A Simon-Kucher & Partners study of 10,250 representative US consumers identified significant opportunity for higher priced iPhones from those considering the 2019 models due to be introduced at tomorrow’s “By Innovation Only” event.
This was primarily driven by high willingness-to-pay for monthly financed plans, and demand for large screen devices from younger and less affluent consumer segments, adds the research group. The study showed that future price increases and higher priced models are likely to be profitable, with an iPhone priced at $2,400 possible in the short to medium term via a $99/month payment plan for 24 months.
Simon-Kucher & Partner’s report showed that 10% of those consumers considering the new iPhones were willing to pay more than $2,000 for their device, and 15% would be willing to pay more than $1,800 – significantly more than the $1,549 expected price of the top of the range device (assuming a $100 increase from 2018 device prices as has occurred historically), indicating Apple has room to grow prices even further with some customers.
This was primarily driven by consumers that opted for 24 month zero percent financing over those willing to purchase up front. Consumers were willing to pay on average 50% more for the same device if they were paying monthly over 24 months versus up front. The study showed 10% of those consumers that prefer to pay monthly, would consider paying over $99 per month for 24 months ($2,400 in total), versus only 1% of those that prefer to pay up front would consider paying over $1,999.
Simon-Kucher & Partner’s report also found that the revenue optimal price point for the new iPhones will be similar to what they are priced at today, given that many consumers were willing to pay less than others. Analysis of the study data showed that revenue dropped by 3% on average for prices $50 higher than the current price, 5% for $100 more, and 9% for $200 more, and volumes dropped by 9%, 15%, and 25%, respectively. However, Apple’s high margins meant that despite these volume losses, profits remained broadly flat at higher price points, indicating that if consumers switched to lower priced models rather than to competitors’, higher prices would be profitable.
“There is clearly a segment of customers that are willing to pay whatever it takes to access the latest and greatest iPhones. This segment is big enough to warrant Apple’s attention on its own, much as the original iPhone X was likely targeted at this segment,” says Nick Zarb, technology expert and Senior Director at Simon-Kucher & Partners. “The study showed that consumers are clearly thinking more about the monthly cost than the total cost, so Apple need only move customers from their top price of $60.99/month today, to the next psychological thresholds of $69.99 or even $99.99 a month.”