Apple is Finally Competing on Price (Premium)

Competition has finally had its inevitable impact on even the mightiest of consumer electronics companies: Apple, suddenly, is competing on price. Just like a normal company.

This is big news, folks. It means that rivals like Android and Microsoft Surface are indeed having an impact on a company that has for many years seemed impervious to normal market conditions. And this change will benefit all of us, even those who will never buy an Apple product.

Some may argue that what Apple is doing now isn’t completely new. That’s fair, but I see this week’s announcements as an aggressive new front in a quiet strategy shift it made a year ago.

Apple had previously utilized two primary strategies when it came to addressing the cost-conscious part of the market. It would bump specifications, like storage on devices, over time while retaining prices at previously levels. And then it began keeping older versions of products in the market and selling them for less alongside newer versions.

Apple has taken that latter tack to absurd levels in some cases, keeping out-of-date products like the iPad 2 and various three-generation-old iPhone models in market for much longer than they should have.

The iPhone SE, introduced last year as a new low-cost option, represented an evolution of that strategy: With this “new” device, Apple reintroduced the classic iPhone design that had debuted with the iPhone 4 but hadn’t been used in a new iPhone (at that point) in two and a half years. But the internals were mostly modern (again, for that point), and the device provided fans with the smaller form factor some still wanted. It started at just $399.

This week we see same strategy evolution applied to another Apple product line with the introduction of the new full-sized iPad, which is confusingly just called “iPad.” It’s not quite a successor to the iPad Air 2, from a specs or form factor perspective, but is in some ways a follow-up to the iPad 4. Which debuted in 2012.

So the new iPad—the iPad 5?—is thicker and heavier than the Air 2 it replaces in the market. (That Air 2 debuted in 2013, by the way. Apple really does it take its time updating certain products.) But like the iPhone SE, it’s also a lot less expensive: The new iPad starts at just $329, the cheapest-ever starting price for a full-sized iPad. That is a tremendous price reduction, and it’s for a new product.

This kind of pricing will potentially open up iPad to a much larger audience, obviously. Yes, it is only one in a series of attempts by Apple to rejuvenate a product line that has suffered from over three straight years—12 quarters—of year-over-year sales declines. But this is the change that really needed to happen, and it could trigger some upgrades from those on older iPads. Few thought Apple had it in them, given its lack of interest in the lower end of the market.

Not interested in Apple products?

I hear you. But Microsoft has been able to price Surface devices in the stratosphere because of this company’s pricing structure. And every major Android device maker pushes mostly-lackluster premium handsets out every year thanks to Apple’s premium iPhone pricing. If Apple really is trying to compete on price, the prices of the devices you do want to buy should fall as well.

I know, this is Apple. And the next iPhone will debut at some crazy $1000 price point, seemingly busting my theory. But I think there’s more to this lower pricing push than is immediately obvious. That is, yes, Apple will continue offering more expensive, higher-end options in each product category, but those devices will be ever-more aspirational, like luxury cars, with the volume of sales coming from lower in the pricing structure.

This is what happens in the PC market, of course, and it happens with Android as well. And for all the $3000 Surface Books and $800 Google Pixels out there, there are likely 10 to 20 times as many versions of much cheaper devices being sold by competitors.

Apple, of course, is unique. Because it is alone in its own ecosystem, it needs to serve both ends of this market itself. And as Apple is outsold everywhere, the only way to bump up the volume is to lower prices. And it’s finally happening because they can’t artificially limit their product availability anymore. And because the remaining growth markets, like India, are much more price conscious.

This is a big change. And I’m curious to see how far Apple is willing to go to meet the very real competitive pressures that it faces. Or whether it will simply revert to its old ways and drift further into a lucrative but smaller luxury position.