Apple iPhone average selling prices are certain to fall

“With 4-5 billion new users coming on line and Apple riding the top of an S-Curve of growth is not a good sign to investors or employees,” Ed McKernan writes for Seeking Alpha. “Tim Cook has had two years to articulate a growth path, but has hesitated and milked the cash cow. Carl Icahn won’t be knocking at his door if he had come to market with newer devices and targeted a well made device for the developing world, Apple’s future customers.”

“There is a reason that BMW resurrected the Mini Cooper several years ago. There was an unserved market for small, sporty and customizeable cars that could become iconic. BMW was testing their understanding of the market. You may say that they hid under another brand. That is true. But then they took what they learned and launched the smaller, lower cost 1 and 2 series,” McKernan writes. “Once unthinkable and possible brand destructable. Is this junk? For many years BMW rode the curve of increasing wages for the top 10% of households. Then they circled back to get the kids. Apple has to deftly and quickly circle back to get the kids. They have less time than BMW.”

Read more in the full article here.

MacDailyNews Take:

For as long as Apple has been Apple there have been calls for the company to make “affordable products.” By this, most mean lower price tags. They’re not talking value or Total Cost of Ownership (TCO). When you bring those ideas into the discussion, Apple’s prices are very low indeed. No, this is all about price tags. People want Apple to sell products for less, so that more people can use them and – side benefit – it hurts those ripping off Apple’s intellectual property to produce cut-rate facsimiles of Apple’s innovations. Android, I’m looking at you.

One major problem: Offering low priced products is, as Apple’s leadership likes to say, “not part of Apple’s DNA.” This is a nice way of saying: We can’t dominate entire markets (outside of the fluke iPod/iTunes Store) because it would irrecoverably damage the Apple brand or as Steve Jobs once said, “We can’t do it; we just can’t ship junk.” More recently, this has been parroted by Tim Cook: “There’s always a large junk part of the market. We’re not in the junk business.”

I have a solution that satisfies everyone: Buy an established brand (on the cheap, no less) and design and market products for mid-tier consumers… Remember now, these aren’t junky products we’re talking about, these will be quality mid-tier Jony Ive-designed products. They will offer quality components and excellent build quality, they just won’t be the very latest, highest-end stuff… the best of the mid-tier, not at all low-end.

Mini Cooper has worked very nicely for BMW. [The same idea] could work even better for Apple.SteveJack, MacDailyNews, November 4, 2013


    1. Agree; Cook is, and in a good way. Average selling price of iPhone increased by ~$50 in calendar Q4 versus calendar Q3 — all thanks to introduction of iPhone 5C, which moved buyers to more pricy iPhone 5S.

    2. When BMW bought Rover cars, it was not for the Mini. They wanted the LandRover factory as well as the designs and road map that Rover had for Landrover.
      They used the factory assembly line to quickly develop the X5 then later cashed in on the Mini assembly line to rebadge the Mini as a BMW after some design tweaks, i.e making the interior large enough for German motorists.
      The link below outlines the story better than I can.

    1. BMW didn’t “resurrect” the Mini Cooper. BMW bought the failing Mini company because it was cheaper to do that and improve that product than it was to design and build one from scratch. The impetus was not an aging BMW demographic, but the need to add a more fuel efficient mass produced car that could offset the lower fuel efficiency larger vehicles that BMW sells.

      This guy’s full of crap. iPods didn’t come down significantly in price, not even now when sales are declining (because people buy iPhones and don’t need/want a separate music player).

      There’s no reason for iPhones to reduce in price. Apple sells every single one it can make and has inventory shortages whenever new models are introduced. And this is with virtually no penetration in China as yet.

