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Apple goes for higher margins with iPhone 5C, but may miss the mark in China

Posted: , by Michael H.

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Apple goes for higher margins with iPhone 5C, but may miss the mark in China
For months and months now, we've been hearing about the supposed "cheap" iPhone that was on the way. At first, the thinking was that Apple could potentially release an iPhone that would hit the $200 off-contract mark (although that was really just wishful thinking by Apple fanalyst Gene Munster.) Eventually, we came to understand that the iPhone 5C would simply be a modification to the iPhone 5, and it would take over the mid-range spot in Apple's lineup between the iPhone 4S and 5S.

For better or worse, that's exactly what we got. The move makes sense from a customer perspective insofar as it helps users distinguish visually between the various iPhones, which hasn't always been an easy thing to do. Had Apple followed the usual protocol, it would have had the iPhone 5S next to the iPhone 5 on the store shelves, and the only way to visually tell them apart, if the 5S wasn't one of the new colors, would be with the fingerprint scanner ring on the iPhone 5S home button. Now, it's very easy to tell apart the 5S from the 5C and the 4S. 

From Apple's standpoint, the move to the iPhone 5C makes perfect sense as well, because the device is basically an iPhone 5 with a plastic shell instead of metal, which means the device will be even more inexpensive for Apple to build. The only differences between the iPhone 5 and iPhone 5C are the casing, and the 5C has a slightly larger battery, and a slightly better front camera. That's about it. The iPhone 5 components have been getting cheaper and cheaper, so even swapping in those slight improvements, the switch to a polycarbonate case will cut the price enough to give Apple larger profit margins on its mid-range offering than it would usually have. 

Lower cost, but not lower price where it counts


Apple goes for higher margins with iPhone 5C, but may miss the mark in China
Unfortunately, Apple isn't passing on those savings to the markets where the company would benefit the most from having a lower price tag, like China, India, and other emerging markets. According to Apple's Chinese website, the iPhone 5C will sell for 4,488 yuan (~$733) for the 16GB model, while the 32GB version sells for 5,288 yuan (~$864). For a bit of perspective on that, the average monthly income in mainland China is about $656. On the other side of it, the 5C will cost $549 from T-Mobile, and the average U.S. monthly salary is just under $3,300. It's easy to imagine an American spending about one week's salary on an iPhone 5C, but it's not so easy to imagine someone in China spending 5 weeks salary on the same device. Chinese users often pay full price for devices, then subsidies are added in later by carriers to bring down monthly costs. 

Pricing hasn't been announced for regions like India, Africa, or South America, but it doesn't look like Apple is going after those markets too aggressively right now. And, right now is exactly when Apple needs to make a move. Over the next year, we are going to see more and more Firefox OS devices aimed at emerging markets, plus low-cost Android devices, Sailfish devices, Ubuntu Touch, Tizen, and even Windows Phone. All of those platforms will be aiming squarely at emerging markets over the next year, because the higher-income markets have been saturated with smartphones. 

We've heard about the Motorola DVX, which is looking to hit that $200 off-contract price point. We've also seen Chinese super-company Xiaomi unveil the $130 off-contract "Red Rice". Even Xiaomi's high-end Mi-3 is only expected to cost 1999 yuan (~$327) for the 16GB model. Those are the devices that are going to really gain steam in emerging markets, because customers simply don't have the extra cash to spend on a luxury item like a smartphone.

China Mobile announcement will tell the tale


Apple has already listed the new devices on its Chinese Apple Store website, as we referenced before, but the last chance Apple had to have this all make sense would be with a special deal offered by China Mobile. Apple's announcement (which was said to be a straightforward rebroadcast of the Cupertino event with nothing changed, in Beijing is done by now) but there has been no change to the China Mobile website. In fact, the early reports are saying that there has yet to be any China Mobile announcement at all. It has been confirmed that Apple will once again be selling its new devices through China Unicom and China Telecom, but as yet there has been no word about a deal with China Mobile. 

If Apple does in fact have a deal with China Mobile, it would open up the company to somewhere around 750 million subscribers that Apple didn't have access to before. But, without a better pricing strategy, it's unclear how well Apple will take advantage of that new opportunity. Apple is already fighting a tough battle in China, because often domestic companies like Xiaomi have the upper hand with consumers. If Apple can't compete on price, its hard to imagine Apple gaining much momentum in the region where there is still a lot of market share to be had.

