Next week, Apple will
introduce two new iPhones, the iPhone 5S and the iPhone 5C.
Most of the details about each phone have leaked out, leaving little chance for a surprise about the physical attributes of the product, i.e. specs, colours, size.
However, there is one detail that has not leaked — the price of the iPhone 5C.
The 5C is Apple’s low-cost iPhone. It should help Apple compete globally where carriers don’t subsidise smartphone prices. For instance, a new iPhone can cost $US864 in China.
While Apple is going to make the phone low-cost, it’s probably not going to make it cheap. The estimated price from most analysts in in the $US400-$500 range.
This sounds expensive, and we expect a lot of howling about it. Especially since Apple wants to target China, which has millions of people buying new phones. The current price of the new iPhone precludes many Chinese consumers from buying the phone. People assume that Chinese consumers can only afford super cheap phones.
However, that’s not true. According to a note from Jun Zhang, an analyst at Wedge Partners, the mid-range of the smartphone market in China fits right into Apple’s targeted price range.
Here’s what Zhang said in his report:
In China, a $US300-$400 price range is considered the middle-range smartphone market, compared with the high-end market segment which is dominated by Apple, Samsung, Sony and other foreign brands. Local brands such as Xiaomi, Lenovo, Huawei, ZTE, Coolpad, Meizu, Vivo, etc. view this segment as their high-end smartphone segment, compared with Apple’s and Samsung’s flagship products retail price above $US700.
The middle range smartphone market focuses more on price competition, production launch speed, as well as channel/carrier relationships/commissions. Therefore, China local brands have an advantage over foreign brands, as they give higher commission fees to retail channels than foreign brands and prices are very competitive.
This is a bit of mixed news for Apple. Since it’s a foreign brand, it’s at a disadvantage. However, the important thing here is that if Apple charges $US400 for the iPhone 5C, it’s going to be right in the mix with other mid-tier players.
Why go after mid-tier? Why not go after low-tier? Probably because low-tier users are less engaged with their phones, so Apple doesn’t yet feel compelled to go after them.
So, when Apple announces the price of the iPhone 5C, instead of screaming that it’s too expensive, remember, it’s going to be the right price for the right market.