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Computer HackThe introduction of the fifth iteration of the iPhone offered consumers two options: They could shell out $100 more to buy the high-end iPhone 5S, or they could save a little money and go for the less expensive iPhone 5C. It seemed like a brilliant move, allowing customers to segment themselves into different groups, according to their willingness to pay.

But maybe in this case, Apple did not quite understand what customers wanted. The 5C model is selling so poorly that Apple has been forced to lower its projections and reduce its orders with assembly plants. The weak demand even has led some retailers to cut their prices on the unpopular 5C model.

This pricing tactic appears to be failing for two main reasons. First, even though it is $100 less than the 5S, the 5C model is still pretty expensive. The idea of paying more than $500 for a product that is the acknowledged lower end model probably does not motivate many buyers. Spending a little more for the latest and greatest model, with a better camera, more color options, and a fingerprint sensor, instead might be more appealing. Second, plenty of other options are available to price-sensitive shoppers, including not only Android phones by competitors but also plenty of stock of earlier iPhone models, such as the iPhone 4, which often can be found for less than $200.

The introduction of the two versions of the update probably represented Apple’s effort to respond to pressures to access a wider international market of buyers with weaker purchasing power. For example in China, Samsung offers a basic smartphone for the equivalent of around US$100. Apple has no offering at this price point, which suggests it may be missing out on a massive market.

Yet these developments also are not all bad news for Apple. Even as sales of the 5C have slumped, the 5S is selling well. Perhaps Apple’s mistake is really just a stroke of marketing genius: Rather than accepting a lesser model, customers on the cusp apparently are trading up and spending more for the 5S. That means more profits, even if the supply chain needs to shift its production schedules.

Souce: Lorraine Luk, Eva Dou and Ian Sherr, “Apple’s Dual iPhone Strategy in Doubt,” The Wall Street Journal, October 16, 2013

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