Although Apple (NASDAQ:AAPL) always positioned its long-rumored cheaper iPhone a “mid-tier” product, financial and industry analysts and the media speculated for months that the 5c would be a much cheaper unsubsidized device than it turned out to be.
According to AllThingsD, in May J.P. Morgan analysts Gokul Hariharan and Mark Moskowitz hypothesized that the cheaper iPhone would actually be a mid-tier iPhone at a cost of around $350 on an unsubsidized basis. “Currently Samsung dominates this segment ($200-500 price range) with 35+ percent market share,” they wrote, adding later, “We believe Apple could take 20-25 percent of this market in the next 12 months (from almost no market share currently), if it prices a lower-priced product at $350-$400 levels.”
As speculation built through the summer that Apple would be unveiling two new iPhones for the fall, this theory about the price of the lower-cost iPhone continued to prevail. By early September, the unsubsidized price point on the cheaper iPhone, which everyone assumed would be dubbed the iPhone 5c, had climbed slightly, but was still in the $400-$500 range.
For instance, according to AllThingsD, after extrapolating from data from a survey of 2,000 Chinese mobile phone owners, Morgan Stanley analyst Katy Huberty reported that Chinese customers believed $486 to be an “acceptable” price point for the iPhone 5c.
On Sept. 10, Apple did indeed deliver a cheaper iPhone 5c, alongside a more expensive model, the iPhone 5s. However, the ultimate cost of the iPhone 5c was more expensive than analysts had expected.
Apple said it would sell the 16 GB iPhone 5c for $99 and the 32 GB version for $199 when coupled with a two-year contract. On a no-contract basis however, the phone sold for $549 for the 16 GB model and $649 for the 32 GB model. Those prices are only $100 less than the price of the 5s.
About a week later, Apple CEO Tim Cook dismissed pundits and analysts who said the price of the 5c as too high, arguing that Apple has never been in the business of making low-cost phones. “There’s always a large junk part of the market,” he said. “We’re not in the junk business.” Apple is still focused on the higher end of the market, where customers remain willing to pay a premium for value, he said.
“We never had an objective to sell a low-cost phone,” he said. “Our primary objective is to sell a great phone and provide a great experience, and we figured out a way to do it at a lower cost.” That was Apple’s strategy all along and it left a lot of people eating crow.