Apple has pundits up in arms with its pricing on the new iPhone 5C. Most were expecting a significant price drop that would put an iPhone within the reach of consumers in emerging markets—the fastest growing segment of mobile phone buyers. That didn’t happen, the contract-free 5c starts at $549 in the US, and the financial analysts reacted immediately.
A week after the announcement, some journalists have come to Apple’s defense, arguing that premium pricing supports Apple’s positioning as a luxury brand.
So has Apple made a blunder that will cost them India and China? Or have they cemented the iPhone’s status as a premium product, and one to which the emerging middle class will aspire?
Pricing is complex and while we understand that Apple’s gross margin on iPhone’s can be nearly 60%, we won’t pretend to be experts on all of the costs that clearly influence Apple’s MSRP.
We will, however, cite the example of Coach.
According to their website, "Coach is a leading American design house of modern luxury accessories."
Tomayto, tomahto - we call them a premium brand, and they command premium prices (swingpacks in signature fabric start at $128; leather satchels and shoulder bags go up to $1,400; a men's tote in Crocodile can be yours for just $10,000).
At the same time, and as you can read about in depth here, Coach operates its Coach Factory stores.
The brand remains the same but the merchandise is priced to move (no prices online but here are accounts of coupons for 20% off half-price items, $80 purses, and two bags for $218).
Coach and Coach Factory merchandise is actually different. Coach doesn't move full-price items to factory stores—it manufacturers different products for that channel. But only informed fashionistas and hapless Factory store shoppers who try to return items at full-price stores know this. To the rest of the world, Coach is a premium brand that can command thousands for its new, top of the line goods and simultaneously heap discount upon discount onto other models.
We believe Apple could have had it both ways, just like Coach. In order to attract buyers with less disposable income, they could have sacrificed some margin and priced the 5C more competitively (or even lowered manufacturing costs by compromising some features as well as the body materials). They could also have cut prices more aggressively on the 4S (which currently retails unlocked for $450 two years after its launch!!). And they could have done all this while still charging a premium price for the new, flagship 5S, and maintaining their stature as a premium technology brand.
It wouldn’t have affected Apple's premium positioning. It may well have driven significant volume. And it sure would have convinced us to upgrade our aging iPhone 4.