Months ago, when it became increasingly apparent that the then still unnamed new iPhone would be in short supply for months after it arrived this fall, I suggested that Apple Corporation could raise its profits by billions of dollars by initially charging hundreds more for each phone.
Just a few weeks ago, the iPhone 8 and 8S went on sale. There were no long lines outside stores, and there was a sufficient supply of phones to meet demand. Most customers preferred waiting for the much more innovative iPhone X.
It has now become quite apparent that this phone will not only be In extremely short supply until well into 2018, but that the company will not be using my pricing strategy. What reasons could it possibly have for walking away from such a massive profit increase? After all, don’t virtually all business firms – large and small – almost always try to maximize their profits?
Let’s consider, first, that two of Apple’s new iPhones – the 8 and the 8S models – have already gone on sale. By delaying, however unintentionally, the sale of the iPhone X, the company is bolstering the sales of these two less “sexy” models. So, in the long run, Apple is indeed looking after its bottom line.
Now let’s think about charging early iPhone X buyers a much higher price for delivery in November and December. Apple has long charged relatively high prices for its phones, which clearly have a certain “snob appeal.” But perhaps charging so much more for early delivery will smack a bit too much of privilege and special treatment. There’s something a lot more democratic about first-come first-serve – even for a luxury product – than allowing the relatively well-healed to jump the line altogether.
But Apple may have still another trick up its sleeve. Traditionally, its main marketing strategy has been to sit back and let its fans create all the hype. They used to do it by lining up outside stores around the world, wanting to be the first to get their hands on the latest model phones. But that won’t be happening with the iPhone X.
On October 27th, a huge line will begin forming again. In fact, it will be the longest line in the history of the world. But rather than camping outside the stores, buyers will be placing tens of millions of orders online for phones relatively few will receive until sometime next year.
Think of the publicity value of all those customers so anxious to get their hands on the new phone, that they actually preorder them months in advance. Think of the effect on the iPhone fans in China, where sales have been lagging. Hey, they’ll be saying to themselves, if we don’t get on line right now, we may not be able to get our phones before our own New Year (The Year of the Dog begins on February 16th. ).
Think of the continuous hype as the first few million phones are distributed all over the world in November and December. With supply lagging well into next year, increasing numbers of anxious buyers will place their orders. The so-called sales super-cycle of late 2017 has clearly been postponed until next year.
Will this shortage and the anxiety it causes buyers lead to record profits? We might not know until we’re well into The Year of the Dog.
Full disclosure: The author owns Apple stock.
About the Author
Steve Slavin has a PhD in economics from NYU, and taught for over thirty years at Brooklyn College, New York Institute of Technology, and New Jersey’s Union County College. He has written sixteen math and economics books including a widely used introductory economics textbook now in its eleventh edition (McGraw-Hill) and The Great American Economy (Prometheus Books) which was published in August..