Can you believe that with single stroke Apple shored up $3 billion in profits when it introduced iPhone 6s? Read on.
Apple event is one week old. No real surprises with iPhone models. They launched their new iPhone 6s models. You can preorder now one of 16GB, 64GB or 128GB models. If you want the bigger screen you can go for the iPhone 6 Plus s. Predictable price points as well – same as what the prices were for previous iPhone 6 and Plus models. And the older models? They are available at predictable reduced prices. Well not all of the previous generation models.
As most folks moved on to stand in line to pre-order the new phones, Apple did something quietly for profit maximization. If you want the previous generation iPhone 6 and Plus models you have to settle for 16GB and 64GB only. You cannot get the 128GB model.
Well the 128GB iPhone 6 models, had Apple continued to offer them, would have come in at $749 and $849 respectively. However these would look awfully attractive to customers compared to the latest iPhone 6s models.
That is too much consumer surplus to give away. Why? Because the customers who prefer the highest capacity models have highest willingness to pay and likely wherewithal to match their spending habit. If those customers want 128GB that badly it is better to not tempt them with a lower priced option but give them an excuse to willingly give up their consumer surplus. If 33% of unit volumes are 128GB that is 66 million (33% of 200 million expected sales) $100 bills to leave in customer’s wallets.
Even if only half were tempted that is still $3.3 billion, almost all of which is profit. Worst case, if many of those stayed with 64GB 6s models nothing lost because the four models are the same price.
When you have scale like this, not only what products you introduce matter but also products you take out from price list matter.
That is why bye bye 128GB iPhone 6 and Plus.