Why iPhones Never Go On Sale
Or this one from Google. Android smartphones go on sale fairly regularly, so its pretty easy to purchase one for less than retail price.. But when it comes to the iPhone thats. Nearly impossible. Apple never offers sales on their smartphones, even though theyre some of the priciest in the industry. Instead Apple encourages customers to trade in their old iPhone for a discount or sign up for the iPhone Installments program to make the full payment over a longer period Of time., So why is Apple so averse to running iPhone sales, Theyre already making so much money and they could sell a lot more units if they lowered the price right? Well, thats, exactly what Im going to explain in this video.. This is Greg with Apple Explained.. Todays topic came in a resounding first place in the last voting poll.. If you didnt get to participate, make sure youre subscribed and voting polls like this one will begin appearing in your mobile activity, feed., Alright. So why doesnt Apple just lower the iPhones price, a little bit to get more customers Well in order to figure out why we have to understand their business model., Which relies heavily on hardware sales., Consider Google they make 74 of their revenue from ads., Which involves capturing User data and selling it to advertisers. In order to have user data to sell they need users. Thats. Why so many of their software products are free.? The money theyd make from selling their software to customers pales in comparison to what they make off user data.
Hardware. Sales make up such a tiny percentage of Googles earnings that they included it in their miscellaneous category, that not only includes their Pixel smartphone and Nest home products, but also digital sales from their google play store. And all of those things combine only amount to 12 of Total revenue. Compare that to Apple who makes 78 of their revenue from hardware. And, although having more customers would be beneficial to their services business, since that means more potential, iCloud Apple Arcade and Apple News, Plus subscribers Apples. Primary focus has always been and continues to be, on profit from hardware. And profit is the key word not revenue.. Selling an iPhone 12 for 500 would give Apple 500 in revenue, but they wouldnt make any profit since it costs about 500 to make the product. Thats. Why emphasis on profit margin is so important. And its also why Apple will never sell a television set since the margins in that industry are razor, thin. Ill actually be explaining more about that in an upcoming video, so be sure youre subscribed to catch it., But understanding Profit margin is crucial to recognizing why Apple never runs. Sales. Margins in the tech market are known to be slim compared to other businesses like clothing., Where manufactures markup their product by 100 to 250 or more. Thats. Why stores like HampM can run sales all year round and still make huge profits., But technology is not only more competitive, its also more costly.
Bringing something like a smartphone to market not only requires investment in research and development for the hardware, but also in software development. For the operating system. And the problem is these costs are so high that tech companies cant charge 250 markups, since it would make their product prohibitively expensive., So they typically use other business models to make money. Like the example with Google I mentioned earlier, or even a Company, like Amazon., Who sells their their Kindle Fire tablet at a loss since their business model isnt based on hardware sales, but rather media sales like ebooks, which 80 of Kindle users have purchased., But Apple, made the decision a long time ago to avoid this business model.. Since it results in a race to the bottom, that doesnt benefit the company nor the user. Amazon isnt, trying to make the best tablet possible theyre simply trying to make it as cheap as possible.. So they can get their high margin ebooks into as many hands as possible. And while therell always be a market for cheap electronics. Thats, not the demographic Apple targets.. Instead, they go the opposite, direction., Hoping that by offering a superior user experience, customers will pay a premium for their product.. It worked with the Mac, which only made up about 7 of all computers sold in 2019., But accounted for almost 14 of the entire markets. Revenue. Thats, because Apples profit margin is much wider than the competition. Companies like Dell, try to price low and sell a high volume of computers.
, While Apple is happy to sell a lot less as long as their margins remain high. And that philosophy applies to every product. They make. Thats. Why, when the iPhone debuted in 2007, it was the most expensive phone on the market., With many believing the price was out of reach for the average smartphone customer., But Apple didnt, mind if only a fraction of customers bought their product.. In fact, when Steve Jobs introduced iPhone, he clearly outlined Apples sales, goal., Hoping to capture 1 of the mobile phone market in 2008.. That was a tiny number something theyd already exceeded with the Mac., But because the phone market was so big, a 1 share amounted to about 10 million units sold and about five billion in revenue for Apple.. But what actually happened was far better.. The iPhone didnt experience the same marketshare ceiling as the Mac, which Apple mayve expected to be the case. Over the years. The iPhone went on to dominate the US smartphone market with a 60 share. Dwarfing second place Samsung with 24., And that success resulted in an unprecedented amount of revenue for Apple.. But all that success came with a problem.. How would Apple ensure their revenue grows year over year With the Mac? They never even approached market saturation of their product, so their goal was always to attract as many PC switchers as possible and capture. Just a little more market share every year., But the iPhone had been far and away the market leader in the US since its release.
. So the growth strategy of attracting new customers didnt make sense, since Apple already had the majority.. So, in order to make more money, they were forced to raise prices. That way they wouldnt have to sell more units to make more profit. And over the last five years, weve seen Apple push the limits of how much customers are willing to pay. The iPhone price Hikes began in 2017, with the iPhone 8, 8 Plus and X. For the first time ever Apple was selling an iPhone for 1000.. If you wanted the larger capacity model, the price was 1149.. This raised the iPhones average selling price from 606 in 2017 to 724. In 2018., Boosting Apples, annual revenue 17., But more importantly, was the 32 increase in profit. Had Apple not raised prices. They wouldve had to increase their customer base by at least 32 to achieve the same profit boost., But that big of a jump is not only virtually impossible, but also completely. Irrelevant. Apple actually gained more customers when they raised the iPhones price to 1000.. So lowering it back down would be completely counterproductive., Since theres no way theyd suddenly achieve a 40 or 50 boost in sales that theyd need just to match their profits from the previous year. And thats. Exactly why Apple will never lower the iPhones price to try and sell more units. If they did, they would literally lose billions in profits. Overnight. And Tim Cook would probably be fired as CEO all in an attempt to sell a few more units.
, Alright guys. So that is why iPhones never go on sale..