iPhone price vs profit margin


The article takes a simplistic look at this, and what it shows itself isn’t too clear. For one thing, Apple wants to maintain high margins, not necessarily grow them. Indeed, the maneuver to higher product prices while maintaining margins suggests to me a purposeful strategy to move away from competitors with inexpensive products (who get to fight amongst themselves) while offering unique functionality driven by its custom hardware and software/services ecosystem.

Also consider that Apple has dramatically increased its R&D in recent years

Many have concluded this mainly due to its ‘Titan’ car initiative, but certainly much of it involves PA Semi’s chip research, which gets applied to costs for iOS devices. And the neat thing about increasing your costs (and depressing your margins) is that it also reduces your tax liabilities.

Nevertheless, as someone pointed out on Twitter, a static percentage on a higher dollar amount equal to a greater profit in actual $$: 60% on $1000 is $600. 60% on $500 is only $300. Per unit % margin is flat but per unit $ margin is 2X. In this case, price = profit!

Why did anyone presume that Apple intended to increase margins in the first place? There is a common strategy to retreat to a higher-priced, higher-margin niche that’s easier to protect, but perhaps Apple never intended to raise prices for that reason. Perhaps it’s repositioning itself as a(n even) higher-end product, which yields a halo effect to its lower-priced products, and burnishes its reputation as having desirable premium products. That’s a hard thing to maintain when you’re selling 250 million of something every year, but this strategy might just help with that.

(The hiring of Burberry’s Angela Arendts was no fluke.)