Apple's Secret Sales Weapon: The iPhone 4

It's no surprise that the latest Kantar Wordpanel report shows U.S. consumers are switching from feature phones to smartphones. But what is surprising is that over the past three months, first-time smartphone buyers have opted for Apple's (NASDAQ: AAPL  )  three-year-old iPhone 4 so much so that Android has lost a significant amount of first-time buyer market share.

What about cheap Androids?
Although Google's (NASDAQ: GOOGL  ) Android OS still accounts for 51.1% of smartphone sales in the U.S., that number has decreased 7.6% from a year ago. Kantar said in the report that, "Between July 2011 and July 2012, 52% of customers that bought an Android device previously owned a feature phone. Over this past year, that number has declined to 46%."

That's partly due to Apple, which has seen its share of first-time smartphone buyers increase from 9% back in July 2012 to 15% this July. This has made the iPhone 4 the top model for first-time U.S. smartphone customers.

So where does this put Apple's iOS compared to Android?

Despite the iPhone 4 grabbing more first-time smartphone buyers, Apple still holds 43% of the new-buyer market, which has remained steady for the past two years. So while more first-time buyers are opting for the iPhone 4 than they did previously, it hasn't changed Apple's overall share of new smartphone buyers.

But that doesn't mean there isn't a real benefit for Apple, especially with more iPhone options likely on the way.

The more, the merrier
Next week, Apple is expected to release a new iPhone, and possibly a cheaper iPhone model as well. If a cheaper version emerges, then Apple may be in an even better position to woo first-time smartphone buyers than it has been with the iPhone 4.

It could do this in two ways: by lowering the price of the iPhone 4 even lower, or scrapping the 4 altogether and making the 4S the lowest-priced iPhone. I think it's more likely the Cupertino company will stop selling the 4, lower the price of the 4S and add a new cheaper iPhone somewhere between the price of the iPhone 5 and the 4S. In the past, Apple has typically stopped selling the oldest model once a new one launches.

This would not only make the lowest-priced iPhone a better bargain than it currently is -- the 4S has more features than the 4 -- but it would also increase the number of iPhone choices first-time smartphone buyers have. Kantar said in its report that iOS has been better at capturing new buyers than Android "with their lower priced, widely available, older iPhone models." A new, cheaper iPhone model would only solidify that advantage by adding more options into the mix. Investors would be wise to take note of Apple's iPhone unveiling(s) next week, as well as the pricing structure. About 40% of U.S. mobile users are still using feature phones, which means there's still plenty of users who will eventually be looking for a better alternative. Right now, Apple needs to continue tapping into this market with its existing lineup and hopefully bring in an additional product to further its advantage.

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  • Report this Comment On September 05, 2013, at 9:40 PM, twolf2919 wrote:

    I think it's nearly certain the iPhone 4 will be discontinued next week. My reasoning? The power connector! Apple probably wants to get rid of the last device with the old connector so its entire phone line will once again be able to share connectors. And it's probably keen to free up the shelf space :-)

  • Report this Comment On September 06, 2013, at 1:54 AM, vernr75 wrote:

    So the author actually thinks Apple is going to sell a plastic iPhone 5C at a higher price point than a metal iPhone 4S? LOL.

    First of all, the rumor mill has been saying for some time now that the 5C is going to be sold for $450 to carriers. That's the price point that the iPhone 4 currently occupies. This means it's taking the $0 with 2 year contract slot. Both the iPhone 4 and 4S are leaving the market because neither uses the new lightning conductor or the slightly larger screen size, thus fragmenting the iOS market.

    The only question is if Apple will continue to sell the previous metal iPhone 5 at $99 on contract or reduce the number of price points they have to 2 phones - the 5S at $199 on contract and the plastic 5C at $0 on contract. I actually suspect that they may be on the verge of doing the latter - reducing their price points to two. Since they've now implemented a buy back program, a lower number of price points will help them to steer folks toward the higher priced models by presenting the clever illusion that customers are saving on the upfront cost of these high priced models when they turn in their old phones to gain credit towards that upgrade purchase.

    But the idea that Apple's going to introduce some sort of cheaper iPhone is ludicrous. And it's especially ludicrous since the author is talking specifically about the US market. The iPhone is already a $0 phone in the US. Apple's profit margins are already tanking because they can only grow share in the US and a few places elsewhere because of these years old $0 iPhones. Every single time Apple sells a $0 phone in the US, they lose the sale of a current model iPhone with price points of $650, $750 or $850 to one with a price point of $450. Dropping the $450 price in subsidized markets such as the US to, say $350, would actually hurt them big time because the phone would still be a $0 phone and it's the carrier that will be saving money on iPhone sales while Apple's margins slide even further. Because the 5C is going to be sold for no less than $450 to carriers just like the iPhone 4, the 5C will not be any more affordable in the unsubsidized markets that make up most of the world's mobile market. And this means that Apple's iOS will continue to decline in market share vs Android.

    Apple's only secret weapon is the upgrade plan that they've just implemented in their stores. This plan accomplishes two things. It removes customers from carrier outlets where they may be tempted to upgrade to an Android device. And it uses constant recurring debt from iPhone upgrades to lock in customers because customers will be very reluctant to instantly pay their way out of that trap if they want to switch to a phone that isn't an iPhone.

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