As Apple prepares to launch its latest iPhone models as expected September or so, a report recently surfaced that the company might start their pricing at $1,200, which is substantially higher than current iPhone 7 prices.
Prices of some of the upcoming iPhone models—which could be called iPhone 8, but more likely will be labeled with extensions of the iPhone 7 naming hierarchy—could even hit $1,399, Apple watcher and developer John Gruber wrote in a July 7 post on his Daring Fireball blog.
The expected higher prices, he wrote, will help differentiate the newest iPhones from existing models while also giving the company the opportunity to sell the handsets at its existing 35 percent margins and in huge quantities based on component supplies.
Gruber wrote that he thinks based on Apple’s history, the next models will start at $1,200 and rise to high-end models selling at as much as $1,400. The original iPhone 7 prices started at $649 for a 32GB base iPhone 7 and rose to $969 for a 256GB iPhone 7 Plus, he wrote.
Apple has also been considering using advanced OLED screens in some of its new iPhone models and supplies of those screens could perhaps be hard to come by in the quantities needed by Apple based on its quarterly sales averages of 70 to 80 million handsets. As a result the company could likely raise prices on OLED models to differentiate them in its model lineup and to perhaps tamp down sales to meet screen supplies, wrote Gruber.
It appears that Apple knows that it can’t make as many as 40 million OLED iPhones per quarter that it needs to meet potential demand, at least not to start, according to Gruber. “And if that’s true, that means it should be more expensive. Not should in any moral sense, but simply because that’s how the principle of supply and demand works. When supply is constrained and demand is high, prices go higher. The higher prices alleviate demand,” he wrote.
In the meantime, not all iPhones would likely be so pricy. Apple would also probably keep existing iPhone 7 models in its lineup as well, featuring their lower price tags, as it has done in the past.
Several IT analysts contacted by eWEEK have a range of views about Gruber’s speculation on the pricing of the upcoming iPhones.
Charles King, principal analyst with research firm Pund-IT, said that because the latest devices come on the 10th anniversary of the iPhone, it “suggests that the company will have something special to talk about. I can easily imagine Apple touting a premium ‘anniversary edition’ iPhone with all the bells and whistles and a $1,000-plus price.”
Such price tags won’t deter faithful Apple buyers, he said, many of whom will “willingly pay whatever the company says is the going freight for its products.” If even half of those buyers lays down $1,000 plus for a premium edition iPhone, the product will be a success, he added.
That doesn’t mean that the new iPhones even must have a big killer app or feature to reach sales success, said King. “Unless the company comes up with something that’s remarkable and unexpected, the [next] iPhone may stand as an example where brand and mystique largely trumps innovation and value.”
Gartner analyst Bill Menezes said that while it’s impossible to accurately predict how consumers will react over time, his guess is that for several reasons “Apple will be as successful at selling a more expensive version of its already high-end product as it ever has.”
Cellular carriers in the U.S. have successfully conditioned consumers to focus on monthly cost rather than total cost and that means that buyers will only see their monthly payments on their bills, rather than a total price tag of $1,000 or more, said Menezes. In addition, many buyers will sell their used iPhones for reasonable prices and put that money toward down payments on new iPhones, effectively reducing their prices, he said.
“The math of course can be misleading, but given the cachet of the iPhone; the cachet of having the latest iPhone” and other factors, “I think there’s a good chance Apple will have few problems moving the new devices even if it jacks up the price of a standard model.” he said. “Don’t underestimate the willingness of the cellular providers to tie the new iPhone into promotional pricing for their service plans, which in the mind of the consumer further distorts the ‘true cost’ perception.”
Other analysts are not so sure about rumors of higher iPhone pricing working to Apple’s advantage, though.
Jan Dawson, principal analyst with Jackdaw Research, told eWEEK that he is “very skeptical of the idea of a $1,200 iPhone and of the rationale behind it, which seems to be based entirely on temporary supply constraints.”
He said he’s also concerned that “any high-priced iPhone is going to be seen much the same way as the Apple Watch Edition, which was seen as a sign of elitism and being out of touch.”
Instead, Dawson said he thinks it’s far more likely that Apple will price the upcoming phones at a $100 to $150 price differential between the next Plus model and a premium model compared to existing iPhone 7 models.
“Yes, there certainly are lots of people who could afford a $1,000 phone, and the monthly payment model makes it even easier, but I’m not sure Apple wants to separate its new high-end phone so much from the other models, especially without cost differences to justify the price differential,” said Dawson.
Avi Greengart, a mobile phone analyst with research firm GlobalData, said commenting at this point is just “posturing and conjecture on top of unsubstantiated rumors,” but he does view Apple’s potential move in segmenting its iPhone line into regular and super-premium segments as a sound idea.
“Segmentation is sound business strategy” because it maximizes profits by selling higher margin things to people willing to pay more, said Greengart. “In Apple’s case, creating a super-premium line also helps correct for the curse of its success—iPhones sell in such high quantities that Apple cannot adopt new technologies and materials that are not available in 200 million per year quantities.”
At the same time, though, the move wouldn’t be a slam dunk, Greengart said. “Apple is not a luxury brand for wealthy consumers,” but is an “approachable luxury brand” for a wide group of consumers, he added.
“Its products are designed for mainstream consumers willing to pay a premium for a device with elevated design and performance in key areas with tightly integrated software and services. The one time that Apple tried to push into true luxury was the original Watch Edition. That was not a success and invited unwelcome ridicule.”
Greengart said the real danger comes if segmentation means that consumers priced out of the super-premium product are not excited about buying the regular iPhone and as a result delay purchases of new phones, which “could be devastating to Apple’s earnings.”