Apple’s new strategy seems clear: raise prices on each product sold. The new iPad Pro
and MacBook Air came with price hikes of $150 and $200 respectively. However, the
‘sticker shock’ phenomenon is not new for Apple consumers. They feel it with every
The high-end iPhone XS starts at a whopping $999 and can cost as much as $1499 for
higher-memory versions. In a country like India, an iPhone costs more than a lakh. It is
the same country, where a car priced in the same range could not win the market. It is
true, one might argue, that the reason for the failure of car is different, but is true that we
are comparing the price of a mobile phone with the price of a car.
Therefore, the question arises: is this ‘price hike’ the new strategy followed by Tim
Cook. Let us take a step back and understand what strategy means. ‘Strategy is the
creation of a unique and valuable position, involving a different set of activities.’
Apple’s strategy has been to provide top-of-the-line products. Apple has constantly
focused on innovation which has helped it in maintaining a competitive advantage in the
industry. Apple has reinvented the smartphones with its revolutionary iPhone and App
Store, and is defining the future of mobile media and computing devices with iPad.
If Apple’s strategy core strategy is to innovate, it seems to be doing well, then, why raise
the prices every year? Splitting the iPhone line into consumer and premium tiers is
cardinal to Apple’s new strategy. The reason: the global rich are getting richer and have
more money to throw around. A lot of people accept that income inequality in the U.S. is
at its highest level since 1928. The reality is that as income and wealth have
increasingly shifted to the top end of the income distribution, the rich have become
responsible for a larger share of consumer spending and companies have started to
change their strategies to more explicitly target that demographic.
Higher priced iPhones also mean a higher bottomline for Apple. The new iPhones have
a profit margin of 175 percent. Meanwhile, Apple’s more well off customers are
upgrading to larger screen iPhones. Due to this, Apple’s profitability has increased by
40 percent. The richer are happy as they have a thousand-dollar phone to show off.
Apple has created a brand that is equivalent to jewelry in some countries like India.
Moreover, to get the maximum consumer surplus, Apple has released a couple of more
models from $750.
Well, Apple’s new plan seems to be going on the right path. However, even after this,
the share of Apple has fallen from $220 to $150 after the launch of new iPhones in
September. Apple seems to be following the right strategy in the changing market
conditions, then why have the shares plummeted within few months of release of new
iPhones. The reason is Apple has lost its vision to create great products and innovate.
Apple was one of the first in to bring a successful iPod, first to bring retina display,
portrait effect and many more. Apple has been the leader in innovation, and other
companies have followed the suit till now.
During the launch in 2017, it brought something new to the mobile industry – a notch
which turned out to be a huge success. As it always happens, other mobile companies
followed it and came up with designs having notch. However, during the launch last
year, Apple could not bring anything new to the table. Well, not something its user base
understood. However, in this era of high competition, other companies have grabbed
this opportunity with both hands. They have come up with designs like water drop,
hole-punch display and many more. It is also rumored that Samsung will come up with
full screen display in its next flagship series.
Now, Apple consumers have lost the right to brag about a new feature that differentiates
their phones from the rest. Their competitors do not have a half-eaten apple logo to
flaunt but are slowly creating a brand like OnePlus. Thus, it is high time for Apple to act.
They have to follow their initial strategy and must keep innovating. The company should
strive to be the leader in bringing new things to the table or else the expectation that we
will see something new from Apple every September would vanish.
If they keep innovating, they can continue to maintain their competitive advantage by
meeting the customer’s expectations. As marketing has taught us, “consumer’s need” is
the first C in marketing and it cannot be ignored.
Written by Chinmay Kshatriya
Chinmay is a PGP student at IIM Ahmedabad.