Apple CEO Tim Cook just gave his most detailed commentary yet on the effect the high price of the iPhone has on the device’s declining sales. In an interview with NDTV’s Vikram Chandra in India, Cook was asked a tough question about whether the iPhone — which costs about $600 in the US but is more expensive almost everywhere else in the world — was really worth it.
iPhone sales were down 16% in the most recent quarter, and iPhone is losing market share to Android almost everywhere. Analysts believe iPhone sales will continue to decline all through this year.
Cook replied that he did think the iPhone might be priced too high in India, and he said the company would consider lowering it: “I recognise that prices are high. We want to do things that lower that over time to the degree that we can,” he said.
That is a significant admission.
Apple’s mantra has been that the company only makes the best products and doesn’t want to compete on price. That’s how Apple maintains its enormous profit margins. So any notion that Cook may try other strategies that include lowered prices, especially in a market the size of India, would be important.
Previously, Cook only hinted in a vague way, back in January, that the high price of the iPhone is hurting its sales.
While the US price of the iPhone is about $600, currency fluctuations and local taxes increase the price to the equivalent of $931 in places like Brazil, and $671 in the UK. That makes the iPhone leagues more expensive than Android models, which have 90% of the functionality of iPhone. Here’s a comparison chart from Deutsche Bank:
Chandra’s question really summed up Apple’s problem in a nutshell. Not only is the price high, but a lot of Apple services — like iBooks — don’t actually work in India. That makes the iPhone look like a bad deal. Here’s the crucial part of the NDTV interview:
Chandra: It’s expensive. Even in dollar terms it’s expensive because you have taxes in India and then you don’t necessarily have all the functionality that you would in the US. So you’ve got an iPhone here which is more expensive than it is in the US, with less functionality than you would have in the US, and in a country where purchasing power is a fraction of what it is in the US.
Cook: The challenge there is the duties and the taxes and the sort of compounding of those, it takes a price and it makes it very high. Our profitability in is less in India, materially less. But still I recognise that prices are high. We want to do things that lower that over time to the degree that we can, so we’re looking at a number of different things. What we wouldn’t do is lower our quality bar.
Cook later went on to repeat Apple’s historical position, which is that “We’re only going to make a product that we think is a great product. And that means we are not going to compete in some of the other price bands.” But then he went back and repeated his statement that iPhone prices could come down:
Cook: But I want the consumer in India to be able to buy at a price that looks like the US price. That would be my objective. And I want the user experience to have all the services.
That statement would imply that Cook wants to see a 24% cut to the average price of the iPhone in India.
Clearly, none of this is a cast-iron guarantee that Apple will start competing on price. Cook was playing to an Indian audience, which doesn’t want to hear why it’s OK that Indians pay a 31% increase for their phones compared to Americans. Nonetheless, it shows that Cook is aware of one of the key problems holding the iPhone back: The smartphone market is no longer growing, and Apple has already fully captured the high-end of the market. Yet Apple needs to grow, and it’s difficult to see where that growth will come from if 1 billion people in Asia can’t afford the product.
Here is the entire interview:
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