Economics of Apple, Inc.'s iPhone

Economics of Apple, Inc.'s iPhone
Case Code: ECON069
Case Length: 14 Pages
Period: 2007 - 2019
Pub Date: 2019
Teaching Note: Available
Price: Rs.400
Organization : Apple, Inc.
Industry : Smartphone
Countries : US; Global
Themes: Pricing
Economics of Apple, Inc.'s iPhone
Abstract Case Intro 1 Excerpts

Abstract

The case discusses how the iPhone came to be positioned as a premium product. Apple Inc. successfully introduced new models of the iPhone and simultaneously moved up the price curve as reflected in the rising average selling prices. Several consumers considered an iPhone to be an extension of their personality and did not seem to mind shelling out money to buy the latest iPhone models. The case also discusses the creation of a successful ecosystem, which benefited the iPhone immensely. The ecosystem was in the form of the iOS, the associated applications, services such as iCloud and Apple Pay, and products such as the iPad and Apple Watch. The ecosystem increased users’ dependence on the iPhone.

The case goes on to discuss the launch of the iPhone X model at a price point of US$999 and above. It discusses what was unique about the iPhone X model and how the constrained supply may have added to the appeal of the product. The iPhone X was the largest-selling smartphone model in the first calendar quarter of 2018. The case also touches upon the challenges associated with pricing the product at US$999 and above. Some analysts pointed to iPhone’s steep price as the reason for the projected softening of demand for the iPhone X. The question was, could Apple sustain its perceived steep pricing strategy for iPhone X?

Issues

The case is structured to achieve the following teaching objectives:

  • Understand how Apple maintained the premium pricing of its iPhone models
  • Understand the role that pricing plays in calibrating the demand for products
  • Critically analyze Apple's pricing strategy for the iPhone X
  • Understand the concepts of Veblen goods, substitutability, anchoring, substitute goods, and price elasticity of demand
  • Discuss whether and how Apple can maintain its premium pricing strategy

Contents

Keywords

Managerial Economics; Behavioral Economics; Veblan goods; Pricing; Price elasticity of demand; Demand forecasting; Substitutability; Anchoring; Manufacturing cost; Premium pricing; iPhone X; Smartphone market; Competition

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