to debut its coming gaming and television services, then the company needed to shift its strategy of always raising the price on its highest end phones.

Better technology, at a lower price

Of course, it’s not like Apple actually lowered the price of the iPhone 11 Pro and Pro Max. But while some previous iPhone announcements may have introduced entirely incremental changes, it’s hard to make the argument that this year’s iPhones don’t deliver on value, says tech analyst Avi Greengart. The prices of iPhones aren’t going down, they’re staying mainly the same–but the value of the phones may be going up.

Apple even added a third camera for the new 11 Pro and Pro Max—without raising the price. The phones’ Ultra Wide, Wide, and Telephoto cameras can produce higher resolution shots, better low-light shots, and much-improved video shooting and editing. Improved depth cameras on the front of the phones enable slow-motion selfies (“slofies”), and despite some pre-emptive backlash against the feature’s name on Twitter, slofies are likely to be popular with social media enthusiasts. And all the new phones, including the lower-priced iPhone 11, include significantly more powerful CPUs and graphics processors, and Apple claims that they have longer battery lives than their predecessors.

[Photo: courtesy of Apple]
Had these new phones been introduced in 2017 or 2018, they would likely have come with at least a $100 markup from the previous generation of phones. But not this year. By jam packing the new iPhones with better cameras and faster capability, Apple is trying to make the case for users to upgrade now—just in time for the launch of Apple TV+ and Arcade, both of which will look better on iDevices that can process images faster and show them in more dazzling high resolution. Whether consumers will be convinced to sign up for a subscription service simply because they buy a new iPhone remains to be seen, which may be why Apple has decided to do it for them with TV+.

Beyond the pivot to services

There are other reasons why Apple may be keeping its prices flat as well. Greengart points out that Apple is, in a sense, in a technology gap year. Qualcomm says 150 5G phones already exist—most of them in China—but Apple won’t deliver a 5G iPhone until next year. With the new wireless technology coming fast, Apple may have feared that some would-be iPhone buyers would hold off until next year to upgrade their phones. Greengart says Apple probably knew it had to make this year’s iPhones something special to get consumers to bite now rather than later.

advertisement

Creative Strategies principal analyst Tim Bajarin says Apple got a good deal from its suppliers on phone components this year, which may have given the company the breathing room necessary to avoid raising unit prices. Apple aggressively negotiates volume discounts from suppliers, and Bajarin believes Apple saved between $30 and $50 in parts per iPhone this year. The parts savings might also pay for the tariffs imposed on its Chinese-produced smartwatches and computers by the Trump Administration, Bajarin said.

It’s true that some iPhone users who crave high speeds may be smart to hold off until next year to get a new phone. But Apple has attempted to pump up the value proposition of its latest phones for a lower or similar price point. And with potentially more people using its latest devices, Apple could have a superior gateway to its first-of-a-kind subscription gaming platform and buzzy TV shows.

advertisement
advertisement