31 Comments
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posted on 11 Sep 2013, 00:04 28

1. Doctor_Drei (Posts: 18; Member since: 27 Jul 2013)


everything from Apple is expensive.. always a marketing gimmick rather than innovation

posted on 11 Sep 2013, 00:45 4

7. Droid_X_Doug (Posts: 5530; Member since: 22 Dec 2010)


GIven the pricing and specs of the 5C, I am starting to think that owners of the plain-jane iP5 have something that is worth more than it would be if Apple had followed the usual model where the 5S would push the 5 into a mid-tier position. Now, the iP5 would seem to become a superior alternative to the 5C - it looks like the 5S while performs the same as the 5C for less.

I bet in the next few weeks, the used market price for the iP5 doesn't drop as much as it otherwise would have.

posted on 11 Sep 2013, 05:23

14. dan86 (Posts: 298; Member since: 17 Mar 2012)


As I told earlier making affordable devices is against Apple's religion.

posted on 11 Sep 2013, 07:53

18. Shatter (Posts: 1967; Member since: 29 May 2013)


Apple could take a brick and put an apple logo on it with a fancy package box and sell it for $100 and people would buy it.

posted on 12 Sep 2013, 09:23

31. frmrVZguy (Posts: 37; Member since: 10 Mar 2012)


RE: "innovation" It's only 3G for China customers per apple.com.cn Yeah all the cellcos there are only in 4G trials but 4G commercial expected 1Q14. How motivated will customers be to buy old tech when new is so close? And then there is the fingerprint scanner ... I smell "Blackberry Pearl trackball" FAIL...

posted on 11 Sep 2013, 00:07 15

2. lee480 (Posts: 172; Member since: 24 Sep 2012)


Why buy something so expensive when I can get an Xperia Z1 for the same price?

posted on 11 Sep 2013, 08:25

20. anglosaxonengland (Posts: 17; Member since: 11 Sep 2013)


You can comparing two different things like that.

As a owner of an HTC One and a iPad Mini, nothing is expensive if it suits the end user well and that they are able to enjoy using their preferred device. It is only expensive when a close minded person on the internet discourages people from buying their preferred phone and the end user ends up not having the experience they want.

posted on 11 Sep 2013, 13:15

24. McLTE (Posts: 637; Member since: 18 Oct 2011)


I don't know about you, but my definition of expensive is how much something costs relative to what else I can get for the same money.

Expensive is also relative to how much disposable income you have. If you make a million a year, paying 100k for a car may not be "expensive" for you.. but for someone who works at a gas station, that same car is @$^#@ expensive.

Your explanation of expensive makes absolutely ZERO sense.

posted on 11 Sep 2013, 13:17

25. trickster_qc (Posts: 80; Member since: 18 Jun 2013)


That is simply not true.

Check out the definition of expensive and try again!

Also, your opening sentence doesn't make sense.

posted on 11 Sep 2013, 14:10

27. anglosaxonengland (Posts: 17; Member since: 11 Sep 2013)


Nerds!, i wasn't trying to give you the definition of expensive, I was referring to how a average user would respond to it.

posted on 11 Sep 2013, 00:14 15

3. Atheneum (Posts: 9; Member since: 07 Aug 2012)


as far as I know, Apple is more of a marketing firm rather than tech firm.

posted on 11 Sep 2013, 00:16 11

4. Ericzhf (Posts: 11; Member since: 27 Nov 2012)


You didn't get it.
Chinese people buy iPhone is not because it's a nice phone, only because everyone knows it's expensive.
If iPhone is cheaper than others, they won't like it anymore.

posted on 11 Sep 2013, 07:10

16. Googler (Posts: 813; Member since: 10 Jun 2013)


That only works if Apple sells enough of them. With pricing like this, China will become a very small niche market. I don\'t see this as a win for Apple in regards to getting the Chinese market on their side, especially when their own phones are rocking some solid performance and builds.

When I lived in Japan, occasionally I\'d see American cars. The Japanese people would buy them for the same reason you mentioned, they were status symbols because they were priced so high due to tariffs and import fees. At the end of the day, none of them kept GM from having financial problems because there just wasn\'t enough of them sold there.

posted on 11 Sep 2013, 00:21 1

5. sriuslywtf (Posts: 175; Member since: 09 Jul 2013)


Not sure if this is really for Chinese people. In China, 4,488 yuan is an average annual income of a common Chinese.

posted on 11 Sep 2013, 00:48 4

8. Droid_X_Doug (Posts: 5530; Member since: 22 Dec 2010)


Which is one theory for why traders dumped Apple stock once the pricing was out of the bag. USD $549 might as well be $600.

Magic 8 Ball says Apple doesn't sell as many 5Cs as they forecast.

posted on 11 Sep 2013, 00:30 2

6. tiara6918 (Posts: 1322; Member since: 26 Apr 2012)


With So many Chinese smartphone manufacturers, The iphone5c might struggle finding its position in the market

posted on 11 Sep 2013, 01:17 5

9. itsdeepak4u2000 (Posts: 2337; Member since: 03 Nov 2012)


iPhone 5C is a fail, instead of that people would buy second hand iPhone 5, which will cost less than that. Only marketing and making money and nothing else.

posted on 11 Sep 2013, 13:18

26. McLTE (Posts: 637; Member since: 18 Oct 2011)


no, people will buy the 5c in droves.. why? I don't know.

