There’s been some recent talk about Apple potentially lowering iphone prices to compete with cheaper makers such as Samsung in emerging markets. Such recommendations are premature and short-sighted though and should be ignored by Apple’s business development planners. Apple products, and especially the iPhone, are recognized as premium products around the world and are often associated with affluence and trendiness — distinctions that Apple should not sacrifice lightly. Advocates for lowered prices seem convinced that the lion’s share of Apple’s branding work as already been accomplished and lower prices will merely make an already desired product more attainable. Moreover, they posit that by selling a cheaper iPhone as a mid-price model, Apple will be able to compete more aggressively with other phone makers while still maintaining its quality associations. These recommendations though generally miss the larger picture.
I would discourage them from taking such a path for several reasons. First, such price reductions may be unnecessary. There are still untapped markets for Apple to access such as China Mobile, the largest telecomm company in China with over 600 million users, that does not currently carry iPhones. Such markets in emerging economies offer an outlet for expansion without any changes to Apple’s business model (or prices). Moreover, a large part of the price burden in these markets comes, not from the wholesale price of an iPhone, but from the lack of phone subsidies tied to contracts that most U.S. carriers utilize. Apple should focus on creating partnerships with these companies to make iPhones available in new markets and more affordable up front (with contract deals) which can increase sales without lowering the price (and therefore affluence and trend associations). Finally, the markets mentioned in this speculation (China, Brazil, India etc.) are growing rapidly and their middle classes are expanding. These middle-class citizens are going to want ways to demonstrate their new found success loudly and publicly and an Apple product such as the iPhone a perfect way to do that.
Any price drops, such as a mid-price iPhone option, may harm current associations with affluence and trendiness that will be so important to Apple in this emerging global middle-class. In China and India especially, where growth is strong, we’ve seen a growth in visibility-centered consumerism that places high value on high-end products such as iPhones. To assume that this high-end association won’t be affected by a mid-price option is dangerous. Wealth exhibition consumerism can be extremely sensitive to perceived lower class associations and can (with its focus on trendiness) abandon products very quickly. These consumers are very valuable as they are both willing to pay top-dollar for a product and are likely to buy the newest variations of a product as soon as it comes out to remain on the trend and demonstrate their affluence.
Ultimately, Apple is going to have to make a decisive choice; whether to continue on as a premium brand in these markets with high profits on each iPhone sold, or accept profits on a larger number of phones. I would encourage them to take the former path, as they will be able to maintain high profit margins on their phones while their customer base naturally expands. Moreover, there is strong room for growth in partnerships with local service providers that can add strongly to Apple’s user base. These two factors, both natural expansion (through economic growth in developing countries) and more active expansion through partnerships and cooperation, will allow Apple to expand while maintaining both its price, and its quality image. Looking at the long-term, Apple is already in a solid position for the future and they shouldn’t sacrifice that based on short-term sales concerns. Their shareholders should remember that.