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Apple, it seems, has now totally adhered to the idea of an upmarket brand.
The decision taken this week to rearrange its range of devices by doubling the phones to a thousand dollars and simultaneously giving up its cheapest model, made it clear that it was no longer too much question of Attract customers with more limited means. Instead, the iPhone maker seems to believe that the way forward should be the Louis Vuitton of consumer electronics.
This focus on the high end has already begun to pay off for the company in the form of short-term profits, even as it recently surpassed the $ 1 trillion market capitalization. But this could prove to be a bad bet in the long run, especially if it means that fewer consumers are turning to Apple to buy their first phone or other device.
Apple has always ordered a premium
Apple, of course, has always played in the richest segment of the market. Its Mac computers have generally been more expensive than their Windows competitors. And its new iPhones have always been priced higher than competing smartphones with similar performance.
But for years, especially under former CEO Steve Jobs, the company has been striving to attract more consumers. When the iPod was its main product, Apple offered models such as Shuffle and Nano, whose prices put them within the reach of average consumers. The $ 500 price of the iPad was considered a bargain when it was launched. And when Apple introduced new iPhone models, it systematically dismissed the old ones, making them more accessible to more consumers.
The company seemed to be turning away from this strategy recently. Indeed, his move to the top of the market was clear at the company's press event on Wednesday. A year after launching its first phone with a starting price of $ 1,000, the iPhone X, Apple has introduced another model to a thousand dollars to replace it, the XS, and a giant version, the XS Max , offered at the starting price of $ 1,100.
The other new phone in the company, the XR, starts at $ 750, which looks like a good deal compared to the other two models. This looks fades when you compare the iPhone XR to the lineup of last year. The iPhone 8, which was then launched from the iPhone X, had a starting price of $ 700.
But Apple's move to the upscale was also marked by what he did behind the scenes only in the Steve Jobs Theater from his Cupertino headquarters in California. When launching the new phones, Apple abandoned the iPhone SE. His cheapest model at this point, the SE had a price of $ 350. Now the cheapest phone that Apple offers is the iPhone 7, which starts at $ 450.
Apple's move to high-end could boost revenue
This price increase could benefit Apple in the short term, if its recent experience is a guide. Over the past year, sales of smartphone sales jumped 13% over the same period a year earlier, thanks mainly to higher prices for iPhone X and other models. Apple's average sales per iPhone sold in its last quarter was $ 724; two years ago it was less than 600 dollars.
In the longer term, however, this focus on the high end could weigh heavily on the company. With iPhone that costs more, Apple fans are likely to keep their phone longer, upgrade less often and replace less expensive models when they replace their devices.
Apple has already seen the demand stagnate. On an annual basis, it sells about the same number of phones in each of the last four years. In fact, the number of phones sold during the one year period that ended in June was 2% lower than the number sold in the same period that ended in June 2015.
This stagnation occurred in the context of a booming economy characterized by low unemployment. When the next downturn occurs, this concentration on the high-end could expose Apple. When they worry about their next paycheck, consumers tend to give up on luxury items.
But the biggest problem for Apple in the future could come from its decision to kill its low-end SE, rather than introducing more expensive phones.
$ 100 in the consumer electronics sector
The price difference of $ 100 between what Apple has billed for the SE and what it's charging now for the iPhone 7 may seem trivial, but that's the case. As all market analysts will tell you, when it comes to consumer electronics, the price-demand relationship is usually exponential and non-proportional.
In other words, if you halve the price of a given gadget, you will usually find that sales are more than doubling. Conversely, if you double the price of a gadget, sales will decrease by more than half.
Another way of saying it is that the number of consumers in the world who can afford a $ 450 device is much smaller than one who can afford a $ 350 device, much smaller than the difference of 100 dollars could indicate. Thus, by increasing the price of its entry-level model, the company buys back a large part of potential consumers.
This could have many consequences, none for Apple.
The smartphone market in the United States and in other developed countries and even in China is quite mature at this stage. The market is developing in developing countries, particularly in India.
To play in these markets, where consumer revenues tend to represent only a small portion of what they are in the United States, providers must offer affordable phones. Even a $ 350 phone is sold over what many Indian consumers can afford. A $ 450 gadget is even more inaccessible.
Apple can not sell its customers if it does not knock them out
But Apple's decision to abandon the SE could cause it even more problems. As most retailers know, cheap items can often be a good way to convince customers. These devices themselves may not be very profitable and the retailer may not want to sell them, but they can use them as a decoy. Once they have attracted a customer, the company has the opportunity to sell them on more expensive and more profitable items. Without them, the company never has that chance with some consumers.
This is important because Apple – as much as any business – depends on regular customers. A big part of its business model is integrating consumers into its ecosystem. Once they buy an Apple product, for example an iPhone, they are much more likely to buy another Apple product, such as another iPhone, a Mac or an Apple Watch.
Increasingly, the company's activities have been driven by convincing the owners of its hardware devices to sign up for its Internet services, such as Apple Music, or additional storage on its iCloud cloud offering. Apple's service business now accounts for approximately 14% of its total sales and grew 31% in its last quarter.
If Apple fails to convince a customer to buy that first product, the company not only loses that initial sale, but all subsequent products and services that it could have sold after the fact.
To be sure, the SE may seem like a relatively minor device. It had a small screen compared to newer iPhones and was based on a design of several years. But Apple does not have comparable entry-level products in its lineup to replace it.
Of course, you can get an Apple Watch from the company for $ 280 or its AirPod headset for $ 160, but these are accessories. You will not buy any of these devices unless you already own an iPhone – in fact, the Apple Watch requires an iPhone to be able to be configured.
While you can now get a new iPad for $ 330, you probably will not buy it unless you are already in the Apple ecosystem. If you really want a low cost tablet and you're not already an Apple fan, you're far more likely to buy one of the low-cost Fire devices than any other device. 39; Amazon.
So do not be surprised if Apple's decision to become a luxury brand increases its profits in the next quarter. But also, do not be shocked if the move ends up biting society.
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