“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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I wonder if the concept of a rate fence is best applied when you don’t have an entire ecosystem at play. In my household, more money is spent on content in the iTunes store and Mac App store by the younger, less affluent crowd.
I guess this is never a problem for Samsung, with hundreds of variations, or any other company. Just Apple has to step through a mine field for a second phone in its product line. How simple are these guys.
If the new iPhone 5C is going to cost as much as iPhone 4 costs now — $399 — then there will be no difference from how Apple sells iPhones usually: because price is the key, not the fact that Apple will, for the first time, release new “inexpensive” model rather than to downgrage iPhone 4S to be in that price range instead of iPhone 4.
So to make the difference in sales quantity, Apple has to price iPhone 5C no higher than $299.
I’m already hearing it from the Fandroid about how the new plastic iPhone will be just as bad wear and tear wise as their shattertastic Galaxative phones. I’m betting Apple plastic phones will hold up better in a drop test than the cheap grade of plastic Shamscum uses. They also don’t understand the concept for using a rubber case for keeping the iPhones resale value. But of course a used Android phone has a poor return on investment, so yeah, why bother.
Why does Apple have to worry about cannibalization? You mean the stock wont trade at 300x earnings just based on market share? I thought thats how it works.
May I say that the “iPhone” on the photo does look ugly? I hope that this is a fake and Apple will release something looking more classy even in the budget market, if they decide to step in this market.
Techies on this site easily forget guys & gals like my 80 year old uncle who has his old flip phone fail.
He would like to start moving to be able to connect with email, etc., but he isn’t going to pay through the nose for the top of the line. Too frugal for that, but all the family uses iPhones.
Apple always had a range for most of their products
apple has done it with iPod line
has done it with macs
but after thirty years of success , they are going to have problems figuring the profit and marketing issues of the low end phone…. ?
I think a lower cost model will be a mistake. Apple shouldn’t dilute the iPhone DNA with inferior seed.
In what way will it be ‘inferior’? Interior-wise, it’ll be easily on a par with, if not better than, the iPhone 4S, which is still selling well, other than having a polycarbonate back, which, with it’s smooth edges, many people will find more appealing.
Certainly, having a cheaper, but functionally similar phone to the top model, but available in a range of colours, Apple should have a phone that appeals to a wide demographic, like teens, who often don’t actually care about OS, but about how pretty a phone is.
Shallow, perhaps, but that’s teens for you.
I’m not entirely happy with the low-cost iPhone but I do remember that the iPhone 3G had a plastic back. I think that Apple should try to sell relatively high-quality smartphones to BRIC nations. The highest-end iPhones are really just too high for nearly any of those people to afford. Apple’s goal is to sell good products to people who appreciate them. A plastic body is the only way Apple can cut costs while still keeping the internal components of high-quality. I’m fudging and I know it. I still would like to see more people use iPhones and I honestly feel Apple can build a cheaper iPhone and keep quality standards relatively high if that’s what its intentions are.
That low-cost iPhone looks nice to me and is very distinctive. I hope a lot of Chinese consumers enjoy using it. If they like it then Apple has achieved what it set out to do. As long as it stays in the Chinese smartphone market I don’t see a problem of cannibalized high–end iPhone sales. I’ll just consider it the Baby Benz of iPhones.
I’ll be buying the 5C for the design. I haven’t liked the sharp edges of the iPhone 4 and up.
Maybe the ‘C’ stands for “Carl’ Icahn.
Prior to iPhone 4, all iPhones were plastic, so why so much hate toward this one? I still have a 3Gs that’s up-to-date and looking good as new. I replaced the battery myself.
I believe that the smart phone market is in transition at this time. The high growth days of people upgrading from older devices to smart phones in the millions (billions) are coming to an end. The market is reaching saturation point now. I also believe that Apple understands this as well as anybody out there, and will surrender some of their gross margin for in exchange for market share. This is their play to recover lost market share. They will play up the superior ease of use and stability of iOS and make this a full featured iPhone. It will come with the full range of RAM options (this is where the profit is) and all features including SIRI. It will have a slightly older (cheaper) processor and case (as we have seen) but otherwise it will not be crippled to support some notion of product “rate fence”. Apple will go for broke on this one – this will be the most popular iPhone to date.
Make the 5C a Third World or BRIC iPhone only. Thereby no cannibalization.
“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.”
Which is exactly what Apple did with the Mac LC, the iMac, the iPod mini, the iPod nano, the Mac mini and the iPad mini.
All of those products were sold for significantly less than Apple’s established top end product and they all proved to be big successes. THere is absolutely no reason to imagine that a cheaper iPhone would not be hugely successful too.
Anybody who has observed how Apple has operated for the last 25 years will know that Apple has a solid track record for introducing new products at lower price points without destabilising the premium product ranges.
If Apple is simply caving in to Android market share envy or fear of Icahn then IphoneC will be sold in America. If this is simply for growth than it should be called IphoneChina and limited for sales in China. Any variant for US would be to replace Iphone 4 and 4s so the manufacturing lines can be more streamlined. Since most of the parts internally of an IphoneC could match an Iphone 5 its really about a new phone that can be scaled up more quickly without comprimise. The IphoneC sold in America vs overseas won’t be the same. Expect no GPS nor Siri function.