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Why is Apple still able to command such high prices for its iPhones?
There was once a time when an iPhone was arguably much better than your flagship Android device, largely because Android as an OS was still very new and just getting its bearings. Times have certaintly changed and now there are more than a few Android phones that are arguably better than the new iPhones. And yet, despite multiple Android devices outclassing the iPhone in a myriad of different ways (camera, battery, customization etc), the average iPhone still costs an arm and a leg more than the ‘equivalent’ Android phone. So why is Apple still able to command such an extravagant price for its phones?
Before we move onto what I think is at stake here, let’s get some figures out of the way. The 4.7-inch iPhone 6s costs $649 for 16 GB of storage, $749 for the 64 GB version and $849 for the 128 GB version. A basic pattern of $100 more for doubling the internal flash storage applies. The 5.5-inch iPhone 6s follows the same storage options but adds an extra $100 per storage option: $749, $849 and $949.
By comparison, the 5.1-inch Galaxy S7 only comes in a 32 GB version (in the U.S. and Europe), but supports microSD expansion up to an additional 200 GB. Depending on where you bought it at launch, it was priced between $649-699 through carriers and as low as $600 through resellers like Best Buy and eBay. The 32 GB 5.5-inch Galaxy S7 Edge cost between $749-795 with carriers and online retailers alike.
Looking at the “base model” comparison, the iPhone 6s costs $100 more than the Galaxy S7 and the iPhone 6s Plus costs $100 more than the Galaxy S7 Edge. This is despite the Samsung phones having a higher resolution display, larger battery, double the internal storage, more RAM, better camera, wireless charging, microSD card slot, IP68 rating and so on.
Without getting into the sticky specifics of whether the Galaxy S7 is a better phone objectively (although I honestly think it is), how is it that Apple can get away with charging a higher price for a phone that, at least on paper, is weaker in almost every respect? It’s not just the new Galaxies either, there are multiple other Android phones that cost less and have better hardware and features than the iPhone.
There are multiple Android phones that cost less and have better hardware and features than the iPhone.
“It just works”
If I had a dollar for every time I’d heard this statement slip from the lips of an Apple loyalist I’d have enough money to buy a 128 GB iPhone 6s Plus with an extended Apple Care warranty — every year for the rest of my life. It’s no secret that Apple’s “walled garden” ecosystem allows it to fine-tune its software and hardware almost perfectly, resulting in a very stable and fluid user experience. While Android has become increasingly smooth and stable in recent years, Apple still has a reputation for being easier to use and more reliable than Android — even if that’s no longer necessarily the case in reality.
For all the freedoms and customization that Android allows, it appears there is a huge population of smartphone users that couldn’t care less about custom launchers, root apps, theme engines, custom ROMs and sideloading APKs. Android has always been the enthusiast’s OS while Apple has been the platform for those that don’t want to think about the platform.
The only time most Android fans tend to hear a peep about operating systems from Apple owners is when they get an instant update or when there’s some big Android security scandal going on. But is an experience that “just works” really enough to justify charging such a premium price tag for an iPhone? I don’t think so.
Is an experience that “just works” really enough to justify charging such a premium price tag for an iPhone? I don't think so.
The cult of Apple
There is no denying that Steve Jobs understood the potential of cool. In many ways the iPhone’s success is largely based on it being the “cool” phone. Instantly recognizable, used by celebrities and with an extraordinary marketing budget, the iPhone has become the phone people wanted to be seen with. It was, and largely remains, the one gadget that everyone knows, even those not inclined to care about tech. The iPhone isn’t just a product, it’s a community. A lifestyle. A belief structure. This is something we noticed in practice when Krystal Lora hit the streets of New York asking folks their opinions on the LG G5 and Samsung Galaxy S7 Edge. Many of these people were iPhone users, and a number of them said they found it really impressive but would “never own an Android.
The influence of peer pressure, aspirational psychology and clever marketing has helped keep the iPhone at the top of its game.
The influence of peer pressure, aspirational psychology and clever marketing has helped keep the iPhone at the top of its game for a long time, even if Apple has been accused of failing to innovate for years. Likewise, despite its high pricing, which works in its favor as the phone to own when you’ve “made it”, the iPhone isn’t the most expensive phone of all. But it is the most expensive phone in it class.
Android fans love to throw around the “Apple cult” tag and call iPhone owners iSheep and so on, but the blind adherence to Android is simply another side of the exact same coin. Many of us are self-professed Android fanboys, with all the vehement passion as our iOS brethren, so what makes us less likely to want to spend a thousand dollars on a phone than Apple fans?
