(Page 2 of 2)
“The question for Apple is do they collapse margins to get more sales or do they accept that they’ll only sell phones to a small minority,” Enderle said. “If they drop prices they collapse margins and if they make a cheaper phone they damage the premium brand perception surrounding the product placing Apple between a rock and a hard place.”
The bottom line: Apple faces a common problem for premium brands: not only are there lots of knock offs in other countries like China but Apple's business model doesn’t work in countries where the per capita income is very low except with the very wealthy. What’s the solution?
“The ideal fix would likely be to spin out a company that could release a lower cost phone that would connect to Apple services -- kind of like Apple’s Chevy compared to Cadillac,” Enderle said. “When done right, this protects the premium brand while allowing a lower cost product to enter the market more aggressively. GE does this with appliances with Monogram at the top and Hotpoint at the bottom.”