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Why The New iPhone Won't Be As Pricey As Predicted

It seems as if some Apple watchers are in a battle to boost the predicted price of the rumoured new iPhone higher and ever higher. There are two reasons why this may be the case - either because they are trying to set expectations high so that when Apple announces the actual price they can be amazed at its value; or because they've been warned the price is sky high and are trying to manage expectations on Apple's  behalf.

As John Gruber - Apple's favourite blogger is one of those involved, my guess is that the  actual reason is the former. Not least because I don't believe a sky high price benefits Apple.

Here's why.

Apple is expected to announce three new iPhones this Autumn. A iPhone 7S and 7S Plus, plus the iPhone Pro / X / 8 or whatever it's to be called. The 7S versions are almost certainly going to retain the pricing of the current 7 versions. However they will also be the fourth generation of iPhone to use what is essentially the same hardware.

Customers aren't going to want the 7S. In a normal year I'd expect sales to be down as a result of this lack of change. When there's a new, high end iPhone on offer too, demand is going to be further suppressed. Why? Well who wants to be the sort of person who buys a second best iPhone? Certainly not the sort of people who buy iPhones.

In any given year iPhone sales follow a similar pattern. Average selling price is high just after launch as early adopters grab high end models. Then the ASP falls off over the next three quarters as customers pick the low end models. Those early adopters want the best iPhone available and it's for this reason that iPhone Plus sales have surprised Apple each year since the largest size was introduced.

The later buyers are those for whom price is a sensitive issue and as a result they migrate towards the lower end regular size iPhone, at the lowest memory capacity.

Now imagine a world where the best iPhone is too expensive for the majority of early adopters. Will they choose the next best iPhone or hold their purchase until they can justify it financially? I suspect the latter.

So suggestions of a $1,599 entry level price for the iPhone X would seriously impact overall iPhone sales. Doubly so if the iPhone X is supply constrained. And the negative numbers would fall out of Apple's oh-so important Q1 earnings report.

That's not to say that Apple will be giving its crown jewel away. I'm guessing there will be two iPhone X models only. A 64 or 128GB device, with a price point slightly above iPhone 7 Plus 256GB level - $999-$1099 - and a 256GB model $100 above that.

I don't believe the new model will be supply constrained either - or at least no more so than any other top end iPhone at launch.

For Apple reversing the sales slide of 2016 is absolutely key. For all that its making money hand over fist, its failure to set the world alight with iPad or Mac revisions, the Watch, TV or Apple Music is not great news long term.

Getting the next iPhone launch into the sweet spot is key and overpricing the new model just doesn't fit with that goal.