Apple works now, has completely bought into the idea that it is an exclusive brand.
It's this week to revolutionize the device's reach by doubling thousands of dollars, while losing the least expensive model, it's clear that it's no longer too appealing to appeal to customers with more limited funds. Instead, the iPhone manufacturer believes that the road ahead is to be Louis Vuitton of consumer electronics.
This high-end focus has already begun to pay for the company in the form of short-term gains, although it recently increased beyond a trillion dollar market value. But it may turn out to be a bad effort in the long run, especially if it means fewer consumers turn to Apple to buy their first phone or device.
Apple has always commanded a prize
Apple, of course, has always played in the more prosperous end of the market. Mac computers have usually been more expensive than their Windows-based rivals. And the new iPhones have always had a premium award over competing smartphones with equivalent performance.
But for years, especially under former CEO Steve Jobs, the company made an effort to appeal to more common consumers. When iPod was its main product, Apple offered models like Shuffle and Nano, which had prices that put them within reach of average consumers. The iPad's $ 500 prize was considered a bargain when it was first launched. And when Apple has introduced new iPhone models, it has consistently discounted the elderly, making them more accessible to a wider range of consumers.
The company seemed to be definitely turning away from the strategy too late. In fact, its trip to the top of the market was ready for the company's press conference Wednesday. A year after the launch of its first phone with a $ 1
The company's second new phone, XR, starts at $ 750, which looks like a bargain compared to the other two models. That look is when you compare the iPhone XR with last year's setup. The iPhone 8, which started then as a downturn from iPhone X, had a starting price of $ 700.
But Apple's move to the high end was as evident from what it did behind the scenes that it did on stage at the Steve Jobs Theater in Cupertino , California, headquarters. During the launch of the new phones, Apple iPhone closed SE. Its least expensive model for that point had a price of $ 350. Now, the cheapest phone Apple offers is iPhone 7, starting at $ 450.
Apple's move to high-end can boost revenue
This increase in prices may be beneficial for Apple in the short term, if the latest experience is any guide. Over the last year, revenues from its smartphone sales increased 13% from the same period last year, almost entirely to the higher price points on iPhone X and other models. The average revenue Apple saw per iPhone sold in its last quarter was $ 724; two years ago it was less than $ 600.
However, for longer periods, this focus on the high part may be heavy on the company. With iPhones that cost more, Apple fans will likely stay on their phones longer, upgrade less often, and switch to lower pricing models when replacing their devices.
Apple has already seen stagnant demand. On an annual basis, approximately the same number of phones is sold in each of the last four years. In fact, the number of phones sold in the long term of the year ended June was 2% fewer than the figure it sold in the same period ending June 2015.
The stagnation has come in the middle of a thriving economy with low unemployment. When the next downturn hits, the focus on the high end may leave Apple exposed. When they are worried about their next paycheck, consumers tend to miss luxury goods.
However, the bigger problem for Apple in the future may come from its decision to kill its low-end SE, rather than higher prices.
$ 100 means a lot in the consumer electronics industry
The $ 100 price difference between what Apple charged for SE and what it now costs for iPhone 7 does not seem to mention so much, but it does. As about any market analyst will tell you about consumer electronics products, the relationship between price and demand is generally exponential, not proportional.
In other words, if you cut the price of a given gadget in half, you'll usually see that sales make a lot more than double for it. Conversely, if you double the price of a gadget, sales will fall by more than half.
Another way to put in is that the number of consumers around the world who can afford a $ 450 device is much less than the number that can afford a $ 350 a – much less, in fact than the $ 100 difference can indicate. By raising the price of its entry level model, the company therefore writes a large segment of potential consumers.
It can have many consequences, none of them are good for Apple.
The smartphone market in the United States and other developed nations and even in China is quite ripe at this point. Where the market is growing, is in developing countries, especially in India.
Playing in these markets, where consumers' revenue tends to be a small fraction of what they are in the United States, providers must offer affordable phones. Even a $ 350 phone is priced at what many consumers in India can pay. A $ 450 gadget is even more out of range.
Apple can not seek customers if it does not get them in the door
But Apple's move to release SE can cause it even more trouble at home. As most retailers know, cheap goods can often be a good way to get customers in the door. These devices can not be very profitable, and the dealer may not sell them, but they can use them as a lure. Once they have signed a customer, the company has the opportunity to summarize them on pricier, more profitable items. Without them, the company never has the chance with some consumers.
It's important because Apple – as much as just about every business – relies on repeat customers. Much of the business model is about getting consumers into their ecosystem. When buying an Apple product, an iPhone says, they are much more likely to buy another Apple product, such as another iPhone or Mac or Apple Watch.
The company's business has increasingly been driven by convincing owners of hardware devices to sign up for their internet-delivered services, such as Apple Music, or additional storage on their iCloud cloud offer. Apple's service center now accounts for about 14% of its total sales and grew to a 31% clip in its last quarter.
If Apple fails to convince a customer to buy the first product, the company loses not only the first sale, but on all the subsequent products and services it could have sold them after the fact.
To be sure, SE may seem like a relatively small device. It had a small screen compared to newer iPhones, and was based on a year old design. But Apple does not really have any comparable products at the entry level in its setup right now to replace it.
Surely you can get an Apple Watch from the company for $ 280 or the AirPod headphones for $ 160, but it's accessories. You will not buy a device unless you already own an iPhone – Apple Watch needs an iPhone just to set up.
While you can now get a new iPad for $ 330, you probably will not buy it unless you're already in Apple's ecosystem. If you really want a costly tablet and not already an Apple fan, you're much more likely to buy one of Amazon's affordable $ 50 Fire Devices.
So do not be surprised if Apple's move to a luxury brand increases its profits in the next quarter or so. But also, do not be shocked if the plane ends up biting the company down the line.