Apple as a commoditised luxury brand?

The Times has an article on the enduring iPhone phenomenon, as its 17th iteration is released.

There’s a general rule about consumer electronics: The older a device becomes, the more competitors appear and prices fall. This was true for televisions, personal computers and portable music players. It was supposed to happen with smartphones. But the iPhone has defied gravity... Remarkably, at an age in which most consumer devices have lost some of their appeal to users, Apple has increased its share of smartphone sales over less expensive rivals... In the United States, the iPhone’s largest market, the device now accounts for more than 50 percent of smartphones sold, up from 41 percent in 2018, according to Counterpoint Research, a technology firm. The gains have helped it claim about a fifth of the world’s smartphone sales, up from a low of 13 percent in 2019... In the United States, the iPhone’s popularity is expected to widen in the years ahead. Nearly 90 percent of teenagers own an iPhone, according to Piper Sandler, an investment bank... Apple has expanded its smartphone empire as the broader industry has faltered. Over the past two years, sales of Android smartphones have plummeted, but the iPhone has suffered only modest declines because it’s been winning new customers. It has done so despite being the industry’s priciest device.

The recipe for its success 

Apple has overcome price sensitivity by creating a business that is reminiscent of U.S. car sales. Like a car, iPhones last for years and can be resold to offset the purchase of a new one. Wireless providers, much like auto dealers, offer discounts and monthly payment plans that make it more affordable to buy the latest model. And customers, like brand-loyal car buyers, are more likely to buy another iPhone than switch to Google’s Android operating system. Apple has also been lucky. Two of its biggest challengers, Samsung and Huawei, have stumbled in recent years. The iPhone has avoided wobbles with a reliable blueprint: Apple annually updates the iPhone’s spare but sleek design and reliable software, and brings it to the masses with an operations machine that assembles 200 million flawless iPhones a year with military precision... The migration from Android to Apple has accelerated as promotional discounts, financing plans and trade-in offers make higher iPhone prices less of a barrier. Wireless carriers sweetened their offers as they scrambled to gain or keep customers... It made switching priceless... Apple and wireless carriers began more aggressively promoting monthly payment plans. The plans have reduced the cost of a new iPhone to less than $40 a month from the $800 to $1,200 that customers had to pay upfront. The prices are lower for people who trade in used devices. The old iPhones, which could fetch up to $640, have been auctioned to buyers in Asia, who resell them at a markup. 

Apple has leveraged its aspirational market position to pursue a creeping market acquisition strategy,  

For young people, iPhones equal inclusion. Many choose it over Android because Apple’s messaging service, iMessage, will turn the color of messages from its default blue to green if a non-iPhone user is in a messaging group. The stigma associated with having green text messages is so pronounced that when it came time for Dave Storrs’s 14-year-old son to get his first smartphone, the teenager told his father that he wanted an iPhone or no phone at all. “It’s a status thing,” said Mr. Storrs, an Army retiree who lives in El Paso. “They don’t want to be treated differently.”

Mr. Storrs, who is 49, has been subjected to the same pressure. For more than a decade, he took pride in being what he called an “Android renegade.” He owned a series of LG and Motorola phones, even as his son and other family members pressed him to buy an iPhone. He gave in this year after his family gave him a $99 pair of Apple’s wireless AirPod earbuds. Each time he wanted to use the AirPods on his Android phone, he had to manually sync them. The laborious process inspired him to buy an iPhone 13, which connects the AirPods instantaneously. After years of using a free Android phone, he now pays $11 a month for the iPhone. But he says that he’ll never go back to Android because he likes that he can wear AirPods and take phone calls while walking his Catahoula leopard dog, Teddy.

“It’s just convenient,” he said.

New buyers like Mr. Storrs illustrate how Apple is gaining customers. The gap between the two major operating systems is tilted in Apple’s favor. About 94 percent of iPhone customers are likely to buy another iPhone, while 91 percent of Android customers are likely to buy another Android, according to Consumer Intelligence Research Partners, a technology research firm.

The Storrs family is illustrative of how a generation, especially but not only in the US, has been sucked into Apple's orbit. 

It's widely known that the secret to Apple's success is its ability to maintain massive margins on its hardware products, especially the iPhone. Its gross margins (% of gross revenue retained after deducting operating expenses) have remained stable in the 38-40% range since 2013. 

When applied to the nearly 250 million iPhone shipped in 2022, these margins result in an eye-popping profit of $100 bn on a net revenue of $394.33 bn for the year. One estimate puts iPhone's price markup at 119% for its latest iPhone 14 Pro Max. 

Then there is the staggering figure of nearly 1.3 billion iPhones active by the end of 2021. 

To all this, adding its dominant share of the global smartphone market, especially its dominance in the world's largest market (the US), means that Apple with a small share of the total shipments commands a disproportionately large share of the industry's profits. 

And the margins have risen since the pandemic.

Apple's ability to retain high margins despite its large scale is interesting. Apple likes to differentiate and present its products as belonging to the premium segment. Its business model and pricing have elements of luxury brands.