Home / iPhone / Apple's New Strategy: Sell Pricier iPhones First – Wall Street Journal

Apple's New Strategy: Sell Pricier iPhones First – Wall Street Journal

For the second straight year,

Apple


AAPL 0.06%

is starting to sell its new iPhones at different times—but this time, the company is putting its priciest models first.

Last year’s release of the high-end iPhone X came six weeks after Apple’s other two new, less expensive smartphones because of what The Wall Street Journal and others reported were production delays involving its advanced organic light-emitting diode, or OLED, screen.

This year, according to people familiar with Apple’s production plans, the company prioritized production of its two pricier OLED models, the iPhone XS and XS Max, whose prices start at about $1,000. Both will hit stores Friday, followed five weeks later by the least expensive new model, the XR, which has an LCD screen and a starting price of $749.

The staggered release gives Apple a month to sell the higher-end models without cheaper competition from itself. It also simplifies logistics and retail demands and could strengthen Apple’s ability to forecast sales and production of all three models through the Christmas holidays, analysts and supply chain experts said.

“It’s sort of a Dutch auction,” said Josh Lowitz, co-founder of research firm Consumer Intelligence Research Partners, referring to the practice of starting with a high asking price, then lowering it until a buyer accepts. “The people who are most committed will pay to get early access. Then you get to the people who are making a choice and may settle for the $750 phone. This could become the new normal.”

An Apple spokeswoman said the company releases its products when they are ready.

Until last year, Apple had launched a maximum of two new iPhones annually. It launched three last year, while increasing prices: the iPhone X, which cost nearly $1,000 and was the first to jettison a home button and to add facial-recognition technology; and the iPhone 8 and 8 Plus, which featured the traditional home button and started at $699.

Apple put the iPhone 8 and 8 Plus on sale last September but delayed the release of the iPhone X until November because of the production issues—marking the first time Apple had released multiple flagship iPhones at different times. That approach damped sales of the iPhone 8 models because many customers waited until the iPhone X was released.

Apple design chief Jony Ive, left, and CEO Tim Cook inspect the iPhone XR, the least expensive new model, which has an LCD screen and a starting price of $749.

Apple design chief Jony Ive, left, and CEO Tim Cook inspect the iPhone XR, the least expensive new model, which has an LCD screen and a starting price of $749.


Photo:

Justin Sullivan/Getty Images

This year, Apple is taking a different tack. The company and its suppliers have started ramping up mass production of the iPhone XS models earlier than the iPhone XR model, the people familiar with production plans said. The company also began planning for the LCD model after the OLED model, the people said.

The phones have significantly different features. The iPhone XS models feature screen sizes of 5.8 inches and 6.5 inches, and both have 3D touch capabilities and dual-camera systems. Meanwhile, the 6.1-inch iPhone XR model features haptic touch and a single, rear camera.

OLED screens are thinner, don’t need backlight and offer greater contrast than traditional liquid-crystal display, or LCD, screens. The OLED displays in the XS are also more expensive than the LCD screens in the XR, contributing to the different prices, analysts say.

Still, the OLED models are likely to be far more profitable for Apple. The XR is estimated to cost $331 to build, while the XS and XS Max are estimated to cost $355 and $371, according to Mehdi Hosseini, an analyst with trading firm Susquehanna International Group—much narrower gaps than their corresponding retail prices.

Apple expects to sell more iPhone XR than iPhone XS or XS Max models, analysts say. The company has ordered production of 38 million iPhone XR, 32 million iPhone XS Max and 13 million iPhone XS devices, according to UBS. It also will sell older LCD models, including the iPhone 7 and 7 Plus and iPhone 8 and 8 Plus.

With Apple prioritizing the higher-end phones to start, and giving the XR a price tag $50 higher than last year’s least expensive new model, several analysts estimate Apple will increase its average selling prices by about 6% over the next fiscal year.

“For that price point, they’re going to sell a lot of XRs,” said UBS analyst Timothy Arcuri.

In addition to giving Apple a chance to assess early demand for the iPhone XR, the staggered shipments give Apple a chance to simplify stocking and in-store promotion for retail partners like

Best Buy
Co.

and

AT&T
Inc.,

said supply-chain consultant John Haber of Spend Management Experts. That could allow retailers to spend September and October promoting the higher-priced models before shifting to the lower-priced iPhone XR ahead of Black Friday.

“It’s difficult to have everything great for one release, but three new releases is very complex,” Mr. Haber said. “You’re relying a lot on retail stores to handle logistics.”

Apple’s got not one but three new iPhones—all with different sizes, specs and prices. WSJ’s Joanna Stern explains how they measure up to each other, and to last year’s breakthrough iPhone X. Photo/Video: Adam Falk/The Wall Street Journal

Write to Tripp Mickle at Tripp.Mickle@wsj.com, Yoko Kubota at yoko.kubota@wsj.com and Takashi Mochizuki at takashi.mochizuki@wsj.com


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