Why Apple could price its next iPhone at $1,200

Smartphones aren’t cheap. Most flagship models hover around the $600 range — or more.

But, if the rumors are correct, the price tag of Apple’s upcoming iPhone 8 could make those $600 phones seem like a bargain. The most recent reports say it could be around $1,200. Granted, it is also rumored to have some nice new features, like facial recognition and wireless charging, but another smartphone — the Samsung Galaxy S8 — has both of those features, and it is half that price. The phone is expected to be announced in September.

So what gives? Why might Apple be pricing its newest iPhone so much higher than is the industry standard?

There are a couple reasons.  

In addition to the iPhone 8, Apple is expected to introduce two other phones, the iPhone 7S and the iPhone 7S Plus. These would be based on last year’s iPhone 7 and iPhone 7 Plus models and have a lower price tag. Therefore, “a $1,200 smartphone represents a choice for Apple devotees. Since there are other versions of an iPhone which cost less money, it is your decision to pay that much,” says MIT Sloan marketing professor Catherine Tucker.

But is it a choice that consumers are likely to make?

“There are Apple users who are very loyal and will pay almost anything. Some people will buy it, but probably not very many,” says MIT Sloan professor Michael Cusumano. “That price is not viable for regular people but Apple could market it as a high-end phone for special users.”

Cusumano, the author of “Strategy Rules: Five Timeless Lessons from Bill Gates, Andy Grove, and Steve Jobs,” points out that people who buy the new iPhone on a subscription model won’t be paying that price upfront. Since those plans typically let users pay off their phones over two years, the higher cost of the iPhone 8 may only result in a few extra dollars each month.

Also, once you are entrenched in a mobile ecosystem it can be hard to switch. “With these kinds of platform products, you have to move all of your applications and data,” says Cusumano, which can be a deterrent for people thinking of making the change to Android or another mobile operating system. That, too, may convince some consumers to pony up for the new iPhone.

This pricing could ultimately have an effect on the market as a whole, Tucker says. “The $1,200 number anchors people on a higher price for smartphones in general. This means that if you are buying an $800 smartphone it feels like less of an extravagance than if the $1,200 smartphone did not exist.”

Who knows? Maybe we’ll see many more $1,200 smartphones in the future.