Here's the Reason Apple Inc. Will Charge More for the iPhone 6

The iPhone 5c showed Apple that a larger-than-expected percentage of Apple customers are willing to pay a higher price for premium features. Based on the iPhone 5c experience, Apple is likely confident it can price the iPhone 6 at $299.

Apr 19, 2014 at 2:00PM

Strangely enough, the iPhone 5c may end up having been one of the most important iPhone launches in Apple (NASDAQ:AAPL) history. While iPhone 5c unit sales came in below expectations, the 5c taught Apple a valuable lesson: A larger-than-expected percentage of Apple customers are willing to pay a premium for premium iPhone features. Based on the the iPhone 5c experience, Apple is probably confident it can charge $299 -- on a two-year contract -- for a larger-screen iPhone 6.

In a maturing market, company revenue growth can come from two sources: It can capture market share from the competition, or it can charge a higher price for products. The iPhone 6 may be a way for Apple to accomplish both goals.

The iPhone 5c story: Apple customers will trade up
As the smartphone market matures, it has become increasingly difficult for Apple to deliver the high growth rates that the company's investors have come to expect. The iPhone 5c, introduced in last fall, was seen as a way for the folks in Cupertino to expand the iPhone's reach into the mid-price smartphone market. iPhone 5c pricing begins at $99, on contract -- a savings of $100 over the iPhone 5s.

Despite its lower price, unit sales of the iPhone 5c came in significantly below Apple's forecast. However, unit sales for the iPhone 5s exceeded company expectations, with iPhone 5s shortages throughout the holiday quarter. Apple's lesson? A savings of $100 doesn't move its customers to a lower-priced smartphone at the rate the company expected. Overall, Apple customers tend to trade up to the premium-priced, premium-feature iPhones. In addition, the iPhone 5c may have provided an unforeseen bait-and-switch effect, with the 5c acting as the bait to lure additional customers into stores, only to have the shoppers switch to the higher priced iPhone 5s.

The iPad: Customers trade up as well
Sales data from CIRP again demonstrates the tendency for Apple customers to pay more for devices with premium features. In December 2012, lower-priced iPads -- iPad 2 and iPad Mini -- represented 57% of sales. In 2013, Apple released two higher-priced iPad models with significant feature improvement: the iPad Air and the iPad Mini with Retina Display. These tablets increased year-over-year premium-price iPad sales -- Air and Mini with Retina -- by 14 percentage points, accounting for 57% of iPad unit sales. While the percentage sales of the lower-priced alternatives, the iPad 2, iPad with Retina Display, and iPad Mini, dropped to 43%

Jpeg Cirp Ipad Sales Report

Source: CIRP

Will a larger-screen iPhone 6 support a $299 price?
Large-screen smartphones represent 22% of smartphone shipments, indicating a significant market exists for larger-screen devices. Samsung, Apple's biggest competitor, builds both of its premium-priced smartphones models with screen sizes that are significantly larger than the iPhone 5s' 4-inch screen. The Galaxy 5s has a 5.1-inch screen, while the Galaxy Note 3 boasts a 5.5-inch screen. While the Galaxy 5s has the same on-contract price as the iPhone 5s, Samsung charges a $100 premium for the larger-screen Galaxy Note 3, providing some precedent for a $299 iPhone 6.

Given the demand for larger-screen smartphones, the iPhone's position as a premium device, the willingness of Apple customers to pay more for premium features, and the success of the $299 Galaxy Note 3, it seems likely that the iPhone 6 can support a price of $299. Apple will likely continue to offer a 4-inch iPhone at $199 while pricing the larger-screen iPhone 6 at $299. The iPhone 6 will help the company find additional growth in a maturing category by attracting new users that prefer a larger-screen smartphone, while offering an incentive for existing iPhone users to move up to a higher pricing tier.

There's more to come for Apple --  the company is shrewdly moving beyond smartphones
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Bill Shamblin owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers