Lessons From The iPhone 5c

If the rumors are to be believed, Apple’s new iPhone will be unveiled in about a month. Most rumors point to a larger screen being used, but it is still unknown whether their will be a model that is significantly cheaper than the flagship. That is, will there be a model that will be priced in the $2-300 range, which is the average for mid-range Android smartphones.

I really don’t have much to say about this, except for the fact that it is a very complex issue (as Benedict Evans has pointed out), and that I think we should try to learn harder from the iPhone 5c.

What I have observed from the iPhone 5c is;

  1. A 100 USD price differential will not cause customers to abandon the flagship model and swarm to the lower cost one. In fact, cannibalization seems to be minimal. It is possible that if the price differential is increased to 200 USD or even 300 USD, then customers will move to the lower-priced model in droves. That is however unproven and the magnitude is highly speculative. It is feasible that a 300 USD will still result in minimal cannibalization.
  2. The sales of the iPhone 5c seems to have improved later in the product cycle. That is, the ratio of iPhone 5c as a percentage of total iPhone sales has risen. I have also anecdotally observed this in the super-subsidized Japanese market. Hence I suspect that the recent rise in popularity of the iPhone 5c is not directly related to price. It is possible that some consumers simply want a product that displays their individuality, like a fashion item.
  3. Sales of the iPhone 5c have been substantial despite it using the previous year’s technology. Hardware technology does not seem to be the driving issue.

My thoughts;

  1. Apple could sell a much lower cost model without worrying about cannibalization of the flagship.
  2. Apple could sell large volumes without going down to the regular mid-range price.
  3. The lower cost model will not sell just on price. It will need to have a fashion element that differentiates it from the flagship.
  4. For the technology inside the lower cost model, it is sensible for Apple to continue their current strategy. That is to use the former year’s flagship technology. Technology progress is not as rapid in the core CPU and RAM functions as it used to be, and the iPhone 5c is sufficiently fast. Having said that, it is important for Apple to invest in new hardware technology that can not be copied in a single year. For example, 64-bit and Touch-ID have given Apple more than a year’s head start. Sapphire will also be hard to copy given the supply chain situation.