Professor Loizos Heracleous, expert in strategy & international business at Warwick Business School, analyses the marketing strategy behind Apple’s new iPhone X.
"Apple’s introduction of a $999 iPhone is consistent with its business strategy of differentiation and exclusivity, targeting the higher end of the market rather than just aiming for a larger base of users. Given that the iPhone accounts for the majority of the company’s revenues and profits, and the demand curve is relatively inelastic, this pricing strategy makes sense in terms of revenue and profit growth.
This move is also consistent with Apple’s image in important emerging economies as an exclusive handset and as the real thing, despite the availability of much cheaper imitations. While it may constrain rapid expansion of users, it strengthens the brand's image and desirability, as the hand phone most people will buy when they are able to.
At the same time, Apple is continuing to focus on its intense levels of efficiency in production and more broadly at the operational level, by using a largely consistent design, operating system and functions across its different iPhone models - apart from removing the home button enabled by a new type of screen, and adding face recognition on the highest end model. These are features that will find their way to other models in due course.
The dilemma for Apple when it comes to marketing strategy is this: a high price, while aiding exclusivity and strengthening its premium strategy, may also constrain its growth in particular emerging economies such as India. However, if Apple decides to offer cheaper versions of its products in particular markets, or lower prices for the same products that are more expensive elsewhere, it will create bigger problems for itself. Cheaper versions of its products sold anywhere, will detract from its overall premium strategy. The same products sold more cheaply in some markets will quickly create arbitrage options that will be exploited by enterprising entities, which would create inconsistency in Apple's premium strategy. So, Apple chose to maintain a consistent strategy worldwide, and ride the growth of emerging markets and the expansion of the middle classes as it occurs. While this may not be the ideal option for the Indian market right now, the other options are worse for Apple. It is also a matter of time before more and more people can afford Apple products in India and other emerging markets.
People have been predicting Apple’s demise for a while, but Apple’s performance has been growing stronger since Jobs’ untimely departure. This most recent pricing move is an example of the essence of strategy: being able to make tough choices that are meaningful for company performance. No move is risk-free, but as things stand, this seems like a courageous move to make that should turn out positively for the company in terms of performance, and create some distance from competing brands in terms of exclusivity".