Neil Cybart’s thoughts on Apple’s iPhone SE strategy

Neil, Above Avalon:

However, instead of this change being a transformational shift in Apple pricing strategy, the move is actually based on Apple’s screen size differentiation strategy kicked off in 2014 with the iPhone Plus […] the iPhone SE is positioned within the iPhone line as Apple’s less expensive 4-inch iPhone 5s successor. Come September, the iPhone SE will have year-old technology and be in line with year-old $549 4.7-inch and $649 5.5-inch models.

I’ve been struggling with Apple’s current lineup when compared against its price. I wasn’t expecting the SE to be priced lower than the iPhone 6 pre-launch. My gripes can be summarised thus: Is an iPhone 6 user, switching to an SE, upgrading or downgrading?

In going from the SE to the 6, you’re actually paying more for less in almost every significant spec apart from the screen (size and quality). So it seems the iPhones 6 are to blame for the incoherence. (I’m not alone in thinking so.) Neil voiced a similar conclusion I was musing over — the current lineup would make a lot more sense come September. Presumably the lineup would be: iPhones SE (free), 6S/6S+ ($99/$199), 7/7+ ($199/$299).

Assuming Apple keeps the SE around for at least about 1.5 years (September, 2017 when the 6S lineup is either discontinued or offered free-on-contract), the iPhone lineup is ‘complicated’ only for the first 6 months until the 6/6+ are discontinued. The tradeoff (if you consider the current state as a problem) seems worthwhile.

Neil continues:

In addition, the iPhone SE is still priced at a premium internationally, similar to other iPhone models, suggesting Apple is not looking at the iPhone SE as its “cheap iPhone” emerging markets trojan horse. Instead, the iPhone SE is a special edition 4-inch model geared toward existing iPhone users that crave small iPhones.

Apple isn’t targeting the SE as a ‘cheap iPhone’. It certainly doesn’t have the ‘cheap’ connotation the 5C had. But the SE is still the cheapest iPhone.

In China, the SE is priced at $505. Here, in India, it’s $580. I can assure you Apple would like to bring that price down to a similar figure as in China. (I previously thought $450 to be a closer number but I’ve thought better of it.)

The extra $80-ish is due, in part, to the Indian government’s mandate that a certain portion of manufacturing is sourced locally. Since Apple manufactures in China (Foxconn), heavier taxes are levied against imported Apple products. Foxconn’s plan to manufacture in India may help reduce prices but that’ll take a while.

Let’s assume $500 is roughly the price Apple wants to sell the SE in China and India. That still targets the iPhone as the cheapest iPhone. Apple, India no longer has the 5S on sale, defaulting the SE as the cheapest option if you’re getting into the iPhone line.

The SE also presents an opportunity for more Android switchers since, at the time of this writing, no Android flagship exists in a 4-inch form factor. The closest is a Sony Xperia Z5 Compact with a 4.6-inch screen and it retails for around $425 in the US. Not only is the SE the best choice for people who like small phones, it’s probably the only feasible choice.

Neil concludes:

 It would seem likely that the iPhone SE will continue to be sold beyond September when Apple introduces new iPhones. There is no indication that Apple will begin selling another 4-inch iPhone at that time. This would serve as another piece of evidence that the iPhone SE is not a shift in iPhone strategy, but rather a targeted bet. If Apple continues to sell the iPhone SE well into 2017, it is not unfathomable that we would eventually see a $50 or $100 price drop as the device would then be based on a five-year-old design and year-and-a-half old technology. […]

In Uncategorized by Mayur Dhaka