The question that most immediately arises is whether Apple’s move will work in important emerging economies. It is certainly consistent with Apple’s image as an exclusive handset and as “the real thing”, despite the availability of much cheaper imitations. The dilemma for Apple when it comes to marketing strategy is this: A high price, while aiding exclusivity and strengthening its premium strategy, may also constrain its growth in lucrative emerging economies such as India.
On the other hand, if Apple decides to offer cheaper versions of its products in particular markets, or lower prices for the same products that are more expensive elsewhere, it will create bigger problems for itself.
Cheaper versions of its products sold anywhere will detract from its overall premium strategy. The same products sold more cheaply in some countries will quickly create arbitrage options that can be exploited by black market traders, unsettling Apple’s strategy in developed markets, too.
For now, Apple has chosen to maintain a consistent strategy worldwide, and ride the growth of emerging markets by tapping into the expansion of the middle class as it occurs. Despite teething troubles, this decision is working out relatively well in China, a country further ahead in its modernisation journey than its fellow emerging markets powerhouse India, and where more users can afford to buy genuine Apple products. While the $999 pricing may not be the ideal option for India right now, the other options are worse for Apple.
In the medium to long term, more and more people will be able to afford Apple products in India and beyond. Keeping a consistent image and quality will aid in the slower but steady increase in users in those emerging economies. The goal is to keep the iPhone as an aspirational device people will buy as soon as they are able to.
At the same time, Apple is continuing to focus on intense levels of efficiency in production and more broadly at the operational level, aided by a largely consistent design, operating system and functions across its different iPhone models. The $999 iPhone has no home button enabled by a new type of screen, and includes face recognition and “animojies”. These are features that will find their way to more affordable iPhone models in subsequent releases.
As I have argued elsewhere, while Apple’s strategy for the broad market is one of differentiation, internally it is striving for the lowest cost possible, and has delivered impressive efficiency levels. How does it do this?
Well, it is a combination of things, including good integration across its product lines which increases Apple’s negotiating power over suppliers and makes effective use of external manufacturers. Apple also keeps its supply chain lean by getting its products out the door and into our hands as quickly as possible. Apple bosses, meanwhile keep innovation spending highly focused, and further dampen costs by using a stripped-down corporate hierarchy which cuts down on meaningless meetings.
Pricing, apart from the ability to pay, is also to an extent a social construct. People will pay what they think is appropriate, if they can afford it. Apple has traditionally pushed the boundaries of customer sense of pricing appropriateness. In terms of affordability, in countries where mobile operators offer package deals, the incremental cost over the $699 iPhone 7 for example will amount to a couple of cups of coffee per month. In any case, users will have the option of buying the more affordable handsets.
People have been predicting Apple’s demise for several years now, but Apple’s performance has remained strong since Steve Jobs’ death. At a market cap of $815 billion, Apple is the most valuable listed company in the world by some distance from the second, Alphabet (Google), at $649 billion. Apple’s pricing move for its top iPhone is an example of the essence of strategy: making tough decisions, real choices that are meaningful for company performance. No move is risk-free, but at the very least this courageous move will create some distance from competing brands in terms of exclusivity.
Loizos Heracleous, Professor of Strategy, Warwick Business School, University of Warwick
This article was originally published on The Conversation. Read the original article.