Learning from Apple’s iPhone 4 Sales

Scott Francis
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Much has been made recently of a couple of bits of Apple news:

  1. The surprise upside in iPhone sales in Fiscal Q3 for Apple,
  2. The idea that Apple is “buying” sales with heavily discounted offerings in emerging (for Apple) markets like India.

To the second point:

“India was up over 400%, Turkey and Poland were both up over 60%. The Philippines were up about 140%, and these were – in addition, we saw very strong iPhone sales in several of the developing markets. For example, the U.S. was up over 50%, Japan up over 60%, the U.K. about 50%, and so we had several regions where iPhone growth actually accelerated from the previous quarter, which is an unusual pattern for us, and we were very, very happy with those.”

But it goes beyond those markets, even in the UK, the iPhone 4 is given some credit for moving units:

Sunnebo stated that, “although the flagship iPhone 5 was widely credited with boosting Apple’s global results last week, much of the market share growth for iOS in Britain is thanks to the competitively priced iPhone 4 attracting first time smartphone buyers. More than a third of iPhone 4’s sold were to consumers who have never owned a smartphone before, compared with just one in 10 new customers buying the iPhone 5.”

I’ve seen quite a few articles criticizing Apple for “buying share” by discounting the iPhone 4 (and/or iPhone 4s) to goose unit shipments in emerging markets – but it looks like the iPhone 4 was also a key entry-point device for new smartphone buyers in developed countries as well.

So what is Apple doing with all the discounting in India and Turkey?  Are they trying to unload excess inventory?  Are they unable to sell these devices at full price? These are the types of alarmist messages some of the blogs and tech press are pushing.

But there may be a simpler, process-driven explanation.  If you’re Tim Cook, and Apple, and you’re about to release a more affordable iPhone on the market, you’d love to have a way to test the price-elasticity of demand for your products.  Wouldn’t it be nice if you had a product you could produce today at good margins, which doesn’t cannibalize your high-end sales in developed countries?

I think Apple is testing the pricing sensitivity in each of these markets with financing deals for the iPhone 4.  They can pretty easily test:

  • absolute price levels (aka discounts)
  • price relative to the Next Cheapest Alternative iPhone (iPhone 4s)
  • payment plans versus up-front payment
  • pent-up demand versus on-going demand.

And they can take all of this learning into the launch of a more affordable iPhone.  Of course, Apple could continue with the selling of older iPhone models as the affordable options – and all of the learnings still apply.  But at some point we have to believe Apple will attack more price points with “new” iPhones each year.  And it just so happens they have a good way to do some customer and price discovery before they launch.  Which might inform production schedules, initial prices, marketing campaigns…

Like many bits of Apple news, how you see the news is a bit of a Rorschach test –  if you think Apple is doomed, then discounted iPhone 4’s are the beginning of the end.  If you think Apple is well-managed and reasonable, then this is just another opportunity to learn from their business processes.