How Apple’s premium-priced iPhone X tests economic theory

“Thorstein Veblen was a cranky economist of Norwegian descent who coined the phrase ‘conspicuous consumption’ and theorized that certain products could defy the economic laws of gravity by stoking more demand with superhigh prices,” Josh Zumbrun writes for The Wall Street Journal. “His 1899 book, Theory of the Leisure Class, made him famous in his time and more than a century later his ideas are embodied in products like Hermès handbags, Bugatti cars and Patek Philippe watches.”

Now Apple is “testing whether the social commentator’s theory on what has come to be known as the ‘Veblen good’ can work for one of the most common of all consumer products—the phone,” Zumbrun writes. “Mr. Veblen’s theory posits that some consumers want a product even more when the price rises because the expense broadcasts status, taste and wealth.”

“By unveiling the new iPhone X last week with a price of $1,000, Apple Inc. is pushing the envelope even further than Samsung Electronics Co., which unveiled the $950 Note 8 phone this year,” Zumbrun writes. “Rather than trying to attract consumers with cheaper prices, the companies are fighting for customers with expensive price tags.”

MacDailyNews Take: Some fight. In profit share, Samsung is being destroyed by Apple. The numbers are cyclical – Apple’s iPhone shines particularly bright in the holiday quarter – but even at their ‘low’ ebbs, Apple has clearly cornered the smartphone market on profits.

• Apple took 83% of smartphone market profits in calendar first quarter – May 16, 2017
• Apple took 79% of global smartphone profits in 2016; Samsung in distant second with only 14% – March 8, 2017
• Apple took 92% of smartphone industry’s profits in Q416 – February 7, 2017
• Apple reaps 106% of smartphone industry profits – November 21, 2016

If it’s a poor man’s iPhone, it’s a poor man’s iPhone.

Now to be fair, this is only because Android is an inferior product peddled to cheapskate tech illiterates who do not value their privacy and/or who are unable to recognize a half-assed knockoff from the revolutionary original.

Android is a BlackBerry clone that was hastily rejiggered by Google at the last minute to mimic Apple’s revolutionary iPhone. Obviously, mistakes were made and corners were cut.

So, the Android rush-job is a privacy and security nightmare. It’s a fragmented morass. It’s too many cooks in the kitchen. It’s crap-by-committee, lowest-common-denominator junk. —  MacDailyNews, August 23, 2016

“The starting price of the new flagship iPhone X is about 50% more than the $650 starting price of last year’s iPhone 7,” Zumbrun writes. “The most expensive version of the iPhone X, with 256 gigabytes of storage, will cost 19% more than last year’s most expensive device, the iPhone 7 Plus, with the same memory.”

“‘They can create a super-premium model and perception of super-premium that pushes those buyer types into the stratosphere,’ said Steven Haines, chief executive of Sequent Learning Networks, which advises companies on product management. ‘This is classic product management,” Zumbrun writes. “Such segmentation is normal in mature industries, said Mr. Haines, comparing smartphones to what happened with the auto industry, where luxury cars with high prices became a status symbol as car ownership became commonplace.”

Read more in the full article here.

MacDailyNews Take: iPhone X is the most powerful pocketable computer every created. They could have started at $1,999 and still been sold out for months.

As with the Mac, with iPhone, you get what you pay for.

Apple sells premium products at premium prices to premium customers.SteveJack, MacDailyNews, October 23, 2012

SEE ALSO:
If Apple is a Veblen brand then raise the price of the next iPhone by $100 – April 15, 2014
$17,000 Apple Watch Edition ‘risks the adoration of the masses’ or something – March 10, 2015
Apple’s iPhone 6: From Louis Vuitton to Chanel – September 2, 2014

24 Comments

    1. MDN’s take is off here. iPhone X and iPhone 8 ARE the most powerful pocketable computers ever created. They are identical in processing power.

      The premium for iPhone X is not its processing power. That should be pretty obvious by now.

      1. The “premium” price of the iPhone X (over the iPhone 8) is attributable to OLED screens and edge to edge designs. The OLED screen is superior to LED, consumes less power, and enables a smaller form factor with virtually the same degree of display real estate, AND OLED costs more than LED (a lot more). Because Samsung is the only OLED manufacturer that can meet Apple’s quantity, quality and specs needs, Samsung is able to command higher prices for its OLED displays than would be possible if there was viable competition. This will change as LG and Japan Display flesh out their respective OLED initiatives.

        1. The X has a better camera which will be better for AR purposes. Its a minor difference for most people, but there is more to the X than the screen. The question is how much people would be willing to pay for an X without “the notch”?

  1. Many years ago, Steve Jobs observed that millions of people were happy to pay $15 for a Maglite, while a perfectly serviceable torch could be bought for $1. Smart people were prepared to pay extra when the product is clearly superior and beautifully designed.

    It proved to be a very effective strategy for Apple as they only cater for those customers who are spending more and that’s the market segment where you can make the greatest profits.

