Is Apple’s Pricing Scheme Hurting Its Profits?

The strategy Apple adopted a couple of years ago of continuing to sell older iPhone models at reduced prices has helped broaden adoption and penetration at the lower end of the market. But another side-effect is that it reduces the average selling price (ASP) of Apple phones, and also the subsidy that they get from carriers.

The implication is that this will lower their gross profit margins from the iPhone business, which has been the leading profit generator for the company.

All of this is of concern as new research estimates that the iPhone 5 accounts for significantly lower percentage of the overall iPhone sales distribution a month into its life than the iPhone 4S did a year ago.

However, there are a few important details that I found lacking in the data:
– The iPhone 4S peaked in popularity at launch, and gradually lost share to the iPhone 4 ever since.
– The iPhone 4 was offered in a 8GB-only version, whereas the 16GB iPhone 4S matches the memory of the iPhone 5
– Whereas the iPhone 4->4S upgrade was significant, the iPhone 5 brings about a new screen size and LTE.
– Apple has kept the 16GB-32GB-64GB increment at $100 whereas everyone else has dropped it to $50.

When you look at the iPhone 4S launch, the numbers heavily favored the 4S over the 4 and the 3GS, and also 64GB sales were nearly on par with 32GB and just a bit behind 16GB. To me that suggests the dominance of ‘early adopters’ and ‘Apple faithful’.

But looking at the iPhone 5 numbers there were plenty of $99 16GB iPhone 4S sold as well as 16GB iPhone 5 – and fewer 64GB iPhone 5s than (free) iPhone 4 8GB phones. This suggests a more mainstream launch, with many who saw the opportunity to grab a bargain and were perhaps unimpressed with the iPhone 5 (or not in a LTE area).

But it also shows a move away from grabbing the largest storage version automatically – and based on my 16GB iPad Mini I have been thrilled and amazed at just how well iCloud allows me to work with everything I need and still leave plenty of space for new apps or movies or other stuff.

What do you think about the shift in device distributions?

Source: AllThingsD

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