Are Android fans simply more discerning? More interested in the specs sheet, feature-set and open-source nature of the platform? Not necessarily, as the vast majority of Android owners I know are not part of the technical elite either. In my experience, most people come to Android because Android phones typically don’t cost as much as iPhones. But with some Android phones in the exact same price range as the iPhone, this reasoning doesn’t answer our question either.
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Another part of the equation is Apple’s control over the pricing of its devices. They tend to remain at fixed prices throughout their lifetime and are rarely discounted. When a phone is discounted at apple.com it will see a similar price drop at all retailers and carriers.
Apple doesn't offer significant wholesale discounts, so there is less potential for retailers to undercut Apple itself.
This is largely because Apple doesn’t offer significant wholesale discounts, so there is less potential for retailers to undercut the RRP on Apple’s own site. All this just adds to the sense of Apple products being exclusive and worth what Apple charges for them.
Apple has built on the cache that goes with selling the iPhone and uses this position to exert control over retailers stocking the product. The only way carriers can compete is by offering various subsidies or contract discounts on two-year service plans. Apple even reportedly offers cash incentives if retailers don’t try to offer the iPhone at the lower end of the pricing scale to challenge its competitors.
This prevents Apple’s own high prices from seeming exorbitant. On the other hand, Android device pricing can fluctuate by hundreds of dollars, primarily because of the large wholesaler discounts offered and the aggressive pricing structure retailers are willing to offer in order to capture the market.
Rather than allow retailers to make a profit out of discounting the iPhone, Apple essentially pays them not to.
By maintaining high prices in the market place, Apple itself doesn’t have to compete with retailers offering its products for lower prices. So, rather than allow retailers to make a profit out of discounting the iPhone, Apple essentially pays them not to discount it.
Another big factor in all of this is that Apple charges as much as it does because it can. In Samsung’s recent shake-up it inflated the price of the Samsung Galaxy series and many thought it would be game over. Not so, with the Galaxy S6 and S7 selling very well despite their iPhonesque pricing (not discounting the fact that Samsung’s sales figures have repeatedly failed to meet market expectations and Samsung is still in the midst of declining smartphone sales generally).
If other smartphone makers could get away with charging a thousand dollars for a phone and feel confident that it would be bought regardless, then they would absolutely mirror Apple’s pricing. Apple can do this for many of the reasons outlined above. As Tim Cook has said, Apple doesn’t want to sacrifice quality for price. If you drink the Kool-Aid, Apple would prefer not to release a product at all than release anything less than “magic”. And all that magic costs money.
If other smartphone makers could get away with charging a thousand dollars for a phone, they most definitely would.
Apple has proven itself a capable smartphone maker and inflated that reputation with cultural cache and effective marketing. It has built a community around its products and convinced consumers that they are more than just gadgets. It has created ingenious pricing strategies to keep its prices high and used the additional profit to produce products that look and feel superior to the majority that use them.
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That faith – that an Apple product is worth what you pay for it – is backed up by the legions of Apple product owners that are absolutely not Apple fanboys. I swear by my MacBook Pro and yet I’ve never owned an iPhone or iPad and gave up on iPods after I bought my first smartphone.
This faith is the same reason retailers follow Apple’s orders on pricing. They believe that by stocking the iPhone and obeying Apple’s orders that they will benefit in the long run (which they typically do on the high profit margin accessories front). After all, many smartphone shoppers simply wouldn’t go into a store that didn’t have the iPhone alongside Android phones.
In all honesty, I don’t know why Apple can get away with charging more for devices that are objectively poorer than many other comparable products in multiple ways. A large part of it is certainly that those that happily pay as much as they do for an iPhone don’t typically tend to feel that they’ve ever been “ripped off” (or would never admit it to their friends if they did). They feel like the service, the product, the cultural cache and so on are justified by the price.
People with higher incomes typically tend to gravitate toward the iPhone.
There’s also the consideration that people with higher incomes typically tend to gravitate toward the iPhone, whether as a status symbol or simply because a more expensive phone is more suited to their disposable income. Apple can charge a lot, so they do. Apple tightly controls the market pricing of its products and it works. People appreciate the build quality, experience and community. Apple has a reputation for being cool or innovative (even if it’s not particularly either any more).
All of this adds up to why Apple can get away with charging so much for its phones, but doesn’t fully explain how either. The real reason is likely something as mysterious and illusionistic as one of Apple’s infamous adjectives: magic. You can choose to believe or call bulls**t, but regardless of how you feel afterward, you still paid the price of entry.
Do you think iPhones are overpriced? Why do you think Apple manages to charge such a premium?