By Wall Street Journal
A decade into the smartphone era, Apple Inc. and Samsung Electronics Co. are betting they can increase sales by jacking up the price of their flagship products – bucking the usual downward arc for prices of consumer electronics in the years after introduction.
Apple on Tuesday is expected to unveil a more-advanced iPhone – also known as the anniversary iPhone, the iPhone 8 or iPhone X – which analysts predict will carry a starting retail price of about $1,000. That would be about 50% more than the cheapest version of the iPhone 7 Apple introduced last year at $649, and about 30% more than the larger iPhone 7 Plus, at $769. (On Tuesday, Apple also is expected to show off updated versions of those phones with prices similar to last year’s models.)
Apple’s new iPhone debut follows Samsung’s launch last month of its new high-end phone, the Galaxy Note 8, which hits shelves Sept. 15 starting at around $950.
Prices approaching $1,000 are more often associated with durable kitchen appliances than with pocket-size devices people tend to replace every few years. Yet Apple and Samsung think they will be able to sell tens of millions of smartphones at the higher price points, in part because of how vital the devices have become. Many users are willing to pay a premium for a handset that functions as not only a mobile phone, but also a personal computer, a video player, a gaming device, a GPS system, a music player, a reader, a flashlight and a wallet.
US consumers now spend more than three hours a day on average on their mobile devices, according to research firm eMarketer. Patrick Moorhead, president of Moor Insights & Strategy, said people are postponing upgrades to their other gadgets so they have more to spend on their smartphones.
“The utility value of these products is so, so high,” said Horace Dediu, an industry analyst at Asymco and a former Nokia Corp. business development executive.
The companies believe their prices are justified to pay for innovations such as longer battery life, larger displays and voice assistants. Apple’s newest iPhone is expected to have components that cost about 80% more than the components in the iPhone 7, including an edge-to-edge, organic light-emitting diode, or OLED, display, wireless charging and new sensors, according to brokerage firm Susquehanna International Group.
If consumers take the new price points in stride, Apple and Samsung could widen their advantage over hundreds of smartphone rivals, many struggling to break even. Apple and Samsung claim nearly all the industry’s combined annual profits, with about 79% for Apple and 15% for Samsung, according to market researcher Strategy Analytics.
The two are defying the gravity that usually pulls consumer prices downward as innovation wanes and manufacturing costs fall. For example, average prices for TVs and laptops have fallen about 50% from their respective peaks over the past 15 years, to $467 for TVs and $598 for laptops, according to trade group Consumer Technology Association. Average smartphone prices have fallen 32% to $303 in the decade since the iPhone’s introduction.