The Australian Small Business Blog

Monday, April 20, 2020

Apple Offers an iPhone Downsell

by Dr Greg Chapman

Apple has always positioned their brands as premium products. Nowhere more so than in the mobile phone market where with 32% of the revenue from the sector they have 66% of the profit. But with their latest flagship product priced at around $2000, they must have hit the law of diminishing returns. Yes, the new camera is more fancy, but a serious photographer would be buying a SLR camera, and a longer battery life, many will be forgoing these nice to have features, and purchase a perfectly reasonable smart phone from $100.

A business strategy of releasing a new model every year with upgraded features only noticed by the few, at higher and higher prices, and planned obsolescence for all older models over time, is one that eventually becomes exhausted. Smart phones have come a long way in a short time, but unless there is some new killer application, it will be little more than the ‘badge engineering’ that we see in the auto industry.

Pretty much everyone that wants a smart phone has one. Under these conditions, and without a major new innovation (which seems to have departed Apple with Steve Jobs), the only way to grow is to increase their market share. That’s unlikely to happen at the top end of Apple’s range, so now they are focusing on the low end, and a downsell, which is normally an anathema to premium brands.

This downsell creates opportunities and risks for Apple. Now low end for Apple is still $750, but offers entry level access to the Apple ecosystem at a much lower price. The hope is that it will attract budget buyers to connect with the Apple brand, but it may also cannibalise their midrange product sales. It also promulgates the idea that you really don’t need all the bells and whistles on a phone, and you can get pretty much what this budget Apple phone provides elsewhere more cheaply unless you really, really want to be a part of the Apple ecosystem.

Apple’s major competitor, Samsung, is now competing at every level of Apple’s technology. The only thing it doesn’t have is their ecosystem. Will this downsell be enough to allow Apple to grow? Not unless it innovates rather than pursues derivative evolution which it has for the last decade. All it might do is squeeze their average margins.

There will be no big launch for the iPhone SE as there were for the first iPhone or iPad, because this is just a downsell.

The best downsells are where the products are completely differentiated into different brands, such as Qantas and Jetstar, or even within Qantas with First and Economy. Do you offer a downsell? And how is that working for you?

May Your Business Be –As You Plan it!

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Dr Greg Chapman is the Director of Empower Business Solutions and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success and Price: How You Can Charge More Without Losing Sales.

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