Apple is expected to launch its new iPhone 15 Pro series devices at a higher price point than what it charged for its flagship devices earlier. Given how the smartphone market has been shaping up over the past two or three years, with companies struggling to increase their user base in most markets, one should not be surprised. In fact, increasing the average selling price (ASP) makes good sense for a company like Apple while it can be disastrous for some other smartphone companies.
Now, let me start with some data to explain what I mean. Since 2018 Apple has mostly played second fiddle to Samsung when it comes to its share of the smartphone market. However, for most of this period, Apple has had almost double Samsung’s share when it comes to value. In simple terms, Apple makes double the money by selling fewer phones than its Korean rival (see graphic below).
Given that growing the volume in the smartphone space — especially if you are an Apple with no play in the entry and budget segments — is going to be an uphill task, you will see this strategy become more prominent in the coming quarters. In fact, Samsung too is using its Fold series and other flagships to push the ASP of its offerings.
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But in this game, Apple has one clear advantage — the loyalty of its users. Compared to other brands, Apple users are much more loyal and have a higher chance of being recurring customers, most of them over many generations of the iPhone. This is because Apple’s ecosystem and ease of use gradually locks you in such a way that moving out is no longer an option. If you are an Android phone user then you can switch much more effortlessly from a Samsung device to say a Google Pixel, because the ecosystem is more brand-agnostic. The Apple ecosystem is not something you can use across other brands.
And for Android phones to try increasing the price by offering something that other phones still offer at a lesser price will only mean putting off even core users who might just opt to switch to another brand. Android brands are realising that they have missed out by not working on this ecosystem much earlier. Everyone wants to tout their ecosystem now. But the fact is they are too late and even if they start now, it is not going to reap dividends so quickly.
Meanwhile, if you have been in the Apple funnel for a few years it is only natural that you are updating yourself with new phones. Now, this is where Apple has been quite smart by not pushing a lot of top-end features to the entry-level iPhone each year. So when an iPhone user prepares to update to the latest phone, there is some pressure to upgrade too so that they get the latest features that future-proofs them.
And it is a fact that most Apple users hold on to their phones now for much longer. This is mostly due to two factors. One, Apple phones obviously last much longer than Android phones. Two, given that most users have paid a premium for these phones, they don’t want to change phones as easily as they would with cheaper models. So given this aspect a lot of buyers are looking at how relevant their phones will be three or four years down the line.
If you are buying a new iPhone 15, the chances are most of the features would have been featured in earlier Pro models. So for a long-term user, it would make sense to pay a bit more and get the latest Pro features upfront instead of having to wait for it, or even worse, completely skipping them.
This is not to suggest the strategy works for all users — it certainly will not for a lot of price-sensitive users, especially when the economic environment is not that positive. But for a big chunk of users, a higher ASP is not something they will ponder over beyond a point, especially if they are upgrading as part of a plan with no upfront payment.
So every year Apple will hope to push a substantial percentage of its users to higher value upgrades so that they offset the value of users who have skipped an update this year or moved on to other devices. This is why you hear Apple talk more about the features in its Pro models than its entry-level phones. And this strategy, creating a FOMO for even its satisfied core users, helps it push up the value of iPhone sales even in a shrinking market.
The problem with such a strategy is that the funnel will dry at some point and you will run out of buyers who can be pushed for an upgrade each year. Or at least this number will cease to be substantial. This is where Apple will have to focus on getting more users to move to their first iPhones. A lot of its core markets like the US, Europe and Australia are saturated with new user acquisition. China was supposed to fill this gap, but larger politics has started taking its toll on Apple’s plans for this market.
And this is why India will be crucial. And it will be critical that Apple makes iPhones more accessible in this market. Apple has already done its bit with some programs that soften the blow of buying an iPhone. And with manufacturing moving substantially to India, there is a hope that some benefits will start rolling out in terms of pricing too as the foreign currency buffer will not be such a big imperative anymore.
While Canalys expects Apple’s market share in India to grow from 6.5 million units in 2023 to 6.8 million units the year after, this would be at a compounded annual growth rate of 10% compared to negative trends in the Android market. But, in contrast, Android is expected to sell upwards of 143 million units in 2024, given it has products across all price points.
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At a global scale, the 6 million new users being acquired this year in India will be a significant part of Apple’s overall numbers and critical to the funnel strategy. The funnel for a new market like India will also have users upgrade across price points as they move from older phones, which are still popular in markets like India, to newer models that cost more. The larger value upgrades will happen in core markets where it will want to see more Pro models sell than entry models as it will suggest a maturing of the users who have been nurtured within the ecosystem over many years.
The fact remains that Apple has, over the years, been clear that it is more of a value-focused brand than a volume-focused one. Going forward you will see Apple focus on markets like India where it will create the volumes needed for its value strategy.
The author will be covering the iPhone launch from Apple Park on the invite of Apple.
First published on: 12-09-2023 at 07:19 IST
