Feb 22, 2017 — by: Mark Reschke
Categories: Competition, iPhone, Predictions, Products, Rumors, Samsung

Iphone_8Another day, another iPhone 8 rumor or research note from Ming-Chi Kuo of KGI Securities. Whether the iPhone 8 gains a larger battery, moves to an OLED display, or stops earth destroying asteroids in their tracks, one rumor has seemed consistent, if not consistently scary: iPhone 8 is going to be a premium priced phone above and beyond all premium priced phones.

If iPhone 8 launches with prices above Apple's well established $649 and $749 entry-level starting points, the results could be devastating. iPhone 8 will arrive as Apple's 10th anniversary iPhone and will arguably be the company's largest-ever iPhone launch since its introduction in 2007. But there are ways Apple can move buyers into premium iPhone prices without making it appear they are doing so. Will Apple get it right?

Starting with iPhone 6 in 2014, Apple has offered two distinct iPhone models. A base 4.7-inch display iPhone for $649, and a 5.5-inch iPhone Plus starting at $749. This was a marked departure from Apple's previous one-size-fits-all approach. In March, 2016, Apple further differentiated its new iPhone offerings with a 4-inch iPhone SE for $399.

If Apple raises the price of the iPhone 8, it should do so by continuing the theme of choice. The base iPhone 8 would stay at the current entry price point of $649, while the Plus model – which continues to grow in popularity – could start at a staggering $849. While this pricing would seem to scare away many would-be buyers of the Plus model, this isn't where Apple stops. Rather, Apple would offer a new mid-range iPhone 8 starting at $749. This mid-range iPhone 8 would ship as the same physical size as the entry level iPhone 8, offering one feature the Plus model contains, which the entry level $649 iPhone 8 does not.

Apple is working on throwing in just every new technology they have into iPhone 8. If reality is even half that of the rumor mill, Apple should be able to take one feature of the iPhone 8 Plus and affix it to the mid-range iPhone 8 in order to justify it's $749 price point. A highly desirable feature amongst many iPhone buyers is Apple's dual-camera Portrait mode technology, available today only in iPhone 7 Plus. By injecting the base iPhone with this hardware+software feature, it can demand a $749 price point, pulling many buyers north into a higher price bracket then they first assumed they would be willing to pay. Apple must surely know competitors such as Samsung will also be out with a dual-camera mode this spring or fall, and will push it into their base models in an effort to undercut Apple. Adding a mid-range model with this feature helps mute competitive efforts.

The three tier model offering makes for a gradual and logical price climb. $849 for an entry-level iPhone 8 Plus doesn't seem like such a ghastly jump from the base model, due to the mid-range solution bridging the gap.

Apple undersands that the vast majority of iPhone Plus owners are not going to want to move back to a smaller device. If iPhone 8 Plus does indeed showcase as plethora of new technologies, the justification that it is only $100 more than the mid-range iPhone (also only $100 more than their current iPhone Plus model), the choice becomes relatively easy, and the consumer won't feel like they are getting fleeced out of another $100 over their last iPhone Plus purchase. 

Apple may not be able to grow iPhone Plus models adoption as much as they would ideally like, but a huge swath of current iPhone owners are likely to spring into the iPhone 8 $749 mid-tier model, moving Apple's ASP north by a wide margin, while covering the phone's costly new technologies.

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