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For virtually all of its history, the iPhone has contradicted traditional predictions about how product prices develop over time. That is, according to price skimming strategies, the iPhone should have supported premium prices initially, reflecting people’s excitement about the new technology. And new models with substantially improved features or technologies might similarly prompt a high willingness to pay. But in this model, the predictions also assert that prices will start to come down, especially as more people obtain the novel offering. Thus far, Apple seemingly has avoided that latter trend; even as millions of people, all over the world, have become equipped with smartphones, it has continued to charge a price premium, with prices reaching around $1500 for recent introductions.

But the tide may finally be turning. In introducing its SE iPhone model, Apple offered a lower priced version to appeal to consumers who balked at having to pay four figures to obtain an updated device. The design of the SE is notably functional. The body of the phone lacks the same visual appeal of recent versions like the iPhone 11 or XR, but its innards contain some of the most up-to-date technology. It offers a good camera, fast processing speeds, and even recent updates like wireless charging, just with a smaller screen. And it kept the home button that disappeared from the most recent models.

Such an option is particularly appealing to people who must purchase a new phone, perhaps because their old one broke, or its software was no longer supported, but have little desire to do so. Although they might switch to another provider (for many consumers, the choice not to own a smartphone is no longer realistic), they also may want to stay with Apple, having grown accustomed to using its operating system. Accordingly, the target market for this model is people who have owned their previous iPhones for three to five years, as well as people who have previously purchased used devices.

The move likely reflects both consumer demand and market trends. That is, people have asked for sturdy, functional phones, without the latest bells and whistles, at a reasonable cost. When they could not find them, seemingly, they limped along with their old phones—which in turn was a contributing factor to the consistent declines in global smartphone sales over the past four years.

If sales are dropping, smartphone sellers need to find new target markets, and an inexpensive iPhone might be ideal for doing so, increasing Apple’s access to consumers that earn lower incomes and have fewer financial resources to spend to obtain their technology tools. That expanded access implies that the company might find new sales opportunities in developing economies, as well as among consumers in developed markets whose incomes have been hit hard by the coronavirus.

Discussion Questions

  1. Why was Apple able to maintain a price skimming strategy for its iPhones for so long?
  2. How should Apple revise its pricing strategy moving forward? Can it still use price skimming in any markets or for any of its products? Which ones?

Source: Brian X. Chen, “Apple iPhone SE Review: A Superb Smartphone for a Humble Price,” The New York Times, May 6, 2020; Brian X. Chen, “Apple, in a Virtual Unveiling, Introduces a $399 iPhone,” The New York Times, April 15, 2020; Shira Ovide, “Your iPhone Costs Too Much,” The New York Times, May 7, 2020.