Will people still buy the $999 iPhone?
It is well known that consumers pay for a product based on the value it brings them. People are prone to pay a lot more for emergency medical surgeries, than the sum costs of that medical service. The value that a product or service creates varies from person to person and time to time. At times, companies optimise revenue by selling the same product, or a slightly improved version of the product to less number of people at a higher price.
Price differentiation at Apple
Apple has used memory capacity to sell the same product to different consumers at different prices.
At a scale of hundreds of millions of units, the cost of extra storage is almost negligible. Yet, the end consumer pays a $100 more for higher storage capacity in iPhone 7.
Given hundreds of millions of people buy Apple’s iPhones, there are several segments out there that are willing to pay a lot more than the extra $100. For them Apple has a bigger screen version, accompanying “original” accessories and the noteworthy $159 wireless earphones branded as “airpods”.
A big jump in price — even for Apple
But the real change with the iPhone X is that even the cheapest model is selling at $999: a good $450 and 80% higher than the cheapest iPhone 7 it is replacing as the flagship. Yet, I am confident that people will still buy it, flaunt it and iPhone sales will grow more than ever. Here is why.
“You can’t put a price on a Picasso … you can’t put a price on these songs, there’s no value on them. They’re the best songs that have ever been written.” — Micheal Jackson while buying Beatles’ music rights
How much is your smartphone worth to you?
We already know that the value that smartphones bring to life has is considerably grown over time. It has become the most important device for anyone who owns one. It is a camera, calendar, newspaper, webcam, alarm, fitness tracker, gaming machine, social networking, mailbox and much more all rolled into one. But with the passage of time, the apps on AppStore and way people use those apps have gotten way better. They create so much more value for people, that often people spend more times with their phones than they do with family members. It is the device that connects you with your family and friends, with your colleagues and the wider world of the internet. What price tag would you on that?
What device brings most value in your life? If you could compare apples and oranges
- Your smartphone
- Your car
- Your laptop
So which device should cost more? Your phone or your car?
Value Vs. Price
Michael Jackson offered $40 Mil for rights all of Beatles music when he knew highest bidder was offering $30 Mil. When asked why he wanted to pay $10 Mil more, “You can’t put a price on a Picasso … you can’t put a price on these songs, there’s no value on them,” Jackson reportedly said. “They’re the best songs that have ever been written.” It turned out to be the best financial investment of his life.
Conclusion
I am not surprised by the $999 pricetag for the iPhone X. I am confident that in reality hundreds of millions of people are willing to pay a lot more for their smartphones. However, a higher price makes it viable for other companies with smaller economies of scale to compete with Apple’s flagship iPhone. Looks like that is a risk Apple is willing to take.
Let’s hope for more exciting times ahead.
Abhishek heads product strategy for http://akrity.com/ — a software innovation company helping companies build and launch new products.
