Apple Has to be Working on a Lower-Cost iPhone

Is Apple working on a lower-cost iPhone? Yes, some say. No, others say.

To be sure, Apple tends to stake out the high end, “premium” position in a market, and really does not “chase market share at any cost.” But none of that means Apple can avoid gearing the price of its “premium” devices to big and growing global markets.

The reason is simply that any mass market product, in a local market, will have a retail price that reflects all other prices. In other words, what an Apple iPhone costs, in nominal currency, in North America, Japan or Western Europe is one range of numbers.

If the iPhone is to become a product available to middle class consumers in many global markets, an iPhone cannot cost the same, in nominal terms, in developing markets, as it does in developed markets.

The reason is simply that virtually nothing a consumer purchases in a developing market costs the “same” as in a developed market. In fact, a better way of calibrating prices is to look at products as a percentage of income, whether household income, per capita income, or some other measure of “personal income.”

The price of a fixed broadband subscription in Sri Lanka, for example, cannot be compared to prices in the United States or elsewhere, in nominal prices, with much actual meaning, even though that often is done by observers fond of comparing prices across national boundaries.

What makes more sense is the percentage of income, or disposable income, a fixed broadband subscription represents, in a specific country, not the nominal price. The reason is that, in any country, the “affordability” of the product is quite similar in virtually all other countries.

Generally speaking, such a subscription price leads to widespread adoption only when the price, as a percentage of household income, drops below five percent, whatever that means in local terms.

By the same logic, the price of an iPhone cannot really be the “same” in every national market, if all Apple wants to do is capture the “premium” position in the mobile phone market.

Whatever one assumes the local price has to be, that number will be lower in many developing nations than in Western Europe, North America or Japan.

That is simply because the retail price of the iPhone will tend to represent the same percentage of annual income in each market, as a “mass market” product. The wealthy in any nation will pay roughly the same nominal prices because they will tend to buy those products either directly in developed markets, or from high-end retailers who stock global luxury goods.

That means even a premium device, in many developing nation markets, will cost less than a similar product in a developed nation. And that is why Apple “has” to create a lower-priced iPhone.