Apple’s latest announcement around the successors to the iPhone X has thrust the company back into the spotlight. With their trademark promotions and fanfare—some are already planning launch day campouts while many others are balking at Apple’s pricing structure. In the UK, the iPhone XS starts at £999 all the way up to £1,449 should you want the largest screen and hard drive available.
Given the high price points for these new phones, people will surely be hunting for deals on previous generation Apple models. Unfortunately for these bargain hunters, prices don’t drop very quickly when it comes to Apple. Being that competitor products drop in price rather quickly, it’s quite a contrast to how well Apple maintains their price premium.
If you’ve ever sold or shopped for Apple products on the secondary market, it’s likely you’ve seen this phenomenon firsthand. Rising to their trillion dollar company status, Apple has rolled out quite the product launch, and demanded a premium price point to match.
Launches typically hold high prices for the sales cycle of any new device; but what’s fascinating is when a product manages to hold its value in spite of big competitor releases. Not to mention, when the new releases often have better on-paper specs at lower prices. How does Apple do it?
Mobile Titan Resale Values by the Numbers
If you’ve ever shopped for older iPhones and Mac computers, you may have seen Apple products keeping their values well. Some recent, hard data has revealed a story which seems to confirm these observations. A study done by online marketplace Decluttr looked at how the value of eight different Apple and Samsung phones changed in the months following their release dates. The results were clear, on average, Apple phones held onto more of their value than Samsung models with comparable features and specs.
The study found that ten months after its release, the iPhone X had only depreciated by 37% on the secondhand market. By contrast, Samsung’s latest flagship phone, the Galaxy S9, had depreciated by 47% in under six months from its initial release. This means that in six months the newest Android flagship device lost more value than the comparable Apple model lost over ten months. Looking at the bigger picture, Decluttr found that while older iPhones might lose around 60% of their value over the course of the year, older Androids lose approximately 80%.
Even when Android and Apple phones have comparable specs, the story around long-term valuation is quite revealing. Apple phones tend to hold their value well after their release date, while Android phone values plummet soon after they hit the streets.
The Apple Difference
With the apparent gulf existing between Apple and Android phones, one can’t help but wonder why this gulf exists. A frustrating question to say the least for Android manufacturers and fans alike. Android fans might press how Android phones are less expensive than Apple phones with similar specs and features. Their rancor may be misplaced, as the irony reveals Apple Phones might be hold onto their value because of their higher pricing.
Humans seem to be hard-wired to believe that more expensive products must be more valuable. This piece of data is borne out by the scientific literature. A study published in the scientific journal, Neurology, found that people reacted differently to the placebo pills they were given based on how much the pills were supposedly worth. Another study showed similar results when scientists tested people’s reactions to wine at varying price points. One excerpt from this study read, "The reward and motivation system is activated more significantly with higher prices and apparently increases the taste experience in this way.”
The very cells in our body seem to be predisposed to respond positively to expensive products. If people see that Product A is being sold for a higher price than Product B, it seems it is in fact natural to assume that Product A is superior—all other things being equal. Apple seems to harness the psychological power of premium pricing, compounded with many other advantages the company has developed over the years.
Apple Inspires Brand Loyalty
Some may say, the world of consumer electronics is fickle in nature. The sentiment that every product will be out of date within weeks of its initial purchase is not a wild one. Apple’s critics have often accused the company of pressuring users to dump their old phones and upgrade. Understandably, Apple users themselves can be tenacious about their beloved devices. Some consumers going so far as to still be holding onto their original iPhone ten years after its initial release.
Interestingly enough, a subculture of “vintage” Apple product owners has emerged. It seems there are two types of people who hold onto their Apple products; those that feel attached to the devices themselves sentimentally, and those who view them as valuable collectibles for the years to come.
Those with a more sentimental slant seem to be predisposed to actually using the devices whereas the collectors preserve their devices in their original boxes to keep them in pristine condition. In our world of quickly disposed of electronics (which we highlighted in our piece on e-waste), it is fascinating that Apple devices can inspire such sentimental value from users.
The late Steve Jobs sought to reinvent what electronics were in the home, and you might contend that he’s more than succeeded with Apple’s success to date. It’s not a stretch to say early Android or WIndows Phones are not in the same strata as Apple from a collectors standpoint. While every phone brand has its devotees, one is hard pressed to find a user base as dedicated as Apple’s.
Apple Drives User Confidence With Their Long-Term Pricing
Most people know the feeling of buying a new electronic device at full price and then seeing it on sale for just a fraction of the price a few months later. Many companies operate under the assumption that they should maximize their profits by any means necessary. One common practice is to cut their flagship device prices as soon as sales start to slow down. This is their attempt to capture the largest market segment possible, even if such discounts cut into the profitability of each individual sale. Apple bucks the trend by comparison and does everything it can to preserve the margins and value of their products.
While other companies focus on selling as many devices as possible, Apple’s wins are largely tied to how well they maintain the value of their devices. You can see this yourself by looking at how Apple and Samsung prices have changed over the years.
