Apple has created a counter-intuitive business success with iPhones across the last couple of years. It’s managed to upsell the world to purchasing its more expensive Pro models, and we think it aims to do the same again this year.
The company has recognized that when it comes to the computer that is always with you, customers want the best device they can afford. That’s not to say lower-cost models don’t sell, because they still do; but from Apple’s point of view, it makes solid business sense to set prices and features in such a way that shoppers are always tempted to stretch to a much better model for a few dollars more.
The thing is, when most people have and need a smartphone, business isn’t just built on achieving the sale, it’s built on maximizing the profit made per sale.
Go where the money is
The hypercompetitive nature of smartphone sales means the low-end consists of a huge industry of low profit, low quality devices sold at such aggressive prices that even while the number of boxes shifted may be high, the revenue per user just is not.
This has always been a problem across the entry-level Android market, prompting price wars, company takeovers and users disappointed at the shortcomings of their cheap device. Where do switchers come from?
Apple has never really dabbled in the market for low-cost smartphones. Its more affordable iPhone SE is still a mid-priced smartphone. The only real way into the iOS ecosystem otherwise is to purchase second user phones, which is probably why iPhone dominate the second user market on a global basis.
While battery replacement seems mandatory after a certain age, shoppers recognize that even older iPhones are still great phones – and get software and security updates.
None of this is rocket science, of course, but the critical aim is to retain an aspirational sense to Apple’s brand while delivering compelling tools and features that seem to actually benefit people’s lives. This approach means Apple continues to widen its share of the smartphone market while others decline.
Samsung aims higher
Samsung has now come forward to show us, once again, that the age of cheap Android devices is over. The Apple competitor has shifted into a new gear, attempting to introduce more expensive models (with wider margins) than its prior price points, equipped with interesting features such as the foldable Fold. (Apple is rumored to be looking at folding devices, but not quite yet.)
However, when it comes to it, Bloomberg argues that Samsung is copying Apple with modest phone and watch upgrades. The critical thing about that isn’t actually the feature sets of the new Samsung devices, but the way in which the company is attempting to attract customers to its higher end devices.
You don’t need to look too closely to figure out why Apple’s biggest competitor is doing this. Smartphone sales across the world seem to have slowed down. Consumers are shifting to buying less, while getting more, which favors sales of better featured devices — and Apple is profiting in this.
The new smartphone gold rush
At the same time, one of the emerging bright stars for global consumer electronics sales is India, where Apple is building market share at the expense of cheaper Android devices.
Counterpoint says Samsung is holding steady in India’s smartphone market with 18% overall share. But it’s Apple that leads where the actual profit is at the top of the food chain. In that category, Apple has seized 59% of India’s smartphone sales, even as the size of the premium market in India grew 112%.
India is already one of Apple’s top five smartphone markets with plenty of upside still to explore.
So, what’s happening?
What seems to be emerging is a picture in which lower-cost devices continue to sell in quantity, but margins are tight.
In the context of continued economic challenges and the constant drive toward environmental sustainability (except in poorly-led economies), that’s not a sustainable business model— particularly when so many vendors in that part of the space could be affected by increasing tensions with China.
And in the background, continued restriction on use of conflict minerals sourced from the embattled heart of some of the world’s most dangerous places forms another constraint against low cost devices, raising the cost of doing business while eroding the available bottom line.
For Apple, and now for Samsung, the only direction that makes any kind of sense is up. These myriad momentums are already transforming the smartphone game and it’s not yet clear how all the cards will fall. But it seems highly probable we’ll all be paying more for our smartphones.
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