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Apple refuses to play low-price ball, stakes strategy to premium brand rep

Gregg Keizer | Sept. 13, 2013
Tuesday's event, iPhone 5C pricing showed Apple has no intention of marching to someone else's drum, says analyst

Others, while not expressly showing disappointment, said the pricing was strictly defensive.

"I don't believe the iPhone 5C is targeted at emerging markets at all, but is an attempt to defend the iPhone's margins and ASP [average selling price] in subsidized markets," said Sameer Singh, an analyst who tracks mobile technologies from his Tech-Thoughts site. "Apple was spooked when it saw a 'new,' and 'good enough' product [the iPad Mini] sharply eat into sales of their flagship tablet. As a result, Apple attempted to minimize the pricing gap between the two 'new' iPhones and attempted to differentiate them based on casing and color."

However, Singh reached the same conclusion as Thompson. "It seems that Apple's product and pricing decisions are aimed at retaining their premium positioning and hardware margins," he wrote Wednesday. "While this may work in the U.S. market, it leaves Apple vulnerable to low-end disruptors in other regions."

Neither Thompson or IDC's Restivo denied that.

"I do think they're a little bit playing with fire in Asia," said Thompson. "Apps could start going Android-first there, and bigger phones matter there. Clearly, Apple was caught by surprise by the sales of larger phones [ dubbed 'phablets']."

"There will come time when Apple will need to evolve and further segment the iPhone line," promised Restivo. "Apple's left half the market and more to its competitors. At some point, the gated community of Apple users will have to open up to that market because Apple will need to sell more services and software to each customer."

But Thompson's point, and Restivo's too, was that time was, in Apple's opinion, not 2013. Maybe not even 2014. It's holding to its premium lodestone.

That strategy, in other words, isn't going to be discarded. And anyone who doesn't realize or remember that will predict moves Apple simply won't make in the short- and mid-term.

Whether that expressed strategy works is another matter. "The strategy, then, is clear. Apple has decided to not even pretend to pursue market share, but instead embrace their up-market status. The question remains, of course, as to whether or not it is right," Thompson wrote on Stratechery early Wednesday.

The analysts were split there. Restivo believed the iPhone 5C would reward Apple, but primarily because it would add 25 million to 30 million units annually — an increase of 17% to 21% over what Apple sold during the last year — by soon announcing that it has struck a deal with China Mobile, that country's and the world's largest carrier.

Thompson thought the iPhone 5C and its pricing would pay off. "You can't dismiss the effect of being $100 cheaper," said Thompson. "That's what people don't understand. They're hugely underestimating the iPhone 5C, and too focused on China. Apple has moved to cover 16% more of the price curve. I think sales of the 5C in the U.S. will be absolutely massive."

 

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