The iPhone X comes out Friday and the reviews are in. Facial recognition technology has been reviewed breathlessly, although it’s been found not to work in a few instances – such as when you’re eating noodles, wearing a Groucho Marx mustache or testing it with your identical triplet siblings, as The Wall Street Journal’s Joanna Stern discovered.
It doesn’t have a home button with a TouchID fingerprint, but the camera is reportedly far superior to the iPhone 8. As is the price. It costs $999 or $33 per month on Apple’s installment plan.
Apple AAPL, +2.61% is part technology company, part lifestyle brand, part social signifier and, yes, part luxury goods company. But how much is too much for a phone that costs as much as many laptops? “It’s bold”, said Julie Ask, an analyst with Forrester Research. “It’s a bit audacious. But this is something Apple does well. They know who they are and they don’t do all things for all people. I’m sure Apple has insane data on who their customers are. There’s evidence they serve a more affluent base than Android.”
Apple sells more devices to wealthy people than its competitors, according to data from Verto Analytics, a digital consumer analysis company. For instance, 77% of people with an annual income under $20,000 don’t own an Apple device versus 65% for people without an Android device in the same income bracket. The percentage of people without an Apple device drops to 39% for those earning $150,000 a year or more, but 59% still didn’t have an Android in that income bracket. Affluent Apple customers also spend more with their phones than Android.
“Apple has not lost the plot, and the price tag will not hold back demand for iPhone X”, said Vincent Thielke, research analyst at research firm Canalys. “Apple will sell every unit of iPhone X it can make in the next six months. The iPhone is not a necessity, it is a luxury. Apple customers grow increasingly locked into its ecosystem, with apps, cloud storage, mobile pay, music subscriptions, and proprietary smartwatches.” Nor is Apple interested in selling low-cost hardware in China, Forrester’s Ask added. It’s so focused on affluent Westerners that it doesn’t even bother developing products for the sizeable, but less monied, Chinese market.
That growing ecosystem gives Apple many ways to sweeten the deal, just like car manufacturers entice customers with freebies. “There are other things they could do to mitigate the sticker shock, aside from the price”, Ask said. Customers know that the $1,000 price will fall when the next iPhone comes out. They start high, and discount. “If Apple wanted to lower the price of the device, it would find a way with free subscriptions to Apple Music and gift cards – just like General Motors does with zero financing.”
What’s more, Apple has gradually prepared customers for the $1,000 psychological price point. Neil Mawston, analyst at Strategy Analytics, estimates the global average wholesale trade price of an iPhone has almost doubled to $650 in 2017 from $387 in 2007. “The $1,000 iPhone X is just another step in Apple’s long-term strategy to increase, not decrease, pricing”, he said. “Apple fans and critics complain about high iPhone pricing every year, but still go out and buy tens of millions of them.”
Read also: American teens crave this status symbol more than ever
“Apple is pushing the upper limits of consumer acceptance with a $1,000 iPhone X, but it remains relatively affordable to affluent city workers in places like New York or London who can purchase the device on monthly leasing plans”, Mawston said. “When paid off monthly in smaller chunks, the iPhone X feels much less expensive.” Those chunks remain somewhat consistent on Apple’s 30-month payment plan, or with two-year subsidized plans through carriers like AT&T T, +0.39% Verizon V, +0.34% and T-Mobile TMUS, +1.05%
But some believe Apple is pushing customers too far and too fast with increasingly expensive upgrades. “Apple has lost their way in the marketing of the iPhone X and iPhone 8”, said technology consultant Jeff Kagan. “It should have made both the iPhone 8 and iPhone X available at the same time.” But Kagan says this will hit iPhone 8 sales – which have been more sluggish than expected, several estimates suggest – rather than the iPhone X. Apple customers respond to major, headline-grabbing upgrades, he said.
Thielke agrees. “There is pent-up demand for fresh Apple hardware, and its installed base is itching to upgrade, no matter the price”, he said. “Besides, 70% of American consumers buy their smartphone through a carrier and finance the device over 18 to 30 months. Most customers upgrading will not be paying $1,000 upfront, but will see a modest increase in their monthly phone bill.” What’s more, carriers have been aggressive with buyback and trade-in deals to keep the monthly cost low, he said.
But there are some signs of fatigue setting in, even among Apple’s hardcore fans. Customers are now paying as much for a phone as they have traditionally paid for a laptop – and most people are not upgrading their laptops every two years. The upgrade rate has extended along with the length of the installment plans: 30 months rather than 24, some studies suggest. There’s a limit to people’s excitement, Ask added. “Maybe the upgrade rate won’t be as frequent.”
