Our ancestors knew the pleasure of leaves crunching underfoot. We know the delight of peeling the plastic from a new iPhone.
Eventually, that new-gadget feeling fades. The time comes to buy a newer, better product. For those in Apple’s ecosystem in particular, the process can become a blur of comparison shopping. There are eight modern iPhones to choose from if you count the Plus models and last year’s iPhone X; four Apple Watch options; five iPads; and seven Macs before you even start to adjust their specs.
Though the rate at which people replace their old phones has slowed, they’re still upgrading within two years on average, and Apple sold more than 216 million iPhones last year. The dizzying cost-benefit calculation happens all the time.
“It is very hard to know that the ‘best’ is, and this drives maximizers to look at what others have,” says Barry Schwartz, author of The Paradox of Choice and a professor of social theory at Swarthmore College.
Those “maximizers” are all about identifying the best of available options, particularly when it comes to products that say something about the person who owns them — luxury goods like the iPhone, for example. Schwartz says his research has shown that being confronted with many appealing and comparable choices makes consumers more likely to be dissatisfied with whatever choice they ultimately make.
The least expensive iPhone on the company’s site is the 32GB iPhone 7, which costs $449. Of course, the iPhone 7 doesn’t have all of the latest features, like Face ID, a dual-lens camera, or a giant screen — which has become the defacto symbol of the latest and greatest in smartphone technology. The other extreme is the 512GB iPhone XS Max, at $1,449.
Consumers who want something between the least and most expensive models are faced with a ton of confusing options. Do you want to pay $749 for the tricked-out iPhone 8, or just $50 more for the 128GB iPhone XR? Apple plans these options carefully to guide consumer behavior. Consider a 2014 analysis about the iPhone 6’s storage options: The not-quite-enough 16GB model existed, in part, to drive consumers to a more expensive storage tier the next time they upgraded. Apple’s brand is engineered to be aspirational — by setting price points strategically, the company encourages people to move up to nicer models and spend more money when they decide to upgrade.
Apple knows that its customers are willing to play ball, because what we’re all after when we turn to the company is ultimately not the absolute perfect camera to take selfies.
Decisions don’t get any easier when it comes to Apple’s laptops. The latest iteration of the 13” MacBook Air improves on its predecessor with Touch ID, a fancier Retina display, a more powerful processor, and less weight. Is that worth paying $200 more than the older MacBook Air, which also has an arguably superior keyboard design? If you decide it is, maybe you should shrug and cough up $100 more for the powerful 13” MacBook Pro or the 12” MacBook, which, for some reason, is lighter than either of the Air models.
With its pricing structure, Apple creates a pre-purchase crisis of value. Adding or subtracting $100 — not a whole lot, given how expensive these devices are — can drastically transform the options in front of you, though the impact isn’t always clear. For example, this year’s iPhone XS is close to identical to last year’s iPhone X, which you can still buy from mobile carriers. One of the only technical differences between the two is the camera’s lens, which has shifted its focal length by 2 millimeters this year. Is that worth more money, and would you even know how to decide?
“It’s easier to justify the higher price when you are going to use it every day for the next, at least, two years,” says Daniel Ladik, an associate professor at Seton Hall University who focuses on marketing strategy.
Of course, Apple doesn’t do this for sport. Options are a great way to make money — and it’s better at that than any other corporation on this planet. Don’t forget: Apple was the first company to ever reach a $1 trillion valuation.
As Thomas Husson, a market analyst and vice president at Forrester Research, explained to me in an email, part of that valuation is due to Apple’s ability to put a premium on the devices they do sell, leading to an increased overall average selling price, or ASP. Though people have started to hold onto their devices longer, Apple has started to earn more revenue via services like the App Store, Apple Music, and Apple Pay.
“They are pivoting toward a service model, and what matters is high usage among a significant active installed base,” says Husson, who added that the company’s ability to manage prices over a product’s life span also helps Apple keep profits high. For example, the iPhone 7 retailed for $650 when it debuted in 2016, while today it sells for $450. Both prices still offer the company generous returns for a product that reportedly costs $238 to manufacture.
That initial premium also boosts demand for these luxury products down the line. As analyst Neil Cybart recently explained on his blog Above Avalon, more and more customers are coming into the Apple ecosystem via “gray market” iPhones — those devices sold refurbished or secondhand.
“As the gray market for refurbished iPhones continues to expand, Apple will face less pressure to come out with lower-priced iPhones with fewer features in developed markets,” writes Cybart. Consider the iPhone 7: The device was marketed as nothing less than miraculous when it originally released in 2016 to justify its $649 asking price, and now you can get one for $250 on eBay. Apple doesn’t have to make a “budget” iPhone, because every new model will eventually sink to an affordable price point.
Customers looking for low-priced iPhones have the gray market to turn to, which is fed by mobile carriers’ and Apple’s own iPhone Upgrade Program. That Upgrade Program allows customers to pay a monthly fee on iPhones rather than one lump sum, and they can exchange their devices for a new one after a year, though it would normally take 24 months to pay the entire thing off. Those exchanged devices aren’t tossed into the garbage: they’re refurbished and resold, essentially giving Apple two bites of the, well, you know.
“While it may seem counterintuitive, a healthy iPhone gray market can boost sales for higher-priced flagship iPhones,” Cybart writes. “As the number of iPhone users take advantage of these upgrade services, Apple sees a growing stream of annual iPhone upgrades,” and the older devices can be resold when they’re returned to Apple.
As Ladik said, the structure plays off on an individual’s desire to have the very best of the options available to them. Do you really need a telephoto lens, and if so, do you need the wider aperture on the iPhone XS compared to the iPhone X? Who can say? It’s only $100 more, so maybe you just pull the trigger.
Apple knows that its customers are willing to play ball, because what we’re all after when we turn to the company is ultimately not the absolute perfect camera to take selfies — you might get a Pixel 3 for that — or the optimal processing power to scroll mindlessly through Instagram.
What consumers are after is the feeling that comes with holding that new product in your hand. It’s more than just euphoric superiority, although it is a lot of that. It’s a sense of reassurance, a guarantee that in this ever-advancing world, you’re not getting left behind. Apple has mastered this modern sensation. And it’s going to make you pay dearly for it.