While exploring the mischievous world of internet, here and there everyone has come across several memes mocking the expensive iPhones for their soaring prices every year they launch a new model. Have you ever thought there might be an actual reason for it’s weed-smokin-high prices? Who would have thought that the Smartphone once launched in 1994 would be worth 1.02 Lakhs ($999 in US) someday! With so many buying offers such as cashback schemes, zero percent interest rate and buyback policies, Smartphone manufacturers desperately want the attention on their high prices to dissolve amidst their fancy schemes.
Apple’s flagship smartphone, iPhone X, is 25% more expensive in Australia, 30% more expensive in UK and 35% more expensive in India. There are five major reasons for such a high price tag.
- Raw Materials Cost has increased than it’s early days. The Smartphone industry is one of the industries where consumers continuously expect innovations to happen. Smartphone manufacturers are aiming to cut down the size to make it as thin as possible, provide maximum storage capacity, high RAM capacity, professional level Cameras and develop a sturdy product that can withstand your carelessness. For all of this, top quality material is utilized which is certainly not funded by Bruce Wayne (Google ‘Bruce Wayne‘ if you don’t know who he is. Also google, ‘Why do I exist on this planet‘). The cost of raw materials (BOM, Bill of Material) has risen drastically and as Apple does not outsource much development as it’s competition, buying raw materials in US is definitely costlier than buying the same material from elsewhere (say China). The BOM for iPhone X is estimated to be as high as $500 (US).
The new A11 Bionic chip (70% faster than A10) used in iPhone X is huge in size and the cost of developing it is equally humongous, it is so high that budget smartphone manufacturers can never even dream of it!
- Research and Development (R&D). iPhone X has Face ID which is enabled by the TrueDepth camera that projects and analyzes more than 30,000 invisible dots to create a precise depth map of your face. The TrueDepth 12 MP camera analyses more than 50 different muscle movements to mirror your expressions in 12 Animoji. Better battery life (forget about the battery scandal for minute, will ya folks). Wireless charging enabled and multiple other new features which were absent in the previous gen models, and all of this didn’t come in Tim Cook’s dream sequence, it is infact the result of intense R&D done by the Apple engineers and scientists. Apple launches iPhone every year and each iteration is smarter and better than it’s predecessor. Considering the strict timeline, the R&D department has to deliver the product irrespective of the cost involved in the project which ultimately leads to high investment (literally in Billions). This is something which is non-negotiable. Also, if you are not aware, Apple has switched to OLED displays from LCDs and guess who provides them with the display? Apple’s very own friendly neighbourhood, Samsung! The deal was finalized in billions (because millions is too mainstream for these tech giants).
- Marketing Cost. The first advertisement for iPhone, titled “Hello”, aired during the 79th Academy Awards on February 25, 2007, on American Broadcasting Company (ABC). Since then, Apple has invested a lot of money on it’s Marketing. Everytime they launch a new iPhone, they have to go through rigorous marketing efforts to make it a big deal, to make sure everyone knows about it and are ready to sell their cars and kidneys! It takes a lot of imagination and creativity to portray a product not much different than it’s previous version, with an evolved facade. After Steve Jobs demise, the product innovation has certainly seen its downfall but sales number have definitely gone up (if not exponentially). Last year, Apple’s ad spend increased by 50 percent to a $1.8 billion. According to an analyst at Wells Fargo, the reason Apple may now be clamming up about advertising spend could be because Apple is spending more advertising dollars per sale, which could be a boon to critics if news got out. Here’s an advertisement showcasing the all new iPhone X, attractive, isn’t it?
- Brand Perception. When Steve Jobs first launched iPhone in 2007, everyone was fascinated but no one knew that one day it will create an army of fans who will wait in lines for days (bold and underline!) just to grab the latest piece of Apple’s flagship tech. That’s the power of Apple as a brand. Apple tops Forbes’ annual study of the most valuable brands in the world for the seventh straight year (FY17), worth $170 billion. Its brand value is up 10% over last year and represents 21% of the company’s recent market value of $806 billion. Now, who wouldn’t exploit this opportunity to earn some extra bucks? A $1 coffee does the same job as to what Starbucks serves, but still people go and spend so much on just a ‘coffee’. Similarly, people deeply-madly-truly buy iPhones each year irrespective of so many alternatives available in the market. Because Apple is not just any ordinary company, it has become a Saga!
- Supply and Demand. Agree or not, since the launch of iPhone 5, iPhone’s demand grew exponentially. Everyone wants it in their pocket, they do not care about the operating system it has, version it runs on, hardware it uses. All they want is the beautifully crafted piece of tech which everyone wants. They are ready to put in their two month’s salary knowing that next year the vicious loop will restart. If you have ever studied ‘Economy’, you should be aware with the concept of ‘Supply and Demand’. If the demand is more and supply is limited, the prices go up! The same principle applies here.
iPhone is Apple’s most important product as it is the first step which consumer takes towards the so called ‘Apple Ecosystem’. No one buys an iMac, a Macbook, an iPad or an Apple TV before iPhone. iPhone is the stepping stone to the much attractive set of luscious devices. Hence, it is of paramount importance for Apple to make it right everytime! If they mess up the iPhone section, the whole ecosystem could be jeopardized.
With Apple stocks going down and price tag on their devices going up, I don’t know till how long can Apple maintain it’s charismatic presence in the tech industry. All I believe is that everyone should be aware of what they are purchasing, afterall it’s our hard earned money, right? I hope after reading this article you will not question the extreme price tag on iPhone X. When you buy something unique built with top quality ingredients, you have to pay the right price for it.
Till next time!!!
An IT Engineer working as a Consultant in one of the big four firms, Ernst and Young. Completed his executive MBA in general management from the Indian School of Business (ISB). Gadgets, Superheroes and Automobiles give me that kick which is required to sustain this monotonous corporate life. I am a huge fan of classic movies, geeky TV shows and random surfing of a website that was launched 12 years ago in 2005, Youtube!