After announcing that iPhone revenue was down 15 percent year-over-year in Q1 2019, Tim Cook was asked during Apple’s earnings call about iPhone pricing. Analyst Steve Milunovich asked Cook whether Apple might have pushed the “envelope a little bit too far” and might have to bring prices back down in the future.
First, Cook explained Apple’s pricing strategy with the iPhone XS, iPhone XS Max, and iPhone XR. He said that the idea was to price the iPhone XS at the same price as the iPhone X, with the iPhone XS Max priced just above that and the iPhone XR priced in between the iPhone 8 and iPhone 8 Plus.
In the U.S., Cook said this actually led to “pretty small difference” compared to 2017:
We priced the iPhone XS in the U.S. the same as we’d priced the iPhone X a year ago. The iPhone XS Max, which was new, was a hundred dollars more than the XS, and then we priced the XR right in the middle of where the entry iPhone 8 and entry iPhone 8 Plus had been priced. So it’s actually a pretty small difference in the United States compared to last year.
Internationally, however, Cook explained that foreign exchange issues amplified the difference in certain markets. This is what led Apple to change its internationally pricing strategy, as it announced earlier today:
However, the foreign exchange issue that Luca spoke of in the call amplified that difference in international markets, in particular the emerging markets, which tended to move much more significantly versus the dollar. And so what we have done in January in some locations and some products is essentially absorb part or all of the foreign currency move as compared to last year and therefore get close or perhaps right on the local price from a year ago.
Also a factor, however, is the death of subsidized iPhones in many developed markets according to Cook:
If you’re a customer that your last purchase was a 6S or a 6 or in some cases even a 7, you may have paid 199 dollars for it, and now the unbundled world it’s obviously much more than that.
Ultimately, Cook noted that he does think “price is a factor” in what caused iPhone revenue and upgrades to be lower in Q1 2019 than initially anticipated. Going forward, he reiterated that Apple is emphasizing trade-ins and installment payments to revitalize iPhone sales:
So yes, I do think the price is a factor. And so we are working through those and we’ve got a number of actions to address that, including the trade-in and the installment payments, which I had mentioned as well.