Morgan Stanley: Apple benefits when they raise prices

“Shares of Apple are higher by 57 cents at $159.24, after Morgan Stanley’s Katy Huberty reiterated an Overweight rating on the shares, and raised her price target to $194 from $182, writing that last week’s iPhone unveiling in Cupertino offered above all the prospect of rising average selling prices,” Tiernan Ray reports for Barron’s. “‘We see an across the board,’ writes Huberty, noting that demand for Apple products increases when prices rise.”

Apple is an aspirational brand offering high quality, innovative products at a premium price. As a result, the company escapes the typical trend of declining prices that drive demand for other devices. In fact, demand for iPhone is directly correlated to the direction of ASPs – higher prices, higher demand and vice versa. We see three recent examples of this phenomenon. First, Apple’s strongest iPhone unit growth in the past five years coincided with the largest ASP uplift, +11% in FY15, with the introduction of the larger screen iPhone 6 Plus. Second, when Apple launched cheaper iPhones, 5c and SE in FY13 and FY16, demand disappointed and iPhone unit growth decelerated at a faster clip than any other year… Lastly, despite a $20 price increase to help digest increased costs associated with dual camera technology in the iPhone 7 Plus, the product was constrained through the end of CY16. In fact, iPhone ASPs rose 1-2% through F3Q17, boosted by rising iPhone 7 Plus mix, helping to re-accelerate unit demand from the FY16 lows. — Morgan Stanley analyst Katy Huberty

Read more in the full article here.

MacDailyNews Take: Yup.

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

You do not what to be a user of cut-rate devices, unless you want the type of R&D that delivers products that are woefully behind in performance like, for example, Android phones.

SEE ALSO:
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How Apple’s premium-priced iPhone X tests economic theory – September 18, 2017
Apple’s A11 Bionic chip in iPhone 8, 8 Plus, and iPhone X leaves Android phones choking in the dust – September 18, 2017
The inside story of Apple’s amazing A11 Bionic chip – September 18, 2017
Apple’s A11 Bionic obliterates top chips from Qualcomm, Samsung and Huawei – September 18, 2017
Apple accelerates mobile processor dominance with A11 Bionic; benchmarks faster than 13-inch MacBook Pro – September 15, 2017
Apple’s A11 Bionic chip in iPhone X and iPhone 8/Plus on par with 2017 MacBook Pro – September 14, 2017
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
Newsflash: Apple sells premium products at premium prices to premium customers – October 23, 2012

8 Comments

  1. Raising prices has it’s good and bad points. Apple makes more money but continues to lose market share percentage which still matters a lot to Wall Street. Apple has completely priced itself out of the Indian consumer smartphone market (not that I think it really matters) but I believe a lot of big investors are unhappy about that.

    I’m not really sure why the Chinese consumers aren’t buying iPhones but my guess is that they’re quite satisfied with their own domestic brands either out of national loyalty or price levels. I’m sure someone at Apple must know and I’m curious to find out the real reason.

    I can’t imagine how Apple is going to grow iPhone sales. I honestly don’t think it’s possible. They’ll just have to hold onto what consumer base they already have and add to it in very tiny amounts. The big investors aren’t going to like hearing about declining market share when brand new iPhones have been released no matter what the reason.

    Apple needs to look elsewhere in the product lineup for growth and I hope LTE AppleWatches will be the next big thing.

  2. In my opinion, Morgan Stanley’s analysis and conclusions are flawed. It is not simply a matter of increased price driving increased demand – that is foolishness.

    The higher-priced iPhone 6 plus was compelling because it had a large display. Apple did not just raise the price of an iPhone with a 4″ display. Similarly, the iPhone 5c and SE were positioned by Apple as budget phones. The 5s and SE offered smaller, last-year tech for less money, particularly in comparison with the newer, larger iPhone models.

    The increase in demand for the more expensive iPhones is not simply because they are more expensive. They offer features which are more desirable and for which people are generally willing to pay more. They offered greater utility for many people who wanted to shift more computing activities from desktops and laptops and tablets to a more mobile device, even if it came with compromises. That is the reason that the iPhone ASPs went up.

    Theoretical economics combined with over-simplification is a dangerous thing.

  3. I agree with the article. Apple just has to justify the increase in price. Whether or not it actually costs more is irrelevant. Is the public willing to pay more? In the US the answer is yes. We are about to see it in full display when iPhone X comes out. We will pay. We don’t care. We just want the best iPhone. Journalists will put negative intentions on millions of Americans who purchase the iPhone X as vain show-offs. But, we just want the easiest to use phone in the easiest to navigate ecosystem with the most security.
    I can’t wait until I get my iPhone X.

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