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Apple iPhone & Apple Watch Price Drop – A Strategic Masterstroke … – Counterpoint Research

Come the Fall season, Apple is all geared up to roll out its latest innovations and offerings for more than a billion of its user base globally. Once again the new offerings were announced at its newest iconic “Steve Jobs” theater architected within its beautiful spaceship-shaped Apple Park. The latest announcements from the event are nicely summarized here.
While Apple exhibited its shiny new hardware, the services and astute pricing strategy are what caught our eye and we believe this is a highly effective move by Apple strategically. To understand the how, we need to understand the why behind this move.
Apple’s iPhone Struggles
It’s no secret that Apple has been raking in billions of dollars in revenue, cash and profit due the to growing ASPs of its iPhones. However, at the same time, Apple has seen a significant drop in iPhone volume demand since the 2015-16 iPhone 6 series ‘super-cycle’. The key reasons for the drop in demand:
According to Counterpoint’s smartphone models sales tracker research, the sales demand for  US$999+ innovative flagship iPhones has decelerated over the last five iPhone generations. The iPhone XR is the best-selling model over the last twelve months out of the current portfolio for Apple to acquire new and/or for upgrades from the existing user base.
The sales of iPhone XR for the first twelve months  will be more than the sales of  iPhone Xs series combined for the same period.
Counterpoint Research iPhone Flagship Series Perforamance Last Five Generations
Key here is Apple’s newest pricing announcements which include pricing the new LCD version iPhone 11 US$50 less at US$699 vs the US$749 price at what the LCD version iPhone XR was launched last year. Also, the iPhone XR which got a price cut to US$599 (a 20% drop one of the highest ever for an iPhone in just one year) is also noteworthy even though iPhone XR did undergo pricing corrections in H1 2019 starting with Chinese New Year season in January. So, technically, the iPhone XR pricing has come to some normality after seriously testing the iPhone user base’s propensity to pay $750+taxes or in some markets even priced close to US$1,000. With growing momentum for iPhone XR as the volume driver, this makes the new pricing announcements for the LCD iPhone models both for XR & 11 very important for Apple going into the next financial year.
Apple LCD iPhone Pricing: A Strategic & Marketing Masterstroke
While Apple’s iPhone volume demand has been softening due to the reasons we discussed above, Apple is seeing a stronger ecosystem and customer-lock in benefits as it has begun to clock more than US$10 billion per quarter in revenues from its software and services segment. Apple’s services strategy is growing in importance as the company looks to monetize its over one billion devices user base and create more stickiness. This year’s roll-out of actual meaningful revenue-generating content-centric services building on Apple Music‘s success is pivotal for Apple. This currently includes the subscription gaming service Apple Arcade with more than 100 games at launch and Apple TV+ priced at US$4.99 per month and sports 4K HDR original content video streaming services.
According to our analysis, Apple can potentially generate a Customer Lifetime Value (CLV) of US$2,400 over a period of 30 months from a “power” iPhone user with the latest hardware subscribing to its existing and new Apple services.
Counterpoint Research Power iPhone User CLV 30 Months
Overall, we are quite positive on the growth of Apple for the near-to mid-term future even though iPhone volume demand has waned from its peak in 2015/16. The decline has been nicely offset by the higher iPhone ASP growth and from smartwatch, hearables, and upcoming content-centric services.
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