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At $399, the China iPhone 11 is Apple’s cheapest new smartphone since the iPhone 8. And that says a lot about changes in consumer habits and the challenges Apple faces — and how it’s responding to them.
Last year, the days of sub-$360 new iPhones seemed like they were a thing of the past. The iPhone XR cost $349, making it the most expensive entry level iPhone of all time.
But this year, with the iPhone 11, Apple returned to the $399 price that it introduced in 2017 with the iPhone 8. In six of the seven prior years, between 2010 and 2016, Apple had offered its cheapest iPhone for $349 (except for 2013, when it was $349).
In 2009, the entry level new iPhone cost $399, and in the previous two years it cost $499.
Some customers had feared that Apple was pricing them out by abandoning the sub-$400 price. People have been holding onto their phones for longer, and Apple has looked for ways to increase revenue as people bought fewer iPhones.
IPhones aren’t exactly cheap. Getting the biggest and best iPhone has become an expensive proposition. This year, like last, Apple will sell a version of the iPhone that costs $449. The iPhone 11 Pro will start at $389, and the iPhone 11 Pro Max starts at $399.
Apple also surprised folks with some other cheaper-than-expected offerings. The third generation Apple Watch costs $99, the first time Apple has sold a version of its wearable gadget for under $100. The new iPad costs $229. And the company is charging $5 per month each for Apple TV+ and Arcade, its new streaming and gaming subscription services.
Those prices are all a lot less than many analysts were expecting. Daniel Ives, a Wedbush analyst, called the Apple TV+ price tag in particular a “show stopper” in an investor note Tuesday, adding that investors had expected it to cost as much as $9.99 per month.
Apple is keeping its entry level prices low for a couple reasons.
Apple’s iPhone sales continue to slump. Recent weakness in China, because of the slowdown in the world’s second largest economy, is partially to blame. But iPhone sales have been trending lower globally for several years.
That’s why Apple is looking to expand its base, offering a lower-cost device for the lower end of the market. The iPhone 5C, iPhone SE, iPhone 7, iPhone 8 and iPhone XR represent Apple’s other recent attempts to offer a lower cost version of the iPhone. And Apple has traditionally offered older versions of its products at lower price points, letting customers buy last year’s technology for about $100 less.
Apple has used slightly different strategies with its lower-end devices: The iPhone 5C, XR and 11 used lower-cost materials than the other phones Apple offered in their respective launch years. The iPhone SE, 7 and 8 maintained the same designs as older versions of the iPhone, and Apple just upgraded their internal components.
It did the same thing with the iPod a decade ago, introducing the Mini, Nano and Shuffle versions of the MP3 player.
But cheaper products won’t be enough to revive Apple’s flagging iPhone sales. So Apple needs to find other ways to get customers to buy stuff. Recently, Apple has been adding subscription services, including Apple TV+, Arcade, Apple Music, Apple Care and iCloud to bolster its top-line sales. As a result, Apple managed to grow its overall revenue in the most recent quarter even as iPhone sales fell by 12%.
By charging just $5 a month each for Apple TV+ and Arcade, Apple is looking to attract a large group of people who will try out the new services. That’s even cheaper than some similar services, including Disney+, which will start at $7 a month.
Apple has been a phenomenon, its growth has been epic. But the days when that growth could rest simply on increasingly expensive iPhones is over. The pricing strategy behind Tuesday’s announcements indicates that the company knows that.