The $84.50 Reason Apple Wants You to Buy That Big iPhone

Photograph by David Paul Morris/Bloomberg

Maybe you’re still debating between the iPhone 6 and the iPhone 6 Plus. Apple has a good reason for wanting you to opt for the larger model. It costs an additional $15.50 to make the larger iPhones, according to a breakdown by researchers at IHS, but the sticker price is $100 higher than the iPhone 6. Apple pockets an extra $84.50 on each iPhone 6 Plus.

The main difference in cost between the two phones comes from the supersize screen, which adds $7.50 to Apple’s production cost. The camera and battery subsystems also cost slightly more. Both iPhone 6 models are more expensive to make than the 5S, even though certain components like the camera and memory have actually gotten less expensive.

The total margin of an iPhone 6 Plus comes to just over 71 percent, compared with 69 percent for the iPhone 6 and now just under 65 percent for the iPhone 5S. (Those figures don’t include costs associated with shipping or marketing.)
 

Apple’s pricing strategy is common among companies selling mass-market products. You want to keep the price of entry low enough to attract a wide group of people—in Apple’s case this clearly isn’t everyone—while giving people with money easy ways to spend it. You see the strategy widely used by airlines: There are zero marginal costs to those exit-row seats, but some people will pay to get slightly more legroom. Who are the airlines to stand in the way? Pricing smartphones like this makes a lot of sense, since everyone from billionaires to high school students pays basically the same amount for them.

Apple has been squeezing slightly larger margins from its more expensive products by charging more than the underlying cost for things like extra memory, according to Andrew Rassweiler at IHS. “While Apple continues this memory strategy,” he wrote, “the company is also taking a similar approach with the iPhone Plus, structuring its pricing to add bottom-line profit on models that have a very desirable feature: a large phablet-sized display.”

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