With cheaper iPhone, Apple to break out iPod segmentation model

With cheaper iPhone, Apple to break out iPod segmentation model

Summary: Apple seems to be planning to model its iPhone sales model after what it did with the iPod. That move could be a boon for emerging market growth.


Apple is reportedly looking at launching inexpensive iPhone models in various colors to hit emerging markets as well has smartphones with larger screens.

According to Reuters, Apple is exploring colors and screen sizes to diversify its iPhone line-up. Analysts note that Apple will pursue a "good/better/best" segmentation for its iPhone lineup.

The new iPhone market segmentation strategy will look familiar.

Sound familiar? It should. Apple seems to be planning to model its iPhone sales model after what it did with the iPod. Low-end devices like the Shuffle pave the way for a mid-range device such as the nano and ultimately get you to an iPod touch. The iPad with the addition of the mini is getting a similar set-up.

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Reuters' report, like previous ones highlighting a cheap iPhone play, note that product plans for Apple may change. For instance, Apple may look at a 4.7-inch screen iPhone and a 5.7-inch screen. Apple may want to take a wait-and-see approach with the large screen sizes. Anecdotally, I've heard at least a dozen people buy the Samsung Galaxy S4 and note that the screen is too big. Samsung's Galaxy Mini may offset those concerns.

What's unclear about Apple's plan is how it will affect profit margins. Cheap and colorful iPhones will inevitably cannibalize sales on the higher-end version. Apple could make up the difference on volume, but maybe not. Regardless, Apple needs an inexpensive phone to compete in emerging markets like China and India.

At AllThingsD's D11 conference, Apple CEO Tim Cook acknowledged that the iPhone hasn't replicated the iPod market segmentation model "yet."

What's unclear is whether Apple's low-cost iPhone will land in 2013 or hit in 2014.

Topics: Apple, iPhone, Mobility, Smartphones

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  • Don't they have a cheaper iPhone already,

    iPhone 4? What is wrong with that apart from having in many colors?
    Ram U
    • I think newer, specially crafted things appeal more than old ones

      unless we're talking vintage furniture. The iPhone 4 is a good template for a lower end product, but if they have a way to use newer parts (like an A5 processor, the 4s iSight camera), and maybe lower the cost on the casing, they'll produce a better value.
    • cheaper iPhones

      I'm with you. I see the 4S available on AT&T for only $49.95. This means the 4 is free, right? How cheap do you want?
      • Americans

        They always think they are alone in this world !!
        I think I just passed by the word "emerging" markets, does the US market seem to be one?! -_-
        • US edition

          This is the US edition of ZDNet so articles and discussions here are going to be US centric.
  • WHY

  • cant wait for..

    iOS Phone 7
    Emmanuel Fransson
  • I wouldn't hold my breath on Apple breaking into emerging markets

    Being less expensive in the US doesn't actually equate to being widely affordable in the developing world market. Case in point - the iPod. Despite the seemingly affordable price segmentation of the iPod in the US, sales of those devices in the developing world have long been insignificant because the prices of these devices ballooned upward by the time they hit storeshelves there. Because of their high cost, most electronic stores didn't even bother to stock more than a few of them at a time if at all. It also didn't help that most folks already have built-in mp4 player capabilities and expandable memory slots in their feature phones.

    Rumor has it that these iPhone minis will have an unsubsidized cost of between $350-$400...in the US. Do you know what happens to the price of a $350-$400 device by the time it gets into the developing market? It becomes a $500+ device. Look at the iPhone 4. It's a $450 device in the US and sells for $50 on a 2 year postpaid contract, but its cost in the developing world is as much as an unlocked iPhone 5 sold unlocked in the US (that's about $650). In the developing world, there's no such thing as a phone subsidy. The full cost of the device is paid by the customer upfront and the vast majority are on prepaid plans for both voice and data. To get a smartphone sold widely in the developing world, it must have an unsubsidized price of $150 or less in the US, so that the final cost in the developing world is no more than $300. Given Apple's lust for extreme profit margins, they'll never venture into that essential price point so this new mini iPhone won't help them at all.

