Is Apple playing the behavioral economics game?

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Apple’s iPhone X is now a reality rather than the subject of rumor and, yes, it now has facial recognition, an all-screen design and a significantly faster processor. While commentators debate whether the iPhone X really is the “biggest leap forward since the original iPhone” it seems clear to me that the primary objective of the launch is to set a new price benchmark for the iPhone range.

Price anchoring is a well-known cognitive bias by which people’s perception of value for cheaper options is influenced by the highest known price. In my bookBrand Premium I noted the use of this anchoring effect on VW’s Golf. The introduction of a limited range of R32s at a substantially higher price point made the price of the GTI look that much more acceptable. (I should note that the R32 has now been replaced by the R with a 2 liter TSI engine rather than the 3.2 liter V6 but the anchoring effect is the same.)

As noted in the Marketing Week article Apple is also introducing the iPhone 8 and 8 Plus, which are essentially updated versions of 2016’s iPhone 7 and 7 Plus, and lack the all-screen design of the X. This takes the iPhone range to a total of 8 available models. The iPhone X anchors the range at the top end at $999 and the SE is the most accessible offering at $349. This is a textbook strategy (if Brand Premium can be considered a textbook) of ensuring that a brand is as accessible as possible (without undermining margins) and will no doubt stand the iPhone in good stead in India and China.

While the difference in features and functionality between the X and SE are obvious I do wonder whether the trade-offs between the intervening models is clear enough. A key principle of branding up or down is to make sure that people are giving something up by opting to buy a cheaper model. Is wireless charging going to be enough to separate the 8 from the 7? (Yes, I know the chip is different, but unless Apple can make that difference tangible I suspect it will not be enough to swing a sale for the more expensive model).

I am sure that many people had high expectations of the iPhone X, this year’s BrandZ data finds that compared to the average brand ‘excited to see what they do next’ indexed at a massive 152 in the UK, 150 in the U.S. and 135 in China. Even if the new features are not enough to justify the $999 price point I suspect that the availability of the cheaper models will keep many potential buyers in the iPhone fold instead of jumping ship to Samsung. But what do you think? Please share your thoughts.

Written by:  Nigel Hollis (Kantar MillwardBrown)

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