In September of 2018 Apple’s official website has priced the basic 32GB iPhone 7 on sale for £449. When the 32GB iPhone 7 was announced in September of 2018, it was priced at £599. That’s a price drop of just 17% over two years! Let’s compare this with Samsung. They announced in March of 2016 that they would release their 32GB Galaxy S7 for £569. As of this writing, you’re not able to buy the S7 from the Samsung UK website, but you can click on a link labeled “Other Retailers” to find new S7s selling for prices as low as £399. That’s a 30% drop, and double the decrease experienced by its Apple counterpart.
It’s also important to note that Apple maintains a tight, and controlling grip when it comes to how retailers price their products. It’s not uncommon for brick and mortar stores to undercut Samsung’s official prices, as they seem to have a less restrictive hold on pricing. Couple this with the substantial discounts for retailers that buy in bulk, and it’s a perfect storm for a race to the bottom on price. Apple does offer occasional discounts, but they’re typically small in nature. It goes without saying that retailers have their hands tied on price when selling Apple products.
The proprietary nature of Apple products in both design and software gives them leverage over retailers like no other phone manufacturer. Holding value is good for both brand perception, and company profits because they can continue offering previous generation phones at high margins.
Mobile Luxury Made Essential
The recipe for Apple’s success looks simple at first glance. Apple sets their prices high and doesn’t let them fall far to create a perception of value and quality. And with their strong grip on how retailers sell and distribute their products, their margins remain elevated and out of the “race to the bottom” where competitive discounting can force devices.
This of course is only part of the story. Were it as simple as selling phones for higher prices, they could pick the cheapest electronic brick, price it as a gold brick and watch the customers come flocking.
The shift comes from the fact that Apple didn’t decide to just sell expensive electronics, they changed the conversation entirely, enticing people to pay premium prices for life-changing devices.
When Steve Jobs announced the iPhone on January 9th, 2007 he didn’t just tell the world he was giving them a new cell phone. He gave them a vision of something revolutionary which they hadn’t seen before. The moniker “smartphone” didn’t exist yet because the word hadn’t entered the world’s lexicon yet. He called it “An iPod, a phone and an Internet communicator.” The iPhone was far more than a shinier iteration on the past; it was a reimagining of what the cell phone could be.
Today we focus on the iPhone and Apple’s companion devices as status symbols, as that’s what clearly separates them from their cheaper competitors. On its debut the iPhones features truly elevated it above the competition and it made luxury an essential part of one’s life. Easy to use, revolutionary, and a great looking device; the iPhone combined practical utility with the makings of high-class design.
Apple no longer carries the number one spot on sales volume, but it’s hard to say if they’ve been dethroned on perception of quality. Similarly to how Aston Martin doesn’t sell the same volume as Acura, they are oriented towards very different market segments. If any company wants to truly dethrone Apple they’ll need to find a similarly revolutionary design that will shift the mobile communication paradigm once more. That’s an incredibly tall order, and with strong numbers a decade after the release of the original iPhone, Apple is still fighting to keep the spot.
Apple’s Future Is Hard to Predict
Apple’s historical dominance is impossible to deny, but their future is more complicated. Critics and detractors point to signs of decline since Steve Jobs’ passing. Though we can’t tell the future, the raw numbers seem to suggest Apple is nowhere close to a true fall from grace.
For over a decade Apple reigned supreme in the smartphone market. Their position is especially strong in the UK, where Apple’s mobile market share hasn’t dropped below 40% since prior to 2011. Over the past 7 years, Apple’s average market share in the UK has actually increased, peaking at 52.85% in March of 2018. Facing more competitors than ever, Apple is certainly fighting to create new ways to come out on top.
Their latest flagship device and its ability to hold its value has certainly helped. Liquidation analysis firm B-Stock performed a study of how iPhones lost their value on the secondary market. Their findings determined that the iPhone X’s resale value represented a “substantially higher percentage than previous iPhone models sold at the same time in the product life-cycle.” This means that Apple’s value retention is only improving with time instead of eroding.
The Heights And True Value Of A Brand
Observers might point out that Apple’s success is largely due to its slow and methodical approach to design. They’ve built up a brand reputation of going far beyond what’s “normal” for a product development cycle. Apple has managed to position their phones as both essential and luxury items in the same fell swoop. This combination has earned them a unique position in the world of consumer electronics.
Even if Apple’s total market share does eventually decline, with their trillion dollar valuation they are by no means on shaky ground. Other companies might eat away at Apple’s total share by undercutting their prices, but this sort of behavior only solidifies Apple’s position of prestige and luxury.
Companies working to undercut Apple can end up creating perceptions of their product being cheap. It’s difficult to say if there are any serious contenders with Apple from a luxury perspective. A premium price point for comparable on-paper specs seems to be a prerequisite to be called a “luxury item.” The current practice of flooding the market with more affordable devices only seems to be cementing Apple’s luxury perception in the mobile marketplace.
Into Apple’s Future
Apple products maintain their value because Apple is working from a position of extreme confidence. Their special brew of balanced supply, demand, reputation, and pricing to ensure that their products stand apart from the rest.
Apple’s dominance seems secure as long as they continue to innovate in the realm of design while marketing with conviction.
Needless to say, whether you stand for or against Apple devices (or completely indifferent to the question), they certainly hold their value comparably to devices from other product ecosystems. Until another brand adopts Apple’s business and design practices, it seems like they will remain the safe bet for anyone interested in a device with lasting value.