The Increasing Importance of Apple’s iPhone Trade-in Program

One of the many advantages Apple has versus its competitors in the smartphone market is the fact that its iPhones hold value longer than most other products in the market. As the overall market has matured, shipment growth has slowed, and prices of top-tier smartphones have increased, this advantage has become increasingly important. Apple even discussed it during its most recent quarterly earnings calls. Despite this attention, however, I believe competitors and investors still underestimate just how important the iPhone Trade-in Program is to Apple’s ability to drive new-phone purchases, secondary-market revenues, and continued installed base growth.

Driving Sales of New iPhones
During the recent earnings call, CEO Tim Cook answered a question about the effectiveness of the trade-in program in retail this way: “In retail, it was quite successful…And trade-in as a percentage of their total sales is significant, and financing is a key element of it.” A quick visit to Apple.com’s iPhone page or a carrier site such as Verizonwireless.com quickly demonstrates how crucial the trade-in programs have become: It’s the first item you’ll often see on the page.

On Apple.com if you click through to the trade-in-offer page, you’ll find that if you trade in an iPhone 8 you can get an iPhone XR for $479 (down from $749) or $20 per month with financing. Alternatively, you can get an iPhone XS for $729 (down from $999), or $31 per month. And it’s not just the latest iPhones that hold residual value. For example, the iPhone 6 will still net you $100 off those same phones. You can get similar deals at Verizon (the carrier also offers trade-ins for a handful of Samsung, Google, and LG phones). Of course, the other majors U.S. carriers are also offering comparable deals on their sites and in their stores.

These trade-in options, combined with financing, is how the industry moved to accommodate consumers when the subsidy model of mobile phone buying went away. Years ago, to capture the residual value of a phone, consumers had to resell the device themselves or trade-it-in to a third party such as Gazelle. Today, it’s pretty painless, and that removal of friction has helped make trade-ins a key element to most people’s phone-buying experience.

Driving Secondary-Market Revenues
Back in 2016, I talked about the fact that Apple was selling refurbished phones on Apple.com. At the time, the vast majority of phones Apple was selling itself were likely coming in via the iPhone Upgrade Plan that let customers turn in their iPhone for a new one every year. That program is still likely a source for refurbished phones on Apple’s site, but the dramatic increase in regular trade-ins is undoubtedly driving an increasing percentage of the volumes.

A quick spin through the refurbished phones available on Apple’s Web site is instructive. The company currently has a good selection of phones, including iPhone 7 Plus, 8, 8 Plus, and X in a range of colors. Alongside the refurbished price, Apple lists the new price, which makes it easy for buyers to see their savings. For example, a refurbished iPhone 7 Plus with 128GB of storage in Rose Gold sells for $569, or $100 less than the current new price. At the other end of the spectrum, a refurbished iPhone X with 256GB of storage in Space Gray sells for $899, or $150 off the new price.

Apple’s refurbished stock is collected, cleaned, and inspected, and each iPhone gets a new battery and shell, which makes Apple’s offerings notably better than some others out there. These expenses, combined with the acquisition cost (the trade-in value to the consumer), represent the cost to Apple to bring these refurbished products back to the market. The difference between these costs and Apple’s selling price is profit. Let’s use the iPhone X as an example. Apple offers $450 in trade-in value for this phone, pays the cost to refurbish the unit, and then resells it for $899. The company is making good money on its refurbished iPhone sales. And remember, this is the second time Apple has profited from the sale of this phone.

Positive Impact on Installed Base
The final positive aspect of Apple’s iPhone Trade-In Program and the sales of refurbished phones is that it helps to grow Apple installed base. As services become an increasingly large percentage of Apple’s revenue, I can’t overstate the importance of a strong and growing installed base for Apple. Tim Cook mentioned this on the earnings call, too.

“Installed base is a function of upgrades and the time between those,” Cook said. “It’s a function of the number of switchers coming into iOS, macOS—and so forth—tents. It’s a function of the robustness of the secondary market, which we think overwhelmingly hits an incremental customer.” He went on to note, “The secondary market is very key, and we’re doing programs et cetera to try to increase that because we think we wind up hitting a customer that we don’t hit in another way.”

In other words, every time Apple reclaims an iPhone from an existing customer who trades it in for a new one, the company not only retains that customer in the installed base, but it potentially adds a new one when it resells that refurbished phone. And because the refurbished phone costs less than a new phone, Apple is reaching more cost-constrained customers than in the past. This means there are more people in the iOS ecosystem to buy and use Apple’s current services such as iCloud Storage, Apple Pay, Apple Music, and News+, as well as upcoming services such as Apple TV Plus. These customers may not be as likely to spend freely as Apple’s traditional customers, but every new user is a potential source of additional revenue.

Bottom line, with the iPhone Trade-in Program Apple has rather masterfully addressed the inevitable challenge of a slowing smartphone market. It makes the high cost of acquiring a new iPhone more tenable, allows Apple to capture a good chunk of the residual value of selling an old iPhone, and it helps Apple to continue to build out the iOS installed base. That’s a win, win, win, and I expect to hear Apple talk even more about this going forward.

