Is Apple’s $1000 iPhone Launch a Courageous Move?

The much-awaited launch of the season is here—Apple iPhoneX, iPhone 8 and iPhone 8 Plus. The media is abuzz with the specifications that they offer. iPhone 8 comes with 4.7-inch Retina HD display with True Tone and iPhone 8 has a 5.5-inch Retina HD display with True Tone.

The phones are embedded with A11 Bionic chip, a six-core processor with four efficiency cores. And the list of specifications goes on, but one stops at the high-end prices of the devices. A price of $1000 is a bold move by Apple at a time when the devices market is seeing saturation globally.

However, some analysts are of the opinion that even though the price is exorbitantly high this time, but Apple is a brand and it’s more about owning a brand or owning luxury.

Faisal Kawoosa, General Manager , Research & Consulting, at CMR, says:” Apple has got a niche for itself. It is more about possessing a luxury product. And there’s no doubt that Apple is going to make money out of it, though not in volume terms, but the price would help in value terms.”

According to Loizos Heracleous, Professor of Strategy, of Warwick Business School, "Apple’s introduction of a $1,000 iPhone is consistent with its business strategy of differentiation and exclusivity, targeting the higher end of the market rather than just aiming for a larger base of users. Given that the iPhone accounts for the majority of the company’s revenues and profits and its demand curve is relatively inelastic - ie a price change has less affect on sales - this pricing strategy makes sense in terms of revenue and profit growth.

Heracleous also adds, “This pricing move is an example of the essence of strategy: being able to make tough choices that are meaningful for company performance…No move is risk-free, but as things stand, this seems like a courageous move that should turn out positively for the company in terms of performance, and create some distance from competing brands in terms of exclusivity."

This move is also consistent with Apple’s image in important emerging economies as an exclusive handset and as the real thing, despite the availability of much cheaper imitations. While it may constrain rapid expansion of users, it strengthens the brand's image and desirability as the mobile most people will buy when they are able to.

Apart from removing the home button enabled by a new type of screen on the highest end model, Apple is also continuing to focus on its intense levels of efficiency in production and more broadly at the operational level, by using a largely consistent design, operating system and functions across its different iPhone models.

Dilemma for Apple

In the India market, the dilemma for Apple, of course, would be the high price, while aiding exclusivity and strengthening its premium strategy, may also constrain its growth in particular emerging economies. However, if Apple decides to offer cheaper versions of its products in particular markets, or lower prices for the same products that are more expensive elsewhere, it will create bigger problems for itself.

Cheaper versions of its products sold anywhere, will detract from its overall premium strategy. The same products sold more cheaply in some markets will quickly create arbitrage options that will be exploited by enterprising entities, which would create inconsistency in Apple's premium strategy.

"So, Apple chose to maintain a consistent strategy worldwide, and ride the growth of emerging markets and the expansion of the middle classes as it occurs. While this may not be the ideal option for the Indian market right now, the other options are worse for Apple. It is also a matter of time before more and more people can afford Apple products in India and other emerging markets," opines Heracleous.

In India, Apple shipments stood at 1.4 million so far (Q1+Q2) in 2017.