How Apple Inc. Could Convince People To Pay $1,000 iPhone 8 Price Tag

Updated on

Apple has made it official. We’ll learn on Sept. 12 just how high the iPhone 8 price tag will really be. Until then, you can expect all the rumors and debates about that price tag to continue. Investors must be seeing dollar signs whenever the thought of a $1,000 iPhone 8 price tag enters their heads—that is, of course, if they’re not worried about whether Apple can convince consumers to shell out that kind of money.

Incentives needed for $1,000 iPhone 8 price tag?

After all, such a high price will probably keep the company’s gross margins intact despite the radical redesign that’s believed to be coming. But once again, Apple will have to convince people to pay $1,000 for an iPhone because if it can’t, then its stock will plunge due to weak sales. One analyst has some ideas about how the company can convince consumers to pay that much, and it’s all about the value-add plays. On the other hand, Apple may not have to do too much convincing if one of the newer rumors we’re hearing ends up being reality.

In August, Barclays analysts released the results from their recent survey, which indicated that less than 20% of iPhone buyers may be willing to pay $1,000 for their next iPhone. The Apple fanboy blog base was quick to respond with all the reasons they were wrong, and then Barclays analyst Mark Moskowitz released a follow-up report suggesting some ways Apple could warrant a $1,000 iPhone 8 price tag.

It’s about the bundling

His ideas weren’t exactly groundbreaking, especially because we’ve heard other analysts call for Apple to start selling bundles of products for years. Moskowitz’s ideas actually sound more realistic than other bundle suggestions we’ve heard in the past though.

He noted that iPhone purchase intention rises from 18% to 36% when their suggested average selling price drops from $1,000+ to $800. Thus, he suggests that Apple could throw in some “freebies” to convince customers that their next iPhone is worth $1,000: one year of Apple Music and one year of 200GB of iCloud storage. These services are valued at $120 and $36, respectively, and he estimates the costs to Apple at $43 and $7, respectively.

The Barclays analyst said this $156 worth of services could be a sort of “quasi-discount or rebate,” while the bundling could even generate higher subscription revenues for Apple further out if buyers renew after the first year.

How many iPhone 8 handsets will Apple sell

Moskowitz says his analysis suggests this free one-year bundle of subscriptions could boost iPhone 8 sales to 64 million units in calendar year 2018, an increase o24 million units. He bases this estimate on his current full-year iPhone unit estimate of 224 million for 2018, a 36% buying intention and a 60% buy-in rate, which is the assumed percentage of consumers who buy because of the bundle.

The Barclays analyst estimates that this scenario would generate another $9.8 billion in revenues for the iPhone franchise. Leaving the total unit number at 224 million and then factoring in a mix shift toward a $1,000 iPhone 8 price tag, he sees the average selling price rising 7% to $710, versus his current $666 estimate.

He also sees $1.3 billion in gross profit accretion despite the 1.8 points of margin percentage dilution. Taking this all the way to Apple’s bottom line, he sees 3 cents in earnings per share accretion in the first year, ballooning up to 32 cents per share in the second year if 70% of the buyers renew their subscriptions and start paying for them.

Barclays has an Equal Weight rating and $146 price target on Apple.

Why Apple might not need to convince people to pay a high iPhone 8 price tag

Moskowitz certainly has some solid numbers to support ways Apple could get people to pay $1,000 for the iPhone 8, but fanboys (and girls) have demonstrated that they need little convincing to shell out top dollar for that Apple logo. Besides, Bloomberg reported earlier this week that the company has quite the upgrade planned for its tenth anniversary device.

The media outlet said its sources showed pictures they said were of the tenth anniversary device, and it’s nearly all display on the front with no home button, as we’ve been hearing for a long time. Apple is instead supposedly preparing to reveal a device that can be operated with gesture controls that can do things like navigate to the app grid and open up multitasking views.

Bloomberg also reported that the iPhone 8 will have a taller display with rounded corners and a cutout toward the top where the sensors and camera will peek out, although it added that the final design may end up being different. Apple has been all about the showmanship for a long time, and if the iPhone 8 really is operated with a lot of gesture controls, Tim Cook and Company will probably be able to put on quite a show. They’ve been demonstrating for many years that they can sell a lot of gadgets just by wowing the crowd, so it’s highly unlikely that this year will be any different.

Apple stock reached another new high on Friday, topping off at $164.94 during regular trading hours.

Leave a Comment