Insert XS Pun Here
November 1, 2018·3 comments·In Brief
Technology prices have always fallen. Wealth critique always surfaces when the richest companies charge more. Yet Apple raised its base phone price by 25 percent, then did it again the next year, and the media narrative stayed relentlessly positive. The story didn't get pushed back against. It just changed.
• Price increases used to trigger immediate backlash narratives. Critics would attack corporate greed. Journalists would frame it as gouging. This time, that story never materialized, which suggests something shifted in how narratives form around premium products.
• The iPhone XS launch showed something unusual in the data. Not only was sentiment positive, but media coverage was also remarkably unified around a single story. Previous launches scattered attention across multiple narratives. This one consolidated.
• Historical pattern: new technology gets cheaper, or at least cheaper relative to capability. A 1996 Gateway computer cost more than a 2015 MacBook in nominal dollars. The trend was steady downward. The iPhone pricing strategy reversed this without explanation or pushback.
• Apple didn't just raise prices once. Base model prices went up 25 percent with the XS. The next year they did it again with the Xr. Then MacBook Air base models went up another 20 percent. The pattern kept working.
• If prices can rise on premium products without triggering the expected critique, what does that mean for how markets actually process information about value? The narrative that should have formed didn't. Understanding why requires asking what changed.
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Comments
Good stuff - thank you Rusty. Also, it provides an opportunity for me to note / ask about what is a pretty stunning “paradigm” shift. Apple raised the price of new technology meaningfully and…it worked. Up until this launch, prices for technology seemed to always come down. Sure you paid up a bit for the newest of new, but not like the way you do for the iPhone XS/Max.
Up to now, new phones, computers, TVs, etc. - even the newest and greatest - seemed to always get cheaper over time. I paid more for an up-to-date Gateway computer in 1996 than I did for my up-to-date Mac in 2015 (and that’s in nominal dollars, the Mac was much less in constant dollars).
But this time, a company meaningfully raised the price of a piece of new technology and the stories around the launch have been, as you note, positive. Somehow, our always with us class warriors, socialists and corporate scolds weren’t screaming about - and didn’t successfully create a dominating narrative about - how the “richest company in the world / worth almost a trillion dollars / blah, blah, blah” was “gouging” its customers.
How did Apple do it? How did it avoid the negative story and create a positive one? How did it dramatically change the pricing paradigm for new technology - in its favor - and get no real blowback? It’s stunning - no?
And how does this impact the inflation reality if not narrative you and Ben have been discussing - can’t be good methinks.
On the one hand, one gets the impression that Apple (and Samsung, LG, et al for that matter) always could have charged a lot more for the phones, and it’s easy to say that they’re just now really doing it, and it’s all very sensible. But between Apple, Amazon, Google, etc., I don’t think you’re wrong at all to get a frog-in-pot feeling around prices.
Mark – you nailed this 100%. What is most likely going to be the takeaway from this earnings report is how Apple has dramatically driven up ASPs (avg sales price) and, presumably, margins. Since they have achieved market saturation (everyone who wants a smart phone/tablet/laptop has one) and upgrade cycles are slowing down, the only way to drive revenue and earnings growth is through price increases. Last year Apple moved the price on high-end phones up by 25% with the X. This year, they moved the price on the “base” phone (the new Xr) up by 25%. Xr sales won’t show up in the Q3 numbers, as they were not available for sale until last week, but they are going to be selling a heck of a lot more of those this xmas than Xs or Xs Max. Similarly, this week Apple announce the long awaited replacement for the MacBook Air (still the most common laptop you will see in every Starbucks) at, guess what, a 20% increase in price for the base, low speced model.
As to how this equates to/impacts inflation, I’m less sure. Prices continue to drop (both absolutely and heuristically) on Android phones and on Windows laptops. But if you want to stay in the Apple ecosystem, it’s going to cost you more.
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