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Apple iPhones cost too much. There, I’ve said it. But this isn’t the first time I’ve said this. In fact, I’ve said many times that Apple needs to develop a lower-cost version of the iPhone if the company expects to dominate sales beyond North America and Europe.
The last time I wrote about this, which was three years ago, nobody listened. But now, with Android sales far surpassing iPhone sales and with sales of the lower-cost iPhone 5C picking up strongly, the need for a lower cost iPhone is becoming more clear. What puts the icing on the cake, however, is the success of the various iPhone trade-in programs.
During the earnings call held by Apple on July 22, an analyst asked Apple CEO Tim Cook whether the iPhone trade-in programs were resulting in sales of lower-cost used and refurbished phones that might be cannibalizing the sales of new iPhone 5 units.
Cook’s response (you can hear it for yourself at about minute 36 in the conference call recording, but you’ll need to use an Apple product or Safari for Windows to listen) was that the iPhones sold as a result of such trade-in programs were “hugely beneficial” to Apple.
According to Cook, “More people are able to join the party,” this way. Cook noted that there are a lot of people who are “price sensitive,” as he put it. This means that they can’t afford or in some cases don’t want to pay the full price of a new iPhone.
It’s important to remember that in most of the world, an iPhone costs substantially more than it does in the U.S. and Europe. I’ve seen iPhone prices above $1,000 in some parts of south Asia and the Middle East. And remember the cost of the phones isn’t subsidized as it is in the US.
Considering the relative income of most middle-class business users and consumers in these places, it’s easy to see why a new iPhone 5S is beyond their means. But a refurbished iPhone 5 is less expensive and an iPhone 4 and 4S are less expensive yet. This means with these older phones, more people can own iPhones and, as Cook said, become part of the Apple ecosystem.
Cook noted when he spoke about the benefits of distributing refurbished and used iPhones to people in developing economies that once people buy one Apple product, they tend to buy more products.
Tim Cook Admits Lower Cost Used iPhone Sales Are Good for Apple
He also noted that at some point these people will decide to buy a new full-price iPhone.
While Apple sells some of these previously owned phones itself, most apparently are sold by third parties. But they serve the same essential purpose, which is to expand the iPhone universe. After all, a certain number of those iPhones will generate accessory sales, music sales, which generate other revenue for Apple.
So it’s all good, right? One way or the other, more iPhones mean more loyal customers and more revenue. But is using the third-party market for used devices really the best way for Apple to expand its market share? Chances are other industries that face similar problems have learned better approaches.
A good example might be the automotive industry, which bears a close resemblance to the smartphone market. Every maker markets a number of vehicle models at different price points so that more people can afford their products. In addition, companies that sell globally tailor their products for each market.
One thing I’ve noticed when I travel is that some automobiles that are selling for a lot of money in the U.S. sell for much less in less affluent markets. Mercedes Benz, for example, sells expensive luxury cars in the U.S. But if you travel to developing markets, you see examples of Mercedes Benz cars that are affordable to people at all income levels.
I routinely find myself in taxicabs made by Mercedes Benz, for example, riding in cars that are nowhere near as luxurious as those in the US. Their more modest appointments make them affordable to people at a wide variety of income levels.
While there is a healthy market for used cars exported from the U.S., auto companies sell a lot of new cars in foreign markets for a lot less than what they cost in the U.S.
So why is Apple still insisting on selling only two lines of iPhones, both of them expensive? Mr. Cook’s predecessor apparently didn’t have the vision making Apple a global smartphone maker and as a result didn’t feel the need. But Tim Cook has figured out that Apple is a global company. Because of this, Apple needs to expand its product offerings to include phones that more people around the world can buy.
Failing to produce an affordable version of the iPhone only leaves money that’s picked up by phone makers who are more than willing to sell smartphones that everyone can afford, such as Android models, for example, but not Apple.