Apple's aggressive pricing may not be enough to save the iPhone - Wired.co.uk, Wired.co.uk

Tim Cook at Apple’s WWDC on September 10, 2019

On September 10 Apple CEO Tim Cook once again took the stage at Apple’s headquarters in Cupertino to showcase this yearlineup of Apple devices. This time, though, glossy finishes and triple lens cameras were not the only specs that grabbed headlines.

Instead, it was Apple’s apparent new stance on price tags that stole the show. In a highly unusual move, the company priced its entry-level iPhone 11 at $ 699 – that’s $ 50 (£ 40) cheaper than it had priced its equivalent, the iPhone XR, at the same time last year. But more significantly, it then gave the XR a $ 150 (£ 120) discount, and priced the two-year-old iPhone 8 at $ 449 (£ (UK price).

It doesn’t stop there: after announcing its $ 399 (£ 399 UK) Series 5 watch, Apple also disclosed that it would start selling its Series 3 watch at $ 199 (£ 199 UK) – that’s almost the same price as its AirPods. “To have a price that starts with a ‘one’ is a huge statement of intent from Apple,” says Ben Wood, mobile industry analyst at CCS Insight. “It makes it significantly more accessible, and is going to cause a world of pain to competitors like Fitbit.”

For a company that is famous for premium pricing, Apple’s sudden shift to more affordable devices (even if it is its older line-up) comes as a surprise. A look at its sales performance last year might explain the change of heart: in 2018, Apple’s best-selling device was the $ 649 iPhone XR, meaning that its entry-level device out-performed the more advanced XS and XS Max.

In other words, phone buyers are unwilling to shell out the extra dosh to get their hands on Apple’s best smartphones. Last year in China, the tech gianteven cut pricesfor some of its iPhones, iPads, Macs and AirPods by nearly six per cent – partly in response to “lower than anticipated” iPhone sales in the country.

Neil Mawston, executive director at Strategy Analytics, says: “Apple fans have pricing fatigue and they want to see cheaper costs for iPhone 11. The push above the psychological threshold of $ 1, 000 (£ 810) has for many been a step too far. ”

Combined with the fact that phones are getting better and lasting longer, this means that iPhone owners have become less interested in investing their money in new, more expensive versions of their devices.

In the case of Apple, whose efforts to secure the loyalty of its iOS-installed base is no secret, this is game changing. After all, customers who have already penetrated Apple’s ecosystem of connected products are those most likely to purchase extended services. If you already have an iPhone, why not get yourself Apple Pay and subscribe to Apple Music?

By cutting its prices on phones and watches, therefore, Apple is hoping to supplement its iOS customer base and lure in new customers who might purchase other services within its ecosystem . “It is a tough period of transition for Apple, as it needs to balance multiple conflicting objectives,” says Ben Stanton, senior analyst at Canalys. “[It] Needs to strike a delicate balance between hardware revenue and its surging new services division.”

Services seems to be Apple’s new thing – and the rest of its Cupertino announcements this year certainly confirmed that. The company revealed that it was launching its streaming service, Apple TV , at the aggressively cheap rate of $ 4. 99 (£ 4) per month.

it will only feature nine shows when it opens on November 1, that fee is still significantly lower than Disney or Netflix – especially since Apple is also giving a free year of streaming for customers who purchase an Apple device.

Considering that the company invested $ 6 billion (£ 4.8 billion) in original content for its streaming platform, Wood calls this pricing “extraordinary” and, according to him, a clear example of providing cheap content to keep customers locked into the Apple ecosystem.

In a similar vein, the company introduced a $ 4. 99 (£ 4) a month subscription for a brand new game subscription called Apple Arcade that launches on September 19 with more than 100 games that can be shared between parents and their children. For that fee, the appeal to existing iOS customers is evident.

And so it would seem that the company so famous for the slick designs of its hardware is turning to competing on services. Its service revenue, in fact,is estimated to reach$ (billion) £ 40 billion) by 2020 .

This is why it makes sense for Apple to slash the price of its old devices, such as the iPhone 8 or the Apple Watch 3; because it can still capitalize on those users, by then seducing them into purchasing Apple services. “As one of Apple’s main goals is to increase the services it provides, its installed base of customers on hardware devices is more important than ever,” says Mo Jia, analyst at Canalys.

But will the strategy work? Analysts aren’t so sure. Linda Sui, wireless smartphone analyst at Strategy Analytics, expects the demand of the new iPhones to remain “soft”; while Neil Mawston still forecasts a fall of ten per cent year on year in global iPhone shipments. For Mawston, last year’s failing volumes and the recent price-cuts are not signs of a healthy iPhone. To see them as a strategic shift towards services may be missing the point: “Apple’s well-publicized expansion into services is a bit of a smokescreen to distract from its worsening iPhone problems,” he says.

What’s certain for now is that the Apple ecosystem is growing, and its new prices mean that it might be a good time to get involved. And before you know it, you’ll find yourself among the 1.5 million fans streaming the yearly Cupertino festivities on YouTube.