
iPhone 5S Price: Premium Product Strategy
Apple is in a tough spot. While Steve Jobs, the company’s founder, could easily be the greatest consumer product innovator the U.S. has ever seen, the legacy of his business strategy is forcing the company to make a decisive move in today’s competitive mobile phone marketplace.
Jobs’ vision for Apple was always to create a premier product and charge a premium price. The problem with this strategy occurs when the market becomes fragmented and extremely competitive. In this environment, the difference between a product that is considered great versus one that is good, versus one that is good enough becomes difficult to ascertain.
Though an item might be thought to be superior, its premium price can put off a significant portion of the buying public that will then settle for a good enough alternative at a more reasonable price. Thus, the premium provider has great difficulty in growing or even maintaining market share.
It looks like Apple may be facing such a circumstance with its crucial iPhone product. When it first hit the market, Jobs negotiated extremely hard for premium pricing via subsidies from wireless carriers, even offering a short-term exclusive deal to maximize the phone’s value. The result was a generous subsidy that ensured Apple receives an exceptionally high selling price.
The current subsidy, estimated at around $300 per phone, helps the company book about $600 of revenue for each phone compared to around $250 for Nokia’s smartphone offerings and a similar amount for the recently released BlackBerry Z10.
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