Apple’s iPhone 8 Positioning Dilemmas

At this point, the rumor mill surrounding Apple’s next iPhones, expected to be released in the fall, is well underway. There’s some consensus emerging around what we’ll see, at least in broad brush terms, but lots of details are still murky. Given what we seem to know at this point, I think there are a few big dilemmas Apple faces with regard to the positioning of the new phones.

What We Think We Know

At this point, there seems to be reasonable consensus on a few points:

  • Apple will release at least three phones, two along the lines of those it has released the last three years and one a high-end premium entry taking a new place at the top of the lineup
  • That premium phone is likely to be the only one with an OLED screen, as well as several other possible features, including special 3D sensors, upgraded dual cameras, new materials, and others
  • That premium device will be priced above the usual price point for the Plus model, possibly significantly above, to account for the additional cost of components and materials.

What We Don’t Know

However, there is still much we don’t know, including:

  • Whether Apple will revamp the iPhone SE, now eighteen months old and the only device in the lineup still to be using the old sharp edges rather than the rounded ones of the 6 and 7 ranges
  • Which new features will make it into the standard models and which will be exclusive to the new premium model, including smaller bezels, dual cameras, and so on
  • How much the price differential between the premium model and the Plus model will be
  • Whether all the phones will launch simultaneously or whether the premium model will become available later due to supply constraints, as reported this week by KGI.

How Apple Might Think about All This

The Push to Raise ASPs

It’s worth thinking through how Apple might think about all this, and where it might come down on these various issues. By way of context, it’s worth recalling what Apple has done with the iPhone portfolio in the past few years and what that’s done to average selling prices. The chart below has a summary:

iPhone ASPs were steadily declining from 2011 to 2014 as a result of expansion into new markets, keeping older models around longer, and so on. But, in late 2014, the iPhone 6 and 6 Plus changed all that dramatically, raising the base price of one of the models by $100 and raising ASPs by a little less than that as a good chunk of buyers opted either for the larger device or the higher storage tiers. Things slowed down as the year-old devices dropped in price and Apple subsequently introduced the iPhone SE, but they got another bump this past fall when Apple introduced the iPhone 7 range, making some features and finishes exclusive to larger, more expensive devices. It shifted the mix between the smaller and larger models and ticked ASPs up again a little.

At this point, it’s fairly clear Apple sees raising ASPs as one way to counteract the slowdown in smartphone sales. It’s likely that whatever it does this Fall will be aimed in part at achieving that objective. But it has to do so in a way that doesn’t alienate customers by making them feel they’re being pushed to spend more. That’s going to be a tricky balancing act with at least three new devices in the lineup (and even more so with a new SE). The outcome will depend, to a great extent, on how keen Apple is to boost ASP and how much it prioritizes that over other objectives.

Redesigns Up and Down the Line

The biggest question in my mind is to what extent Apple redesigns the two standard models, which have had the same basic form factor, with minor changes, for three model years already. We’ve heard a lot of reports about smaller bezels and the removal of the home button but how dramatic will that change be on the standard models and how much will that change be reserved for the premium model? In my mind, Apple has to engage in a significant redesign across the board at this point. After all, competitors are rapidly moving to smaller bezels. Ideally, it will have a similar design across the line but use OLED and perhaps some materials or finishes exclusive to the premium model.

The next question is how much the price differential will be between what I’ll call the 7S plus and the premium model. There would be a nice symmetry if the price premium were $100-120 as it has been between the base and Plus models to this point. I think the $1000 price point we’ve seen reported is likely too high. I could easily see an $850-900 price point though and, of course, higher storage tiers would push some models over $1000 on that basis.

A Balancing Act

The balance Apple has to strike is between giving at least some buyers reason to buy the premium model while allowing many others to remain satisfied with the standard models. That means a sufficient upgrade in the base models to push owners of older devices to replace them, while maintaining enough of a premium for the high-end phone to make that feel worthwhile. All this, of course, gets more complicated if there are indeed supply constraints on the premium model, especially if Apple prices it attractively and it gets a significant mix of total sales.

What Apple has to avoid at all costs is creating a situation in which the premium model is the one people really want but it’s priced too high and available in insufficient numbers for people to actually buy it. That could depress total sales and maybe even put some people off buying iPhones entirely in this cycle. The best case scenario is Apple continues to see a significant mix shift towards the larger and more expensive phones while still being able to meet demand for the other models. Whether it achieves that objective will depend on how carefully it positions the various models in the new lineup in terms of features and pricing and whether it’s able to both predict demand and secure sufficient supply to meet that demand. As we’ve seen with prior launches, that’s already been a tough objective, even without the additional complexity of this year’s launch.

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Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

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