      1. Well the new mini was designed under the ownership of BMW but not sure that this was an especial plan for BMW. Fact is the mini was an iconic brand that Rover had simply been unable to redevelop as it should to buy into the 60s nostalgia though it had produced some nice proposals. BMW took over the parent company and made a total mess of its stewardship actually pushing it towards an older market which failed. It sold it off for a £ and concentrated on the one thing it was focused on, the mini. Here it got it almost totally right appealing to a young demographic a proper drivers car that had made that brand iconic for 30 years and then expanded it as the previous model had been. And yes it did learn but here’s the important point. It referenced Apple to brand and market that car towards a young, trendy style conscious but above all quite wealthy demographic. So to say that Apple should copy BMW is almost laughable and entirely ignorant of the reality of the dynamics. Where Apple has failed a little is by not producing an iPhone in the mould of the cheaper iPods it produced and when it did try in respect of the 5c it was neither different or stylish enough, somewhat half hearted. However you can’t just invent a brand, perhaps Americans don’t understand but the mini was a massive if increasingly moribund brand that originally and for years represented massive innovation, sporty ness and style as reflected in modern culture and the swinging sixties. It pretty much established the modern small car format that everyone has copied. You can reinvent that but you can’t simply reproduce that, in fact the original was rather more innovative than its modern brother and its main problem was it was expensive to produce which is why the new one steals its style more than its technical brilliance to make good profit from a fundamentally cheaper base product than the original, the present lives off the past that created the image in the first place. So what brand can Apple buy, use, resurrect to pull off that particular trick?

    2. The BMW/mini situation is not a good analogy, as others have pointed out. The mini is not low-cost except in relation to really pricy vehicles, and BMW is working with the mini as a new model lineup, not as a “poor-man’s Beamer.” If BMW were to try to market “BMW-like” vehicles that were stripped down in design, materials, and functionality in order to reduce the MSRP, then it would be an accurate analogy.

      What the author is suggesting is more like the Sears Craftsman/Companion hand tool situation. First Sears introduces lower-cost Companion tools without the Craftsman guarantee. That was the start of a sharp downward trend for Sears as a hardware retailer. A few years later (after the K-Mart/Sears Holding transition), the manufacturing of Craftsman tools is off-shored to China, et. al. The result? I have not bought a hand tool at Sears in nearly a decade. The last Craftsman adjustable wrench set that I bought rusted in my tool box beside a well-used, but unrusted one that my father gave me over three decades ago. Sears reputation as a mid-tier, quality hardware vendor was trashed in less than a decade. That is a much better analogy to illustrate the risks of “Walmarting” (lowest price, regardless of the negative impacts) Apple products.

      Sure, it sounds easy and safe…just spin off a division that manufactures inexpensive “Pear” devices that happen to work with the iOS ecosystem. And Apple could undoubtedly pull this off. But it is not necessarily a “safe” play for the Apple brand just because the devices would not carry an Apple logo.

      Why would it somehow be better to for Apple to sell “junk” for the iOS ecosystem under a different brand name? You might as well just

  1. The car market is far more varied than the phone market is. Since cars cost so much more there is far more room for different priced models. The differences between models priced at say £15k, £25k, £35k, and so on will be noticeable, but with phones, forgetting variations like storage, the difference between a £400, £500, and £600 phone is going to be smaller, and that’s without factoring in the second hand market which for cars is much bigger because they do last for far longer. You can reduce quality – but Apple won’t do that.


    “I have a solution that satisfies everyone: Buy an established brand (on the cheap, no less) and design and market products for mid-tier consumers… Remember now, these aren’t junky products we’re talking about, these will be quality mid-tier Jony Ive-designed products. They will offer quality components and excellent build quality, they just won’t be the very latest, highest-end stuff… the best of the mid-tier, not at all low-end.”

    is nonsense.

    If the products are going to be entirely new and Apple designed, they’re just spending a fortune on a brand, a brand which will have less cache than Apple. If they’re going to be Ive designed, using quality components, and Apple build quality, how exactly are they going to reduce the price? They could cut margins, but they would be slaughtered by every so called analyst under the sun.

    At the moment, Apple have tiers of models, the specs vary by way of being once top of the line models that through the progression of time are now of lesser performance than the new top model that replaced them. This year they’ve also added a fresh design to that older spec model – yet that has been deemed a failure because people seem to be preferring to buy more expensive models.

