WORLDVIEW: Apple’s killer quarter down to one simple tweak

Apple had a terrific Christmas – its generated all-time record earnings of $91.8bn in the last three months of last year. That's a staggering amount of money and it was, to many analysts' surprise, driven largely by an 8% increase in iPhone sales..For a few years now, iPhone sales have been flat or falling as people hold onto their phones longer. But suddenly, last Christmas, iPhone sales jumped to $56bn..What happened? And what can we learn from this unexpected success?.___STEADY_PAYWALL___.Essentially, these brilliant numbers come on the back of one very simple little change to Apple's strategy. Here it is: Apple sold the iPhone 11 as its flagship model at a price of $700..Doesn't sound like much, does it? Let me explain..In 2018, the flagship iPhone model – the one Tim Cook held up at the annual launch – was the iPhone XS, a sexy number that came with a US price tag of $1,000. Plenty of editorial ink was spilt over the rise of the "$1,000 phone," especially after Samsung launched its $1,000 flagship Galaxy S10+..The problem was, it didn't work. Hardly anyone actually wanted to spend that much money on a phone. Studies showed that less than 10% of US consumers spent $1,000 or more on a phone – and the numbers weren't better in less wealthy markets..Content hosted by iono.fm.The problem seemed pretty obvious, but many worried that Apple – long committed to its premium branding – would find it impossible to cut prices..And that's where the genius of Apple's approach comes in. Apple did cut prices, but it didn't cut them from $1,000 to $700, not really. It actually cut prices from $750 to $700 by changing its branding..Instead of branding the top-of-the-line, $1,000 iPhone 11 Pro (or the $1,100 11 Pro Max) as its flagship, it branded the basic iPhone 11 as the face of the 2019 line-up. This is in contrast to 2018, when it branded the XS as the flagship and the $750 XR as an also-ran (there was also the super-premium $1,100 XS Max – see table below)..PhonePriceBranded as Flagship201911 Pro Max$1,100No11 Pro$1,000No11$700Yes2018XS Max$1,100NoXS$1,000YesXR$750No.It's a brilliant move – by slightly tweaking its marketing and trimming the price on its basic model a bit, Apple sent its sales soaring, even though many people are waiting for this year's rollout of 5G..Apple also made some other sharp moves around affordability, offering better trade-in deals and more financing options in its key markets. All of this combined to make a new iPhone a real option for a lot more people..The reason this is such a brilliant move is not its simplicity, nor its effectiveness. Rather, it's because this move by Apple is highly supportive of its broader, long-term strategy of growing services and wearables..An iPhone is a gateway into the Apple ecosystem. Once someone has one, then getting an Apple Watch becomes appealing, or a pair of AirPods (wearables, led by Apple Watch and AirPods, rose 37% in the holiday quarter). It also opens up the world of the App Store – where Apple creams a nice profit off purchases – and encourages users to sign up for Apple's services. Apple has made services a key area for investment, and it is predicting 600 million paid subscriptions by the end of 2020, up from 500 million now – thanks in part to higher iPhone sales..Obviously, analysts will be watching Apple as closely as ever, especially amidst concerns that the coronavirus is going to chip away at sales by keeping shoppers away. But there's no denying that Apple had a brilliant quarter and managed to do it without changing any of the fundamentals of its business: smart marketing, smart pricing, and appealing products.

WORLDVIEW: Apple’s killer quarter down to one simple tweak

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