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Apple iPhone 5C: The perils of price chopping

Carmi Levy
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A cheap Apple product isn’t heresy. It’s market reality. And Apple’s introduction of the low-cost iPhone 5C alongside its flagship 5S model at Tuesday's big reveal in Cupertino illustrates just how much pressure the company now faces.

The cost-conscious consumer in me has always wanted Apple to start pricing its products a little closer to the affordable middle of the market instead of the near-luxury space where it typically lives. While I logically understand why most of the company’s wares tend to command a premium, emotionally I wish it took less coin to bring something emblazoned with the famous logo home.

The perils of price chopping

Apple has traditionally not taken downmarket moves lightly. Introducing the first-generation iMac computer in 1997 was a save-the-company move that had more to do with busting preconceived notions of what a PC was – and was not – than anything else. Later, expanding the original iPod line from the full-blown classic offering to the more populist Mini, Nano and Shuffle traded the risk of cheapening the brand against the need to grow the platform and get as many people as possible hooked on iTunes software and culture.

It worked. Spectacularly. And Apple has stayed well above the mass market space ever since, riding a wave of near-exponential volume growth and margins that were – and are – unmatched in the industry. It’s a strategy that made sense in the halcyon days six years ago when the company reinvented what had been a staid, corporate-led smartphone paradigm and as a result had the touchscreen/consumer-friendly smartphone market virtually to itself. It’s also a strategy that continued to make sense as the company expanded its iOS empire with the iPad in 2010 and an ever-growing App Store to boot.

Times have changed

Unfortunately, the strategy makes little sense today. The world has evolved radically from those simple early days in the smartphone market, and Apple is now being squeezed by unrelenting competition from devices running Google’s Android operating system on one side, and by topped-out demand in mature markets like North America and Europe on the other.

While analysts and observers blame Apple’s stock price swoon on its innovation challenges, investors are infinitely more afraid of the growth engine running out of steam. Crushing competition and maxed-out markets with slackening growth potential will have that effect, and shareholders have cashed out in anticipation of darker days ahead.

Enter the iPhone 5C, Apple’s most radical marketing move since the very first iMac all those years ago. It reuses much of the technology at the core of the now-overshadowed iPhone 5. It’s a savvy move that Apple has used before: recycle already paid-for engineering in a lower-tier product, then sell it alongside the higher-end offering without risk of cannibalization.

The iPad mini, which largely uses the same guts as the older iPad 2, ignited Apple’s move into the lower-price tablet market. Like iPad mini customers, iPhone 5C users likely won’t care that their devices are running 12- to 18-month-old processors and camera modules. Getting into the iPhone universe and bringing that all-important logo home for less is likely more than enough for them.

If it’s a convenience here in North America, it’s an absolute necessity for Apple in emerging markets like China, India and Africa. While the high-end 5S would have met with limited appeal in these price-sensitive markets, the 5C could open the doors to continued exponential growth for the iPhone franchise. Of course, Apple runs the risk of brand dilution, but in the face of Google’s push for global mobile platform dominance, it’s a risk Apple can’t afford not to take.

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca

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