Apple reduces 5C orders, hinting at renewed premium push
October 18, 2013
Apple's 5C smartphone
Reuters recently reported that Apple is cutting production orders for the iPhone 5C, while increasing production of the 5S, suggesting a renewed focus on its premium positioning.
When Apple came out with the 5C, it was viewed as another attempt to broaden the brand's reach with products priced slightly below its traditional high-end prices. Both the iPhone 5C and 5S were launched about a month ago, marking the first time that Apple launched two phones at the same time.
“Before this 5C came out, everyone was talking about the low-cost split, the whole time Apple was saying we’re not interested in creating it,” said Michael Morgan, senior analyst at ABI Research, New York. “They have stayed true. It’s not on their radar.
If they could find a way to do it and still make a great phone they would, but it would still be the new model is the best phone," he said.
“Despite the fact that Apple is not following what everyone wants them to, they are following what they want to, and it’s continuing to be successful for them.”
5C versus 5S
The 5C is essentially the same as the iPhone 5, except that it comes in different colors and can cover more frequencies that are used in other countries. The 5S was certainly Apple’s more exciting release, with new technology including fingerprint scanning.
In the United States, the 5S 16 GB model is being sold for $649, and the 5C is $100 cheaper. With carrier subsidies that tends to translate to $199 and $99 respectively.
According to Reuters, Pegatron Corp, the company that assembles many of the iPhone 5Cs, has seen orders reduced by less than 20 percent. Another Apple contractor, Hon Hai Precision Industry Co, saw 5C orders decrease by a third.
Simultaneously, Apple has raised orders for the 5S in the fourth quarter.
Experts and analysts are quick to warn against reading into these details, since these minor adjustments in orders are common and may not actually signal a major decision. It is very hard to judge a business by its supply chain.
“The data’s not very hard,” said Carl Howe, vice president of research at Yankee Group, Boston.
“You don’t know how big the orders were to start with, so a 20 percent reduction could be a lot or a little, you don’t know," he said. "I take those reports with a grain of salt.”
Yet, many may want to view the order adjustments as a symbol for Apple’s failure to create a low-cost smartphone.
The iPhone 5S
With growth in mobile sales at the high-end of the market beginning to stall, many have viewed
Apple’s iPhone 5C and even its iPad mini as an attempt at reaching a lower-end market. However, Apple has never explicitly said that those were its intentions.
“It’d be like asking a football player to play basketball,” ABI’s Mr. Morgan said. “It’s not a game they’re in, and it’s not the game they want to be in.”
Apple first and foremost puts out a premium product. Consumers buy the iPhone because they want the best smartphone.
If a consumer is truly looking for a low-cost smartphone, Apple would not be the place to look.
According to Mr. Morgan, low-cost smartphones start at $250 wholesale, and the 5C is nowhere near that point.
Once the price point is above $250, $100 does not actually make a difference for consumers. At that price point, they would rather have the newer, better product as opposed to the 5C, which essentially is the 5 in different packaging.
Mr. Morgan expects 5C sales to continue to decrease, since consumers will continue to want the newest and the best.
“In our research I found that when it comes to iPhone sales by model in any different time period, the most current models tend to account for over 80 percent of the shipments,” he said. “Last year’s model tends to be at best 10-15 percent, and the two-year-old only about 5 percent.”
Since the 5C is not very different than the 5, Mr. Morgan expects its market share to mirror that of the 5 as well.
Yankee Group’s Mr. Howe, on the other hand, predicts that the 5C sales will actually start to pick up.
“One of the interesting things about the 5C which I think a lot of people haven’t really absorbed, is if you get one it screams this is the latest device because before this they haven’t done colored phones, so it immediately says to people from a status point of view new, which is actually not true of the 5S,” he said. “I think you’ll see 5C sales pick up even after the initial excitement dies down.”
While Mr. Howe does not think that 5C sales will entirely diminish, he still maintains that it is not a low-cost product. Instead, he views Apple’s business model as a “good, better, best” strategy.
“If you remember, way back when they sold iPods, there was the iPod shuffle which was their good there was the iPod nano which was their better and there was the best which was just iPod,” Mr. Howe said. “I think they’re doing a similar thing here. They’re creating new products, but all of them are premium products.”
Mr. Howe believes that Apple never intended and never will intend to go below the “good” product to a low-end one. Apple has always and will always be premium.
This strategy is further supported by Apple’s recent hire of Burberry’s CEO Angela Ahrendts. The new addition to Apple will further its stake in the growing merger of technology and retail, while at the same time maintaining Apple’s luxury status (see story).
“Burberry doesn’t sell $10 scarfs,” Mr. Howe said. “I think the Burberry exec is illustrative of the position Apple wants to have which is a premium brand and by the way this isn’t even aspirational. They have been rated number one brand in the world a couple of times already.
“This is somebody who they believe will reinforce that position and more importantly knows how to make it work,” he said. “She knows how to tell a story with a premium product and make it something that people aspire to afford not just make it the cheapest product.”
Rebecca Borison is editorial assistant on Mobile Marketer, New York
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