    As always, the wonderful solution to Apple’s supposed problem boils down to magically making a high quality iPhone but selling it for less money, whilst at the same time still making big profits and also not cannibalising sales of the higher end devices. You can’t have it all ways.

    Cheaper things are cheaper for a reason, they’re not as good, they’re less profitable, both.

  2. Apple will release a clunky phone gaming device that
    looks like a little car, complete with engine, wheels.
    (“…no no no, we don’t need to use the the i- prefix thing
    on this one, you idiots; it’s funny because it’s…)

  3. Average selling price is just another number, like megapixels or gigahertz, and just as meaningless in a vacuum (like the inside of anal-ists heads). The only thing that means anything is how much money Apple makes from each sale. If they’re able to make a less costly iPhone, say an iPhone 4s reprise with Lightning connector and a newer processor, good. If not, still good, as long as they make as much money. Apple is the king of margins, not the lackey of volume.

  4. True.
    Though Apple doesn’t have to introduce a more affordable (current tech, not one that is two/three years old) iPhone, that market of people that will buy a new model every year or two will continue to shrink.

    What Apple can’t afford is to spend engineering and manufacturing on a product such as the 5C that overlaps the high end iPhone 5S model in cost therefore it suffers relatively poor sales because consumers see it as a bad buy, not an inferior product; consumers are not dumb.

  5. Reality is that average cost of iPhones has already dropped. First world markets will always allow for fat margins, but Apple has finally moved on to China and other high-growth regions. Cook is discovering that the price sensitivity is much stronger in emerging markets. Apple’s quality and ecosystem product advantages are partially nullified by a slew of copycat competitiors with better distribution and willingness to accept slimmer margins. Phone costs in these countries are not hidden in long-term service contracts. But, as this is the only place offering strong growth, Apple really has no choice but to compete there. Apple can’t ignore the billions of people on the planet that demand smartphones but who don’t have cars with bluetooth or houses with wi-fi.

    As stock price shows, Apple’s current strategy is not working as well as many investors would like to see. Cook continues to push product runs longer in an attempt to keep costs down. Apple still makes the iPhone 4, with the old A4 chip, for emerging markets []. That sounds good, but the resulting phone performance on iOS7 sucks at best, and customers notice. Moreover, Apple needs more manufacturing capacity for newer higher-margin products. Apple cannot be streamlined while also managing A5, A6, A7, and soon A8 chip production too. It’s time for Apple to cull the old dock connector, kill off production of the A5 and prior igadgets, and move on with new-look phones & tablets.

    As the success of the 5s shows, the leading edge is always looking for the latest new technology. What Cook didn’t understand is that many customers don’t appreciate the “new look” phone to be nothing but a plastic wrapper on last year’s device. Most adult mainstream customers would be happier if Apple would design the newest/best device so that anyone could tell it apart from a 3-year old device at first glance from a distance. Spending money to design a new plastic shell for the old iPhone 5 did not pay off at all.

    US-centric customers have nothing to worry about, but they don’t seem to understand emerging markets very well. If Apple wants to be relevant in the low-margin, high-growth markets of the world, Apple should cut costs not by offering antique hardware (or, just as bad, putting a pastel plastic wrapper on last year’s hardware), but by reducing feature count (facetime camera, gps, bluetooth, default apps, etc). The iPhone 4 and 4S is obsolete in ways that matter to Apple and first-world users AND it offers features they people in emerging markets will never use. But the iPhone 5C would sell like crazy all over the world if it had adult colors, a slimmer feature set, and was priced competitively. There is no shame in reducing margins if it ensures that a new generation of people all over the world discover the advantages of the Apple ecosystem. Allowing Android to take hold all over the world would be reminiscent of the old Mac versus Windows days. For all practical purposes, the US DOJ saved Apple from its own implosion back then, or there would have been no Apple for Jobs to resurrect. That’s what happens when internal costs rise, products are attempted to be sold at too high of a margin to earn significant market share, and the customer chooses “good enough” instead of Apple.

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