Apple knows that the battle is on for control of smartphones in emerging markets. Apple also knows that its current price structure is not conducive to winning that battle. So today, Apple quietly released a new model of the iPhone 5C with 8 gigabytes of internal storage, according to reports.
Apple is also pushing prices down on its tablets, bringing back the fourth-generation iPad with 16GB of internal storage for $399. The fourth-generation iPad will replace the iPad 2 as Apple’s lowest price 9.7-inch tablet.
The 8GB iPhone 5C is as of right now only available through Apple’s European websites and carriers like O2, according to 9to5Mac. The price is currently listed on Apple’s United Kingdom website as £429 ($712) while O2 lists the 8GB iPhone 5C as £409 ($678) without a contract. Both of those prices are more than a consumer would pay in the United States for a 16GB iPhone 5C, which retails for $550 off-contract with the 16GB iPhone 5S selling for $650.
Considering those prices, Apple may be responding more to consumer preference for iPhones with less storage than any particular need to lower prices to compete in emerging markets like India, Southeast Asia, Middle East or China. Apple’s strategy in emerging markets has long been to push older models of iPhones, such as the iPhone 4, which is available is widely available in India.
As for the fourth-generation iPad, Apple discontinued it when it released the iPad Air in the fall of 2013 while continuing to push the iPad 2 as its most affordable option. The iPad 2 was the only iOS product that Apple still sold in the U.S. that had the old 30-pin connector that was replaced with Lightning charger when the iPhone 5 was released. At $399, the fourth-generation iPad now matches the price of the iPad Mini with Retina Display.
Price: The Point Of Contention
Nobody really doubts that Apple makes high-quality smartphones and tablets. The iPhone is well reviewed every year and is always competitive with other top smartphones from rivals like HTC, Motorola, LG and Nokia. What consumers and investors around the world wring their hands about when it comes to Apple is price.
Apple loves its margins and does not believe it needs to play in the commodity smartphone business to remain a highly profitable and successful company. The iPhone 5C is “unapologetically plastic” as Apple’s lead designer Sir Jony Ive said when it was released. It is also unapologetically $550 and more. That is $200 more than what Google sells the Nexus 5 for and well above the $179 starting price for quality but budget-level devices like the Moto G from Motorola. The brand new Nokia X starts at €79 ($109) and is shipping across the globe (but not the United States). These are quality new smartphones designed specifically to sell in high-growth markets. Apple does not have a new smartphone that can compete with these entries on price and the new 8GB iPhone 5C does not appear to be the answer.
The iPhone 5C has not been a hit for Apple. It was marked as too expensive and not feature-rich enough to justify its price vis-a-vis the iPhone 5S, which starts at $650 off-contract. In its last quarterly earnings call, Apple CEO Tim Cook admitted that the company was surprised on the sales ratio between the iPhone 5C and the iPhone 5S which led to an overstock of the cheaper version and a shortage of the more expensive. Apple can push further down market with less storage in the iPhone 5C, but without drastically coming down in price, it will continue to struggle to meet the volume of its rivals which have all focused in 2014 on budget smartphones in emerging markets.