A good psychology Phd student could make a great dissertation by studying the phenomenon of Apple supporters buying ANYTHING they produce.

posted on 11 Sep 2013, 01:28

10. rusticguy (Posts: 2819; Member since: 11 Aug 2012)


http://seekingalpha.com/article/1681562-can-xiaomis-amazon-apple-google-business-model-help-it-conquer-the-world

Is already selling 3 times iPhone in China currently.

posted on 11 Sep 2013, 02:16 1

11. Timmehor (Posts: 599; Member since: 09 Mar 2013)


"Budget Phone"

posted on 11 Sep 2013, 03:22

12. boosook (Posts: 901; Member since: 19 Nov 2012)


Come on guys, we all know that the iphone 5c will sell like hot cake. It doesn't matter that it will sell for the same price that the iphone 5 would have. The old apple policy allowed you to get the previous model for a lower price, but it was still a premium product. This year, instead of getting the "old" iphone 5, you will have to buy the 5c for the same price, which will have the same specs but will be heavier, thicker and without the premium design and materials of the iphone 5. This of course is not a benefit for consumers. Yet, how many apple customers will realize that they could have got a better phone because the 5c is just a 5 in a cheaper case? They'll just think: oh look, the 5c is newer, so it must be better. From a marketing point of view, this change is right on the money, and iphone sales will just increase.

posted on 11 Sep 2013, 07:49

17. pellegrini (Posts: 83; Member since: 14 Jun 2012)


The only problem is that apple isn't selling a lot in development countries. The iPhone C was expected to target theses market. Otherwise I don't understand why would apple invest money on a cheap iPhone 5. Does the market spending is worth?

posted on 11 Sep 2013, 19:57

29. JJGotit (Posts: 3; Member since: 11 Sep 2013)


What I really think is that the "C" stands for "COLORS". Think with me... iPhone "5 Colors" (White, Blue, Green, Yellow and Pink).
iPhone 5c is NOT cheap outside US.

posted on 11 Sep 2013, 04:11 1

13. twens (Posts: 518; Member since: 25 Feb 2012)


You Apple fan boys keep saying Apple will sell like hotcakes. The truth is each year Apple chooses to be stagnant companieslike sSamsung, lg and htc take a pie of their sales. Apple is slowly loosing it and you guys don't see it yet. It happened to Nokia and soon it will happen to Apple. The s3 sold in millions so did the s4 and the note series. Each year the galaxy numbers increase, where do think the numbers are coming from???

posted on 11 Sep 2013, 08:31

21. anglosaxonengland (Posts: 17; Member since: 11 Sep 2013)


Damn, not again.

I don't care how much each company sells. What's important is what the end user prefers, Notes Tabphones, Android smartphones, Apple smartphones, Symbain, Windows phone.

You sound like a bias android fanboy

posted on 11 Sep 2013, 13:14

23. quakan (Posts: 1140; Member since: 02 Mar 2011)


Lg and htc are losing market share not gaining anything. Apple and Samsung are like Verizon and AT&T.

posted on 11 Sep 2013, 07:05

15. Googler (Posts: 813; Member since: 10 Jun 2013)


AAPL is taking a pre-market beating, yesterday\'s pricing news and only two devices revealed isn\'t sitting well with a lot of people. The 5C makes little sense when you look at how much it costs, and definitely isn\'t priced for a Chinese market. Not really sure what they are trying to do with this phone other than recoup lost profit margins.

posted on 11 Sep 2013, 07:54 3

19. AfterShock (Posts: 2111; Member since: 02 Nov 2012)


I still think their greatest innovation is,
The ability to suck money out of your pocket without you caring.
Should call it, iHooker.

Just under $900 clams for 5c, wtf?

posted on 11 Sep 2013, 09:26

22. SuperDuperPancakes (Posts: 2; Member since: 11 Sep 2013)


No it won't miss the Chinese market. Chinese people are mostly just "dumb and rich", they's buy several of those in a heart beat.
True Story.

posted on 11 Sep 2013, 19:30

28. Long1 (banned) (Posts: 399; Member since: 18 May 2013)


And why shouldn't they iPhone 5S instead of the ugly iphone 5C, then???

posted on 11 Sep 2013, 20:12

30. Timmehor (Posts: 599; Member since: 09 Mar 2013)


Rich? Chinese aren't rich (overall) that's for sure, it's hardly even a budget phone.

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