On September 12, 2018, Tim Cook walked onto the stage to announce three new iPhones – iPhone Xs, iPhone Xs Max and iPhone XR. These probably are the only iPhones Apple introduced without marketing a killer feature (5s had 64 bit processor and Touch Id, 6 came in different sizes, 6s came with 3D touch and Live photos, 7 introduced dual cameras, X had an all new design, face Id and Animoji.) The keynote didn’t specifically market one such killer feature for iPhone Xs or Xs Max. One could argue that this is peak incrementalism and Apple’s innovation had peaked but the phone market as such is reaching saturation and Apple is still at the top of the game. The discussion on whether iPhone is the best phone in the world is best left for consumers to decide and is not in scope of what I would like to cover in this post.
But what I think the departments are that are doing a wonderful job at Apple are Product Strategy and Marketing teams. Here’s why:
The Naming
There are numerous people calling the naming “Xs Max” ridiculous and forced differentiation, suggesting Apple is better off calling the bigger model “Plus” keeping it consistent with the previous naming conventions. I disagree. The Plus models previously always had better features in comparison with their smaller siblings. 6s Plus had optical image stabilization, 7 Plus and 8 Plus had dual cameras. So the naming of “Plus” referred to added features in addition to screen size. Here, the difference between Xs and Xs Max is just the screen size and a bigger battery. They are the same feature-by-feature. So the naming of Xs Max instead of Xs plus is a masterclass in product marketing.
The Pricing
The following chart shows how the pricing of iPhone evolved over the years.
While the Plus models traditionally allowed Apple to charge higher for users who wanted just the best, the defaults had always been the smaller models. iPhone 7 ($649) was the default. You need a bigger, better phone with dual camera and all the fancy portrait effects on camera, you got the iPhone 7 Plus ($769). iPhone 8 ($699) and iPhone 8 Plus ($799) were the defaults. You need a better phone with face Id and Animojis, you got iPhone X ($999).
The trend seems predictable? You think. This year, here’s the message: iPhone Xs ($999) and iPhone Xs Max ($1099) are the defaults. You need a more affordable phone? You’ll get the iPhone XR. ($749)
The phone sales are flattening, consumers are using the devices longer and upgrading less frequently. The only way to increase revenue from this product line is to increase the prices and they are convincingly doing that.
Here’s CNN on Apple’s Q3, 2018 earnings:
Apple’s revenue increased 17% to $53.3 billion, a new record for its fiscal third quarter. The jump comes despite flattening iPhone unit sales. Apple sold 41.3 million iPhones during the three months ending in June, little changed from the 41 million it sold in the same period a year ago.
A mere 0.7% increase in units sold brought 17% increase in total revenue. While this is attributable to increased iPhone X’s price, I expect this to be a recurring theme for years to come. Apple has been successful in pushing ASPs (Average Selling Price) higher and higher and this year will not be an exception.
Not only is the cheapest iPhone $50 costlier than the previous year’s entry level iPhone, the defaults are now the more costlier iPhone Xs and Xs Max. This will push the revenues even higher.
The final Message – Keep using your Phones Longer
Lisa Jackson (VP, Environment) at the iPhone Launch (Emphasis mine):
We also make sure to design and build durable products that lasts as long as possible. That means long lasting hardware coupled with our amazing software. All of these devices including the iPhone 5S run iOS 12 and iOS 12 is designed to make your iPhone and iPad experience even better, even more responsive and faster. And because they last longer, you can keep using them and keeping using them is the best thing for planet . When it comes to new iPhone Xs, you can feel confident that it too was designed for another long life of use. Either way, its good for you. But its a huge win for Planet.
Here’s what it means:
To consumers: While you lament the increased pricing, rationalize your purchase by thinking about money spent per year of use rather than the absolute upfront expense. That way, you can feel comfortable and continue to buy our products at increased prices.
To Investors: You’ll definitely see a decline in direct unit sales. But as ASPs are increasing, revenues will increase and growth rate is guaranteed.
A masterclass in Product strategy, Messaging and Marketing indeed!
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