Demand elasticity of iPhones

On September 12th, Apple announced the release of the iPhone X, with an unprecedented price point of $999. Apple had once again redefined the norm and left many like me wondering, “Who would pay a thousand dollars for a phone?”

I set out to answer that question by measuring the elasticity of iPhones over the years. Elasticity of demand would provide a glimpse into how sensitive demand is relative to changes in price, and given than Apple has an almost cult-like following for the products it releases, so I was curious to explore the dynamics of its products, specifically the iPhone. Furthermore, my intention was to calculate the elasticity for each model to observe the evolution of the price/sales relationship over time.

Methodology:

  1. Collect sales data
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Source: Statista

I scoured the web to find historical sales per quarter for each model, but the best I could find was aggregate sales for each quarter. That being said, a major assumption in this exploration is that the majority of sales for each quarter reflect the sales of the latest iPhone in that time period. Given the rapid evolution of technology and consumer preferences, this assumption makes sense in a real world application.

Once I collected sales data, I sought complete the other half of the equation by gathering pricing data by model.

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Source: Asymco

After all the relevant data was sourced, I pooled it together on Excel and calculated the elasticity for each model.

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Graphing our results and fitting the data to a linear regression model yielded the following:

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Based on this, we are able to infer that as more and more models were released, the elasticity began to decrease. This can be interpreted as consumers becoming less sensitive to price changes over time. If this is the case, then Apple has to leeway to price its products higher and higher, which it is evidently doing.

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Source: Statista

Written by

Analyst @Salesforce | Engineer from @Georgia Tech

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