The days of Apple’s higher prices are here to stay. And it may be our fault.
When Apple launched its iPhone X a year ago, some wondered if the $999 price tag would scare away consumers. Instead, the iPhone X became the best-selling device from the time it hit stores through the end of the June quarter, even though it was the most expensive phone Apple had ever sold.
The 5.8-inch device was $300 more than the 4.7-inch iPhone 8 and $200 more than the 5.5-inch iPhone 8 Plus. Apple followed up this year with the iPhone XS and the bigger and even pricier XS Max, which starts at $1,099.
Now Apple is doing the same for its iPads and Macs. On Tuesday it showed off a redesigned iPad Pro in two sizes, an updated MacBook Air with Retina Display and a new Mac Mini. All featured new designs and updated, more premium components — but they’re all also more expensive than their predecessors.
If you want Apple’s best new iPad Pro with all the accessories, it’s going to set you back over $2,000. The 12.9-inch version with 1TB of storage retails for $1,749. It goes up by $150 if you want the 4G LTE version. A second-generation Apple Pencil adds $130, while the Smart Keyboard Folio costs $199. With all of those options, the tally comes to $2,228. Ouch.
The reality is that consumers aren’t buying as many phones, tablets and computers as they used to. It’s getting harder and harder to introduce new features that wow buyers and set the devices apart from each other. Companies are including more premium components — like crisper OLED displays — and passing those costs onto buyers, running counter to the idea that technology is supposed to get cheaper over time.
They have to raise their prices to keep reporting the kind of revenue growth Wall Street expects. And consumers, faced with the choice of either cheaper devices or the latest and greatest, are increasingly buying those pricier products. That willingness to spend big speaks to the critical role that these devices — particularly smartphones — play in our lives. If there’s going to be one splurge item in our lives, it’ll likely be a flashy new phone.
But prices overall have risen across Apple’s product lines, from wearables to computers. At $399, the lowest-end, fourth-generation Apple Watch costs $70 more than the third generation. The least expensive new iPad Pro, the 11-inch model, starts at $799, well above the $649 base price of the 10.5-inch iPad. The new MacBook Air, priced at $1,199 for the base model, costs 20 percent more than the older version, while the Mac Mini, which starts at $799, is 60 percent more expensive than its predecessor.
“Apple is a premium brand,” GlobalData analyst Avi Greengart said. “Its products are priced accordingly.”
And for Apple, at least, the strategy is working. Sort of.
Falling units but rising prices
Apple’s making more money from its iPhones, but it’s not selling many more units. The company on Thursday said that for its fiscal fourth quarter, which ended in September, iPhone sales were about flat at 46.9 million units, below the 47.6 million expected by analysts. At the same time, its iPhone revenue jumped 29 percent to $37.2 billion, thanks to those pricier devices like the new $999 iPhone XS and $1,099 XS Max.
Apple has been testing its fans’ willingness to pay an even bigger premium, and so far, consumers have complied. The average selling price for the iPhone soared to $793 from $618 a year ago. Analysts overall expected Apple’s fourth-quarter ASP to hit $741.
Still, Apple’s shared tumbled 6.5 percent to $207.81 in after-hours trading Thursday after it projected lackluster revenue for the December quarter. It also said it would stop reporting unit sales for the iPhone and other products, preferring instead to focus on revenue — the area that’s benefiting from the higher prices. But without knowing the number of units sold, there also won’t be an accurate tally of ASPs.
“Ssome people may fear,” Citi analyst Jim Suva noted during Apple’s earnings call, “that this now means that the iPhone units are going to start going negative year over year because it’s easy to talk about great things and not show the details of things that aren’t so great.”
Apple says the number of units sold in a three-month period “is not necessarily representative of the underlying strength of our business,” Apple’s financial chief, Luca Maestri, said Thursday. “Furthermore, our unit of sale is less relevant for us today than it was in the past, given the breadth of our portfolio and the wider sales price dispersion within any given product line.”
That wasn’t enough to calm Wall Street, though.
“Apple has unnecessarily injected uncertainty and possible volatility into the near term,” BTIG analyst Walter Piecyk said. He added that not reporting unit data eliminates discussion about rising and record ASPs.
“This was a positive point for investors, but perhaps a risk to Apple, as press reports about squeezing more money out of its loyal customer base is not a good look for the company,” Piecyk said.
Premium prices for premium products
Apple may be able to get away with higher prices for its iPhones, but it could have a tougher time with its Macs and iPads, said Moor Insights & Strategy analyst Patrick Moorhead.
“Apple has done a great job upselling its customers on iPhones, but the PC and tablet market is quite different,” Moorhead said. “I think many will buy in, particularly Apple loyalists, but not nearly as many who upgraded to iPhone X. Apple doesn’t have as large a competitive differential in PCs as it does in smartphones.”
When Apple’s MacBook Air launched a decade ago, it redefined what laptops should look like. Most competing Windows PCs were bulky and heavy, but the companies that make them now have embraced thin and light computers. Today’s Windows PCs look nothing like the computers of a decade ago — many even double as both touch-screen computers and tablets.
Apple’s MacBook Air, while still popular, doesn’t quite stand out the way it used to.
And while we all got used to the $999 pricing of the MacBook Air, which launched in 2008, it cost a whopping $1,799 for a version with a hard drive. If you wanted an SSD, now standard in all MacBooks, you’d have to add an eye-watering $1,000. Upgrading the processor, too, brought the final tally to $3,098.
When compared to that, the new MacBook Air looks almost cheap. And it’s not out of line with some Windows devices.
“You may be surprised that [the] MacBook Air is not too pricey compared to a Windows device with similar specs,” Gartner analyst Mikako Kitagawa said.
Apple’s not the only company that’s been rising prices. In just two years, the cost of Samsung’s Galaxy phone for US buyers has spiked 15.1 percent from the Galaxy S7 in 2016 to this year’s Galaxy S9, while the Huawei P series has climbed 33 percent since 2016 — and that doesn’t even account for the existence of a Pro model. Microsoft’s Surface saw a $100 price bump over the past year to $899 for its latest model, and even Amazon’s Kindle Paperwhite increased to $130 from $120.
Overall PC and tablet prices also have been rising, said NPD analyst Stephen Baker. In the third quarter of 2015, the average selling price for Windows laptops was $443, he said. In the same quarter this year, the ASP reached $547. MacBook prices over the same period rose from $1,293 to $1,366, he said.
Devices are getting more expensive, but consumers are still willing to pay for them — as long as they’re getting something in return.
“We are seeing on an overall basis, consumers being willing to trade up from maybe entry-level to midpriced, and midpriced to premium,” Baker said. “Apple’s not out of line with what the overall market trends are, but it’s maybe just a few more dollars than what we might see in other categories in terms of the selling price.”
Apple’s counting on the prospect that you won’t mind losing those extra dollars.
5G is your next big upgrade: Everything you need to know about the 5G revolution.
Taking It to Extremes: Mix insane situations — erupting volcanoes, nuclear meltdowns, 30-foot waves — with everyday tech. Here’s what happens.