Published by

Tom Mainelli

Tom Mainelli has covered the technology industry since 1995. He manages IDC's Devices and Displays group, which covers a broad range of hardware categories including PCs, tablets, smartphones, thin clients, displays, and wearables. He works closely with tech companies, industry contacts, and other analysts to provide in-depth insight and analysis on the always-evolving market of endpoint devices and their related services. In addition to overseeing the collection of historical shipment data and the forecasting of shipment trends in cooperation with IDC's Tracker organization, he also heads up numerous primary research initiatives at IDC. Chief among them is the fielding and analysis of IDC's influential, multi-country Consumer and Commercial PC, Tablet, and Smartphone Buyer Surveys. Mainelli is also driving new research at IDC around the technologies of augmented and virtual reality.

28 thoughts on “The Increasing Importance of Apple’s iPhone Trade-in Program”

  1. “Just happened to falter upon your extraordinary article, and couldn’t serve but effectuate the eminence of owning a worth radiation suits . For the sake those alleviate in search, I’ve create this excellent resource which outlines the defeat hazmat suits currently available. Acquire a look and safeguard your shelter!”

  2. Hello There. I found your blog using msn. This is a very well written article. I will make sure to bookmark it and come back to read more of your useful info. Thanks for the post. I抣l certainly comeback.

  3. Usually I don’t read post on blogs, but I would like to say that this write-up very forced me to try and do so! Your writing style has been amazed me. Thanks, quite nice article.

  4. I don’t know if it’s just me or if everybody else experiencing problems with your website. It appears as if some of the text in your posts are running off the screen. Can someone else please provide feedback and let me know if this is happening to them too? This might be a issue with my internet browser because I’ve had this happen previously. Thank you

  5. Have you ever considered writing an e-book or guest authoring on other blogs? I have a blog centered on the same topics you discuss and would love to have you share some stories/information. I know my visitors would enjoy your work. If you’re even remotely interested, feel free to send me an e-mail.

  6. I’ve observed that in the world nowadays, video games are classified as the latest fad with children of all ages. Many times it may be not possible to drag your children away from the games. If you want the best of both worlds, there are several educational games for kids. Good post.

  7. Важлива інформація для власників рибок на сайті .Статті та поради щодо правильного догляду та життя з пухнастими друзями. Рекомендую!

  8. Unquestionably imagine that which you stated. Your favorite reason seemed to be at the web the easiest factor to take note of. I say to you, I definitely get annoyed at the same time as people consider issues that they plainly don’t recognize about. You managed to hit the nail upon the top and also outlined out the entire thing with no need side effect , people could take a signal. Will probably be back to get more. Thanks

  9. Howdy this is kind of of off topic but I was wondering if blogs use WYSIWYG editors or if you have to manually code with HTML. I’m starting a blog soon but have no coding know-how so I wanted to get advice from someone with experience. Any help would be enormously appreciated!

  10. I do enjoy the manner in which you have presented this matter and it really does present me personally some fodder for consideration. Nevertheless, coming from everything that I have personally seen, I simply just hope as the actual responses pack on that men and women continue to be on issue and not get started on a tirade involving the news du jour. All the same, thank you for this fantastic point and though I can not really concur with this in totality, I respect the standpoint. https://slashpage.com/dogal-taslar

  11. Discover the ultimate gateway to smart investing with Invest -Properties . Dive into a world where opportunities meet potential. Unlock your investment journey and transform your financial future today with our expert insights and tailored solutions. Start now

  12. I simply couldn’t depart your web site before suggesting that I actually loved the standard info an individual supply on your guests? Is gonna be again incessantly in order to inspect new posts

  13. Hello there! Do you know if they make any plugins to help
    with SEO? I’m trying to get my blog to rank for some targeted keywords but I’m not seeing very good success.
    If you know of any please share. Many thanks! You can read similar text here: Sklep internetowy

  14. Thanks for your post on the traveling industry. I’d personally also like to add that if you are one senior taking into consideration traveling, its absolutely important to buy travel cover for elderly people. When traveling, retirees are at greatest risk of getting a medical emergency. Obtaining right insurance cover package on your age group can look after your health and provide you with peace of mind.

  15. Greetings from Florida! I’m bored at work so I decided to check out your website
    on my iphone during lunch break. I love the info you provide here and
    can’t wait to take a look when I get home. I’m surprised at how fast your
    blog loaded on my phone .. I’m not even using WIFI, just 3G ..

    Anyhow, awesome blog!

    Feel free to surf to my blog :: vpn special code

  16. Hey there! Do you know if they make any plugins to help with Search Engine Optimization? I’m trying to get my website
    to rank for some targeted keywords but I’m not seeing very good
    gains. If you know of any please share. Many thanks!
    You can read similar blog here: Backlinks List

Leave a Reply

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