  2. The author labors under the misconception that the iPhone is a phone. Obviously, it is not. Rather, it is the absolute most powerful mass consumer computer ever manufactured. It is a million different things all in a package that fits in your pocket and can go wherever you go, and it always knows where it is and helps you figure out what to do when you are there. $1,000 for a world class Swiss Army computer/atlas/map/radio/teletype/telephone/calculator/flashlight/camera/photo album/meteorological device/Rolodex/credit card/sticky note/tape recorder/vcr/nighlight. It’s the best bargain going.

    1. It is so far from the most powerful mass computer ever manufactured. Ever here of the Mac Pro, and all the other even faster computers out there?

      Now if you meant pocketable, with all the compromises that entails, fine

      1. To be fair, kent likely meant “mass” as in 200M units per year, not just a few. “Portable” and “pocketable” are also good descriptors.

        At any rate, I find myself in the rare circumstance of agreeing with anonymous kent. If you add the value of all of the functions of the iPhone, it is actually quite reasonably priced. People used to pay an extra $1500 or more for in-dash navigation, or around $200 for a Garmin or similar dedicated GPS unit. People used to buy separate portable devices for playing music and video, etc. But that has become far less common since the original iPhone was released a decade ago.

        If price is critical, then you can get last year’s model or the smaller iPhone 8. If you want the 8+ or X, then buy it. Just don’t gripe about the price. On a use basis (cost per minute or cost per hour), it will still be one of the best values you can get because most people use their iPhones a lot.

        1. I guess that’s what gets me with mobile (notice the broad use of the term). In many ways, it’s catching up to the DOS/Desqview systems I used in the ’80s.

          Admittedly, that’s not easy on a mobile device, but less enabling that it could be otherwise, because no new (or few) enabling technologies have been added. Other than mobility (a VERY important feature) what capabilities have been added that we couldn’t do better faster more comfortably before?

  3. Many people strive for a status symbol of some sort. The movie stars, “sharks” and other wealthy folk have their mansions, Rolls Royce, Rolexes, cigar boats, etc.

    The middle and lower class people have no real hope of obtaining such pricey things. The next best is premium products within their price range (though it may be extravagant for their budget). The iPhone is a great example of this. Though it may be the absolute best mobile phone/computer in the world (I believe it is), many people on limited budgets shouldn’t be buying a $1000 device. But, it soothes their ego and makes them feel proud.

    1. “pablorph Registered User
      Monday, September 18, 2017 – 11:50 am · Reply

      The middle and lower class people have no real hope of obtaining such pricey things.”

      “Though it may be the absolute best mobile phone/computer in the world (I believe it is), many people on limited budgets shouldn’t be buying a $1000 device. But, it soothes their ego and makes them feel proud.”

      The biggest obstacle to raising the taxes of higher earners are the “lower and middle class” who aspire to join that group someday (no matter how unrealistic their aspiration is).

      Besides, only the wealthiest pay cash (even then its with a credit card). Nearly everyone else buys on an installment plan of some sort. The monthly cost difference between the iPhone 7 Plus (256Mb) and the iPhone X (256Mb) using a 24 month plan is less than $9.00 (sans taxes).

      Then there is the starting price comparison of the Galaxy 8 to the iPhone X: a whopping $49.

      The iPhone X isn’t priced for everybody, but it is fairly priced.

      1. If Picasso had tried to shoot you, his vision of human anatomy would mean that he would probably miss any vital organs.

        …and I say that as an admirer of Picasso’s paintings and ceramics, with a special interest in his painting Guernica and it’s connection to the Spanish Civil War.

        On my wall is a reproduction of that painting given to me by the mayor of Guernica. I am especially fond of the Basque part of Spain and it’s culture. I often get an especially warm response from locals by speaking a few words of their language, which is quite unlike any other language, therefore foreigners rarely speak it.

        As an aside to an aside. A friend of mine often complains about photographers and move makers who insist that black and white imagery has more gravitas that colour images and he likes to point out that artists have always had the option to restrict their palette of oil colours to black and white with shades of grey, but if you visit art galleries, they never choose to do that. I disproved his theory by asking him to turn around and look at my print of Guernica, which Picasso painted in monochrome as a deliberate choice to portray the horrors of war.

  4. There is no shortage of people stupid enough to pay $1000 for an iPhone, just like there are people stupid enough to buy a Tahoe with an extra $10,000 on the sticker “it’s a Cadillac”, or overpriced Toyotas (Lexus), Nissans (Infiniti), Hondas (Acura) or Hyundais (Genesis). They call it badge engineering.

    Even worse are the people buying groceries with WIC and SNAP that trot out to their current model Benz en route to their Section 8 apartment. It is one thing to be “aspirational” with your own money, but not when someone else is buying your groceries and paying your rent.

  5. While I understand Veblen goods, I think the comparison is bad. The iPhone 7 started at $649, and the iPhone 8 starts at $699, a $50 increase, but the RAM was increased. The iPhone X is a completely different line, and shouldn’t be compared to the 7.

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