This laptop, cell phone, tablet and headphones
together cost more than $3,500,
that's about the same as two and a half
months rent for the average American.
Let’s face it. Apple products
have never been cheap.
And the cost of some of its products
has increased dramatically over time.
Just look at how the price of the
iPhone has increased over the years.
What started at $499 in
2007, now starts at $999.
So what makes these
products so pricey?
Well, some say, it boils down to no other reason than the
fact that Apple can convince us to pay the hefty price.
There’s even an unofficial
term for this phenomenon.
It’s called The Apple Tax which describes
the extra money customers are willing to pay
for an Apple product over a competitor
product with similar features.
And, often it’s attributed to the so-called
“cool factor” associated with Apple.
It’s those premium prices that helped catapult Apple into
becoming one of the world’s most valuable companies.
And at the start of 2019, it announced it was
holding a whopping $245 billion in cash reserves.
But Apple would argue customers
are paying a premium for a reason.
In 2018, Apple’s CEO Tim Cook defended the
company’s most expensive iPhone yet, saying
pointing out it had replaced the need for other devices
like a camera, video recorder and music player.
He argues creating the “most innovative
product available” is “not cheap to do”
and Apple will never
sacrifice quality for price.
So all that money you’re shelling out for
your new iPhone is, at least in theory,
helping to fund future
innovations like it.
Innovation is what helped
Apple earn its stripes.
It's a phone, first and foremost, as
you'd expect from the iPhone.
So you've got all your contacts on there but it's different
to most mobile phones, it syncs with your computer.
The original iPod and the iPhone have both been
touted as products that changed the world.
When the original iPod came out in 2001, it cost $399, a
staggering price for a personal music player at the time.
Apple aggressively marketed the iPod as a device
that could store 1,000 songs in your pocket,
all of this at the cusp of the
digital download revolution.
In less than six years, Apple announced
more than 100 million iPods had been sold,
making it the fastest-selling
music player in history.
In 2005, Apple announced its annual
profits shot up 384 percent,
largely due to the smashing hit
of its new digital music player.
Its profits would continue
to grow through to 2012.
For a lot of those customers, the iPod would become
the first of many Apple purchases, so ultimately
that $399 purchase would make them more inclined
to, not just potentially buy new versions of the iPod,
but ultimately move on to buy iPhones,
MacBooks, iPads and Apple Watches.
You get the idea.
Suddenly you’re locked into Apple’s
ecosystem, which some experts say
has allowed the company to increase
prices faster than its competitors.
Think of it like Apple sort of having a
monopoly on a customer’s digital life.
The iPhone, which debuted in 2007,
would ultimately replace the iPod,
and this was responsible for
even more impressive growth.
Worldwide shipments of the iPhone increased year on
year until it reached its peak of 231 million in 2015.
That’s more iPhones than there
are people in most countries.
But, now there’s some concern around
Apple’s ability to continue innovating,
and even some signs that it's growth and
industry dominance is under pressure.
You see, Apple hasn’t been able to
surpass that iPhone peak ever since.
And profits have begun
to fluctuate too.
So, why the peak?
Well, it’s part of a larger trend we’re
seeing across the entire industry.
The lifespan of a smartphone
is getting longer,
which means customers just aren’t
upgrading as often as they used to.
But as a publicly-traded company, Apple
is expected to grow for its shareholders
and one possible way to combat declining
sales is simply to raise prices.
That enables it to have
higher profit margins.
In 2018, the price of the base Apple
Watch went from $329 to $399.
And don’t forget the time it tried to sell
the Apple Gold watch for $10,000.
An analysis in 2017 found that the iPhone X cost
25 percent more than the iPhone 8 to make,
yet it retailed for 43 percent more.
According to one firm, the iPhone
X costs $357.50 to make,
but since it sells for $999, that gives
it a gross margin of 64 percent.
In recent years, to help grow its
business, Apple has made it a priority
to grow sales in the world’s
most populous country, China.
And while it’s been met with some success,
it also faces serious competition.
Ironically, the sheer expense of Apple products has hurt
sales in countries like China, India, Brazil and Turkey,
emerging markets the company
desperately needs to keep growing.
Premium smartphone prices have
been rising across the board,
but compared to its competitors
in China, iPhones cost a lot.
Take for instance
the iPhone XS Max.
It costs close to $1,400 in China, essentially
twice the price of Huawei’s Mate 20
and three times the cost
of Xiaomi Mi's Mix 3.
Throw a stronger dollar, tariffs and an economic
slowdown into the mix, and it’s no surprise
that in mid-2018, Apple’s iPhone fell third place amongst
the list of world’s most popular smartphones.
That’s when Chinese tech
giant, Huawei passed it.
Just look at the percentage change in Apple’s share of
the smartphone market compared to its competitors.
That same year, Apple announced it would
no longer report units sold of iPhones,
which Wall Street interpreted as a
likely sign of more declining sales.
At the end of the day, most experts agree that
Apple needs to come up with new innovations,
and not just raise prices in order to hold onto its place
as one of the world’s most valuable companies.
Hey guys, it's Uptin.
Thanks for watching!
For more of our videos, check out my day
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and get inside Alibaba's grocery
store and robot restaurant, here.
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