Budget iPhone makes no sense

Rumours that Apple is considering making a cheaper version of the iPhone to try and grow its market share aren’t in keeping with Apple’s ethos. A cheap iPhone might do more harm than good to its brand. By Craig Wilson.

Speculation has been mounting in recent weeks that Apple is preparing a cheaper iPhone to help it expand more aggressively in emerging markets. The rumours had reached such a point that senior vice-president of worldwide marketing, Phil Schiller, this week moved to play them down.

The fact is, Apple doesn’t need to make a cheaper iPhone. It already has two: the iPhone 4 and the 4S. Every time a new iPhone is released, its older siblings remain on sale, but their prices fall. The result is cheaper but fully functional iPhones.

That’s not that dissimilar to the midrange handsets other manufacturers release to attract those disinclined to splash out on the latest high-end device. Midrange handsets usually have a slower processor, less RAM and a poorer camera — all attributes you’ll typically find in a previous-generation iPhone.

Some argue Apple’s limited range of devices — available in only two colours — means it risks having its handsets rendered redundant should one of the other big players like Samsung succeed in creating a handset sufficiently appealing to win over iPhone users on a large scale.

There are those who’ll tell you it’s happening already. Apple’s iOS 6 operating system feels increasingly dated compared to Google’s Android and, with the iPhone 5 having had a more lukewarm reception than the 4S — despite being a more drastic change in terms of design than the 4S was over the 4 — many iPhone users have been overheard coveting Samsung’s Galaxy S3.

Looked at in this light, making a cheaper, pared-down version of the iPhone might seem like a good idea, particularly as it would be a preemptive rather than a reactive move of the sort arguably seen recently with the release of the iPad mini — a device the late Steve Jobs wasn’t said to be keen on.

Of course, the iPad mini may be smaller, cheaper and essentially a miniaturised iPad 2, but it’s still a fully functional iPad. The iPad mini isn’t a compromised product, and the sorts of midrange iPhones the rumour mill is hinting at sound like they wouldn’t be able to make the same claim.

Most arguments suggest the reason Apple should make a cheaper iPhone is to grow its market share. This seems reasonable given the company’s share price is down by 18% in the three months since the launch of the iPhone 5. Its price to earnings ratio is 11,8. That’s incredibly low for a company that has historically shown the sort of strong growth that Apple has, suggesting the market thinks the company’s strong growth phase is over.

There’s no denying Samsung Electronics is now the champion of the smartphone market. But Samsung caters to every pocket, while Apple is unabashedly elitist. Given their differing approaches, it’s impressive Apple still maintains the sort of market share it does (around a fifth of the US market).

The iPhone remains quintessentially an aspirational product, and that’s a brand attribute Apple must be wary of diluting. Not everyone can afford an iPhone and not everyone who can wants one, but thanks to its positioning there are plenty of people who can’t afford one who do want one, and others who probably shouldn’t really be buying one but do for the perceived status it conveys.

That’s what made Apple the darling of the smartphone market in the first place. The company needs to maintain and grow its market share by producing the most desirable handsets on the market. That’s what it did with the iPhone 3GS and the iPhone 4. It’s failed to do that with the iPhone 5.

The answer for Apple doesn’t lie in a cheaper midrange iPhone. Instead, it needs to double-down and ensure it has the leading top-end smartphone.  — (c) 2013 NewsCentral Media