Apple's aggressive prices may not be enough to save the iPhone

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Tim Cook at WWDC Apple on September 10, 2019

On September 10, Apple CEO Tim Cook again visited Apple's headquarters in Cupertino to showcase this year's line of Apple handsets. This time, however, brilliant finishes and triple lens cameras are not the only features that made the headlines.

It is rather the new apparent attitude of Apple on price tags that stole the show. It is very unusual for the entry-level iPhone 11 to be priced at $ 699, which is $ 50 (£ 40) less than its equivalent, the iPhone XR, at the same time last year. But more importantly, he then gave the XR a discount of $ 150 and a price for the two-year-old iPhone 8 at $ 449 (GBP 479 in the UK).

It does not stop there: after announcing its Series 5 watch at $ 399, Apple also announced that it would start selling its Series 3 watch at $ 199, almost the same price as its AirPod. "Having a price that starts with a" one "is a huge statement of intent from Apple," says Ben Wood, a mobile industry analyst at CCS Insight. "It makes it much more accessible and will cause a world of pain for competitors like Fitbit."

For a company known for its high prices, the sudden change of Apple to more affordable devices (even if it is his old range) is a surprise. The evolution of sales last year could explain this change of heart: in 2018, the best-selling device of Apple was the iPhone XR at $ 649, which means that its basic device was superior to the models more advanced XS and XS Max.

In other words, phone shoppers are not willing to shell out any extra money to get their hands on Apple's best smartphones. Last year, in China, the tech giant even cut the prices of some of its iPhones, iPads, Macs and AirPods by almost 6%, partly because of lower iPhone sales. forecasting "in the country.

Neil Mawston, executive director of Strategy Analytics, said: "Apple fans are tired of prices and want to see lower costs for the iPhone 11. The push above the psychological threshold of 1,000 $ (£ 810) was far too advanced. "

Combined with the fact that phones improve and last longer, this means that iPhone owners have become less interested in investing their money in new, more expensive versions of their devices.

In the case of Apple, whose efforts to retain its installed base on iOS is not a secret, the game changes. After all, customers who have already entered Apple's connected product ecosystem are the most likely to buy extended services. If you already have an iPhone, why not buy Apple Pay and subscribe to Apple Music?

As a result, by reducing prices on phones and watches, Apple hopes to supplement its iOS customer base and attract new customers to buy other services within its ecosystem. "It's a difficult transition for Apple because it has to reconcile multiple conflicting goals," says Ben Stanton, principal analyst at Canalys. "[It] must find a delicate balance between hardware sales and its growing service division. "

The services seem to be new to Apple – and the rest of its Cupertino ads this year have certainly confirmed it. The company revealed that it was launching its streaming service, Apple TV +, at an extremely inexpensive rate of $ 4.99 (£ 4) per month.

Although the program contains only nine programs when it opens on November 1, these fees remain significantly lower than those of Disney + or Netflix, especially since Apple also offers a free year of streaming to customers who buy an Apple device.

Considering that the company has invested $ 6 billion (4.8 billion pounds sterling) in the original content of its streaming platform, Wood calls this price "extraordinary" and is, in his opinion, a clear example of of cheap content so that customers remain prisoners of the Apple ecosystem.

In the same vein, the company has launched a monthly subscription of $ 4.99 (£ 4) for a brand new game subscription called Apple Arcade, which will be launched on September 19 with over 100 games that can be shared between parents and their children. For these fees, the appeal for existing iOS customers is obvious.

It therefore seems that the company, renowned for the careful design of its equipment, is turning to competition in the service sector. In fact, its service revenues are expected to reach $ 50 billion by 2020.

That's why it makes sense for Apple to reduce the price of its old devices, such as the iPhone 8 or Apple Watch 3; because he can still take advantage of these users by then encouraging them to buy Apple services. "One of Apple's key objectives is to expand the services provided, so the number of clients on hardware devices is greater than ever," said Mo Jia, an analyst at Canalys.

But will the strategy work? Analysts are not so sure. Linda Sui, an analyst for wireless smartphones at Strategy Analytics, expects the demand for the new iPhone to remain "soft"; Neil Mawston is still forecasting a 10% year-on-year decline in global iPhone shipments. For Mawston, last year's failing volumes and recent price cuts are not signs of a healthy iPhone. Considering them as a strategic shift to services may be a failure: "Apple's well-publicized extension to services is a bit of a smokescreen to deter the worsening of its iPhone problems," says -he.

What is certain for the moment is that the Apple ecosystem is growing and that its new prices make it a good place. And before you even know it, you'll find yourself among the 1.5 million fans who broadcast the annual Cupertino festivities on YouTube.

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