The iPhone just got its first real price cut (AAPL)
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Apple revealed a new phone on Monday: the iPhone SE. It's not a cutting edge phone.
It takes Apple's current-generation technology and sticks in a case that first went on sale in 2013. The iPhone SE can't do anything previous iPhones haven't been able to do.
Except that it retails for just under $400 without a contract.
That's the lowest price tag that a new iPhone has ever had, and it basically means that the world's most profitable smartphone just got a price cut.
Even the two-year-old iPhone 5S, which the SE has replaced on Apple's website, previously cost $450 for a new one without a contract.
It seems as if Apple has finally realized that it might have tapped out the upper-end of the smartphone market, and to find growth, it needs to cut prices.
Even when Apple announced what was said to be a cost-effective iPhone in the past, the iPhone 5C, it started at $549 – a hefty sticker price for a "cheap" phone when there are perfectly acceptable Android devices retailing for under $100.
Apple's insistence on keeping prices high has worked for its favor: the iPhone and its iOS software remains the choice for anyone looking for a premium smartphone experience. In fact, Apple's dominance at the high end have pushed Google's top phones, like the Nexus 5X, into the $300-$400 range now being targeted by the iPhone SE.
And it hasn't significantly hurt iPhone sales in China, which has been the engine behind Apple's historic growth for the past few years.
Apple's next huge market
But as Apple turns its sights toward India, which CEO Tim Cook has called "one of Apple's most important growth areas for the next decade," it may be changing its pricing strategy.
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Currently, India is dominated by cheap Android smartphones from companies like Xiaomi and Samsung. Apple's iOS is a blip in one of the fastest growing smartphone markets.
At $400, the iPhone SE could be significantly more attractive to Indian consumers than the pricey new $649 iPhones Apple pushes in the United States. In fact, the iPhone SE will cost 30,000 rupees in India, slightly more than the 25,000 rupees the iPhone 5s currently costs in the country. On a monthly installment plan, the cost will be much more palatable for many Indians than the latest and greatest.
But Apple also signaled that the iPhone SE isn't even going to be the least expensive iPhone. In a prelude to the product announcement, Apple environmental director Lisa Jackson touted how many iPhones find a second life after they've been exchanged and refurbished.
"We're happy to say that thanks to their durability, the majority of iPhones we get back end up being reused –including the phones we get back from our iPhone upgrade and iPhone trade programs," Jackson said.
Apple doesn't sell refurbished (or pre-owned) iPhones in the United States, but there's one country that could have a serious appetite for them: India.
In December, Apple applied for Indian government approval to import and sell used iPhones in India. It's even building a facility to refurbish them. Some Wall Street analysts even believe Apple could continue to sell refurbished iPhone 5S models in India for as little as $200 – giving Apple a legitimate low-cost option in a price-sensitive and exploding market.
Price cuts across the board
In fact, much of what Apple announced on Monday was about price, not advances in technology. It raised the starting price of its paper-sized iPad from $499 to $599, in order to position it better as a premium laptop replacement.
GettyIn addition, Apple cut the price of the entry-level Apple Watch – which will celebrate its first year on sale next month – to $299 from $349, reflecting the pricing that retailers had already been selling the device for.
It's debatable whether Apple has lost its "reality distortion field" and just become another technology company – after all, it did report the most profitable quarter in the history of capitalism in 2016 – but it's coming up against an uncomfortable truth.
The fact is, Apple is so big and has so many users – over a billion, Cook bragged – that its unlikely to be able to post huge sales growth numbers by relying solely on new customers going forward. So it's looking at its formidable base of existing users, and trying pricing tricks to get them to upgrade and buy additional Apple products. Last month, Apple introduced a way for existing buyers to trade their old iPhone in and buy a new one with interest-free installments, for example.
For Apple, the iPhone SE pricing does two things: give it a new affordable device to encourage holdouts in the U.S. and Europe to upgrade, and also gives it not one but two cost-sensitive models to continue propelling growth in the developing world.