“We do not know the details of the [iPhone] 5C yet, only what has been widely reported in the media – there will be many colors, pricing will be $300-$400 off-contract, etc.,” Chandan Sarkar writes for Seeking Alpha. “But the key to whether this becomes a net positive or negative for Apple will depend mostly on how effectively management is able to build what economists call a ‘rate fence’ to keep the 5C from cannibalizing its kin or destroying its brand.”
“A rate fence is the mechanism by which the two groups of consumers are kept separate so that the higher end group does not end up purchasing the lower end product,” Sarkar writes. “Of course, Apple will reduce the feature set as its main differentiator between the two models. But by providing more colors, it may appeal more to younger, less affluent purchasers. In brief, we do not yet know all the different ways Apple will try to keep its cache [sic: should be “cachet”] in the new model while keeping its higher end customers from shifting down.”
Sarkar writes, “The overall success or failure of the 5C does not depend on innovation, it depends on management’s marketing ability. They must create an environment for which they keep the two sets of consumers (high and medium/lower end) with its respectively differing price elasticities separate. If it can succeed in doing this while making the lower end model attractive to the majority of its target audience, it should be cause for celebration on Apple’s income statement. And the impact should be felt almost immediately.”
“I believe HTC will be the most affected by the 5C’s release. Given that the company is already teetering, one has to wonder if this will end up being the death blow to its cell phone aspirations,” Sarkar writes. “If BlackBerry does not get sold soon, there is going to be more trouble ahead.”
Read more in the full article here.
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