Follow up on iPhone 8 Interest Survey

Hopefully, most of you read Carolina’s deep dive on our iPhone 8 interest study. For the purpose of this post, I want to dive into some specific data around iPhone owners and their interest and intent to buy the iPhone 8. Carolina charted, or shared some of these stats but I want to recap a few specific and notable data points.

  • 71% of US iPhone owners we surveyed, who intent to upgrade their smartphone in the next six months, said they are either extremely likely or very likely to buy the iPhone 8.
  • Over 60% of this cohort has had their smartphone for nearly two years or longer.
  • 58% of iPhone owners looking to upgrade in the next six months own either the iPhone 6/6Plus/6s/6s Plus
  • 33% of this cohort said if the iPhone 8 was too expensive they would opt for a different model.
  • New and improved camera, wireless charging, and quick charging were the top features of interest for iPhone owners looking to upgrade to the iPhone 8.

We know Apple enjoys the industry leading retention rates, so it isn’t surprising that a big part of the interest is being driven by iPhone owners with phones near the 2-year-old or longer mark. While this study focused on the US, we know in many other countries like UK, key regions of Europe, China, and Japan, Apple’s retention rates are also in the 80% consistently. Knowing this, we can safely assume a good portion of Apple’s iPhone installed base is in need of an upgrade and will stick with Apple by getting either the newest iPhone, updated model, or last years model at a discount. All in all, a number of signs and data points are aligning for Apple to have a big year.

As Carolina pointed out from our research, the one big variable is the price. However, while I’ve seen a significant amount of research suggesting that iPhone owners, in general, are more receptive to spending upwards of $80-$100 dollars more on their iPhone if it has features they consider innovative, there is a max price consumers are willing to spend. All available survey research testing pricing suggest anything more than the $1000 dollar mark puts the device out of reach of most consumers.

While iPhone owners in the US market specifically seem more receptive to spending more on their next iPhone, the rest of the world becomes the key challenge. In markets where payment plans are offered, the monthly price of an iPhone costing $1000, spread out over two years, and after tarriff’s and fees, could cost between $50-60 per month. In many markets, a monthly fee of this size would take up a big chunk of monthly household income.

From a macro economic standpoint, looking at household budgets for communications is generally lower than 5% of monthly household income sheds light on what the possible ceiling is for the price of a smartphone. Most research I’ve seen on the subject seems to indicate ~$1000 is the top of the price threshold. See this specific point from UBS research data:

Assuming that 5% of the total household monthly income is spent on this expenditure (we believe average household spend on communications is typically lower than this) in developed countries, this would require a minimum household income of c$1,233/month to be able to afford such a smart-phone. We found that an increase in price to $1,000 for the handset would reduce those able to afford the handset to 76%, vs. 87% able to afford a smart-phone costing $600

Again, Apple has the only customer base who seems receptive to spending more for their iPhone if they feel it is worth it, but there is a ceiling that Apple needs to be aware of and sensitive about. This all gets even more interesting when we look at the increasing costs for components like memory, display, and a number of other key components. One of the reason’s the price of the iPhone 8 will be higher is because the BOM (cost to manufacture the device) is going up. Consensus is the price of the new iPhone will cost between $380-$400 to manufacture which is the highest cost to make an iPhone yet.

But as Apple seeks to keep innovating on the hardware front, costs of components will still be high and continue to rise in some cases. Which means if Apple doesn’t want to price themselves out of the market by going too high, then they could take a margin hit and absorb some of those costs as margin points. This seems like a very likely scenario over the next few years.

How Apple navigates the price of the iPhone is going to be one of the more interesting points to watch from a market strategy standpoint. All things considered, it is hard to find too many negative narratives out there that are intellectually honest. But, Apple is in uncharted territory with respect to their pricing of iPhones so it will be important to observe how the market (consumers) reacts.

Published by

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

Leave a Reply

Your email address will not be published. Required fields are marked *