    But hey, that's not even the biggest problem Apple's got when it comes to gaining adoption in the developing world. The thing that most folks don't seem to grasp just yet is the fact that the carriers in the developing world put the luxurious iPhone on its own data plan...and that data plan is typically the most unaffordable plan you will ever see anywhere. As it turns out, Apple's Achilles heel is that it is a luxury brand...and carriers in the developing world are only interested in using all versions of the iPhone - 5, 4S and 4 - to milk the wealthy few. The end result is some ridiculous iPhone data plans (both pre- and postpaid) that the average developing world consumer wouldn't ever go for. Once it's got an Apple logo on it, that iPhone mini would simply be put on a plan that places it out of reach of the majority.
    • I can tell you

      That in Aussie, small stores don't like stocking Apple products, we get stuff all margin so as soon as the big boys discount them, we can only sell them at a lose. Just not worth it! Thanks for nothing APPLE!
    • Do you have any proof behind "sales ... in the developing world have been"

      "... insignificant"? What data do you have to back up that statement, because nothing you said has any support behind it that I am aware of. Rather, this seems like little more than another anti-Apple attempt at FUD.

      Rumor is, as we all know, rumor. We have not seen any verifiable evidence other than the word of some few questionable sources that such a product is even in the works, and we've quite clearly seen that they had NO concept of the new Mac Pro prior to the announcement on Monday. As such, we cannot know if Apple is really working on an iPhone "mini" and I personally find it unlikely as such a device simply could not have even half the capability of the current iPhone 5 and would probably be almost incapable of running iOS 7 based on again Monday's announcements of that version's features.

      As far as gaining adoption in the "developing world", exactly what is your definition of such? If perhaps you're thinking of the Australian Outback or central Africa, then maybe you are correct, but in other nations around the world Apple is seeing consistent and steady growth, even if not as rapid as Android's due to its bargain-basement pricing and poor quality devices. I can promise you that the Galaxy S4 is not yet selling for much less than the iPhone 5 in the same markets but Samsung's other product lines are selling like hotcakes simply because they're so cheap.
      • Can we have evidence please

        "I can promise you that the Galaxy S4 is not yet selling for much less than the iPhone 5 in the same markets but Samsung's other product lines are selling like hotcakes simply because they're so cheap."

        We need evidence or it didn't happen. Your rules.
        Little Old Man
        • Just check Samsung's prices

          You don't have to look any farther.
    • iPhone data plans

      No idea what you define as "developing countries", but here in Europe one can get an iPhone on lease for approx 25 €/month on two year contract (sometimes one year contract too) and NO upfront payment and an monthly fee as low as 10 € that includes unlimited data and plenty of voice calls. That rounds up to 35€/month and the iPhone plus service is yours.

      Just for kicks, Samsung's Galaxy S4, Lumia 920, HTC One etc. are offered at exactly the same price so it all boils down to which you prefer. Not price or anything else. There is no phone subsidy by the carrier.

      But perhaps "developing country" is something else for you.
  • Maybe they are feeling the pressure!

    The trouble is with Apple is they are dammed if they do and dammed if they don't! Cheaper iPhone models will steal sales from there money making top of the line products which may cost them profit in the long run BUT if they don't do it they may lose sales and profit's in the long run!
    No Apple fan but hope they manage them selves properly, competition is good!
  • Is it really true

    I don't think its absolutely sure as these rumours for cheaper iPhone has been surfacing the net for a long time now. But yes for sure this can be an excellent move as many people want but cannot afford iPhone
    Rajat Srivastava
  • Yay

    I don't know how good this will be for apple in the long run, but this is great news for low income folks and less tech engrossed individuals who want to get their hands on apple hardware but don't need a flagship device. I know lots of people who want an iPhone but don't necessarily need all of an iPhone, and would gladly settle for something a little bit less, but still adorned with fruit.
  • With cheaper iPhone, Apple to break out iPod segmentation model

    multicolor phones ... so much for innovation.
    • What else do you expect them to do

      ...while they wait for the next version of Android to come out? With iOS 7, they've pretty much copied all of it, they'll have to wait for the new stuff so they can catch up to it.
      Han Rasmussen
  • Yeah, Looking Forward To The "Iphone Nano"

  • Go Big or Go Home

    If Apple is serious about getting back on top, they will need to add a larger size phone to the mix. Other companies are going small because they're already big.