Apple Subtly Dials Up iPhone Costs
Apple creates the impression that its iPhone product lineup is plain vanilla. It has a couple of models it introduces every year and sells older versions for a slightly lower price. If you want more choices, the chaotic shelves of Android smartphones are right over there.
But without explicitly saying so, Apple this spring started selling a mass market iPhone model. And now the company has found subtle ways to sell an even higher high-end phone and lure more people to pick that model and others with a bigger sticker price.
In short, Apple is a product pricing genius. If the company can't sell more iPhones -- and Apple is having a hard time selling more phones every year, as the law of capitalism requires 1 -- then the next best option is to find ways to sell phones at higher prices.
Here's what Apple did: For the first time since it added the larger-screen iPhone to its product lineup, Apple gave the new iPhone 7 Plus a significantly different feature, in addition to a larger screen, compared with the iPhone 7. The big departure is a new type of camera with two lenses on the back -- wide angle and telephoto lenses -- offered only on the Plus version. Apple is pitching this feature so hard that at its iPhone launch event last week, an executive spent more time talking about the dual-lens camera 2 than he did explaining Apple's controversial new wireless ear pods.
Apple also slyly inched up the price for the bigger iPhone by $20. In the two earlier versions of the phone, the Plus edition cost $100 more than its smaller-screen sibling. The iPhone 7 Plus has a starting price of $769, which is $120 more than than iPhone 7. 3
On top of the Plus changes, Apple is dangling a tempting new color, a jet black iPhone that Apple said is "achieved through a precision nine-step anodization and polishing process." Those jet black iPhones, however, are available only in the iPhone 7 or iPhone 7 Plus phones with higher tiers of storage capacity. Those models cost at least $100 extra.
It's likely Apple has found a way to dial up the average price of each phone it sells -- a metric that is closely watched by investors. RBC estimates roughly one-third of new iPhone sales are for the Plus line, particularly during the first rush of early sales. I bet a higher share of iPhone buyers are likely to opt for the Plus model this time around for the camera feature. 4 And at least some people will pay more for a higher storage iPhone 7 just to get the jet black color.
Squeezing average sales prices higher already pumped up Apple's growth-challenged iPad business. In June, Apple snapped a nine-quarter stretch of declining iPad revenue, even though it sold fewer iPads than it had a year before. That's because the introduction of the more expensive iPad Pro line boosted the average iPad sale price by 14 percent, to $490, in the June quarter from about $430 three months earlier. 5 If the iPhone's average sale price had been 14 percent higher in Apple's June quarter, the company's revenue would have declined by 8 percent from a year earlier instead of the reported 15 percent.
Apple said on Thursday that all iPhone 7 Plus models and jet black iPhones had sold out even before people can officially buy them in stores starting Friday. The company's disclosure doesn't necessarily mean iPhone 7 sales are going gangbusters. It may simply mean Apple has supply constraints for the Plus and the jet black phones, which both require new kinds of manufacturing skills and components.
Equally unenlightening are mixed messages about early iPhone sales trends from the U.S. mobile phone carriers. It's clear the iPhone won't be a flop, but it's also impossible for outsiders to be confident about sales trends. Still, combined with Apple rival Samsung's boneheaded problems with exploding smartphone batteries, investors are feeling good about Apple for the moment. Shares have increased 12.1 percent this week through Thursday's close, on track for the best weekly stock gain in nearly five years.
Vague statements of a few phone companies aren't a confident barometer of the iPhone's future. But if you're an Apple bull, it is worth getting unequivocally excited about the company taking its luxury iPhone product and making it even more luxury.
Dear economists: This is a joke. Please don't send me angry emails.
I watched Apple marketing boss Phil Schiller, so you don't have to. He spent 14 minutes talking about the cameras in the iPhone 7 and 7 Plus, including eight minutes just on the 7 Plus cameras. The AirPods got a bit less than eight minutes, including one of Jony Ive's parody-prone product videos.
To be fair, Apple doubled the digital storage capacity of iPhone models, so in one way you're getting more value for the money. On the other hand, Apple charges an extreme markup for extra storage versus Android smartphones that that let people buy and insert their own low-cost digital storage cards.
Research firm Slice Intelligence said 55 percent of early iPhone buyers opted for the 7 Plus. Apple doesn't disclose the mix of sales among its iPhone models.
The iPhone 7 Plus with the higher-end camera is effectively the long-rumored iPhone Pro, even if Apple doesn't call it that. Of course, Apple could still add a formal Pro model to its iPhone line at some point.
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Shira Ovide in New York at firstname.lastname@example.org
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