Apple (AAPL -0.35%) doesn't break out product mix, and no longer discloses the only metric -- average selling price (ASP) -- that gave investors a hint as to which models were selling well. Reducing the entry-level price of this year's iPhone 11 was an implicit admission that iPhone pricing may have climbed too high, as Apple has been leveraging price increases as a way to mitigate longer upgrade cycles.
New data released this week by market researcher NPD suggests that might have been the right move.
iPhone 11 Pro starts at $999. Image source: Apple.
Over 90% of consumers won't buy a $1,000 smartphone
Less than 10% of U.S. consumers are willing to spend over $1,000 on a smartphone, according to NPD. iPhone pricing reaches as high as $1,449 for an iPhone 11 Pro Max with all the bells and whistles. The aversion to four-figure prices could present a challenge as the industry embarks upon its transition to 5G. Many 5G smartphones cost approximately $1,200, NPD notes.
"Consumers are holding onto their smartphones for longer periods, which has presented a challenge for the smartphone market," NPD analyst Brad Akyuz said in a statement. "Manufacturers and carriers are expecting 5G to help reinvigorate the upgrade cycle, but pricing could present another hurdle."
While key rivals like Samsung and LG have launched 5G phones, Apple likely won't follow suit until next year, when it is expected to release four models with varying levels of support for 5G frequencies, mmWave and sub-6 GHz.
Designated market areas (DMAs) with higher levels of discretionary income, like Los Angeles or New York City, make up a disproportionate amount of $1,000 phone sales. NPD says the top 10 DMAs, which cover 29% of the U.S. population, represented 39% of all active $1,000 smartphones. That suggests that $1,000 phone manufacturers should target those markets in marketing efforts, and wireless carriers should also prioritize deploying 5G coverage there.
Fortunately, consumer awareness of 5G's potential is high at 73%, according to NPD, with a third of smartphone owners interested in buying a 5G phone. That will somewhat help manufacturers when trying to justify lofty prices, as 5G is being billed as a truly transformative technology.
The contrarian viewpoint, recently articulated by Goldman Sachs analyst Rod Hall, is that average consumers won't fully reap the benefits of those blazing speeds. Hall argues that most people won't even notice the difference in the real world, with other use cases like industrial automation, autonomous vehicles, and the Internet of Things (IoT) standing to gain the most.
Apple has a long history of catalyzing the adoption of technologies that are in their "ascendancy." Now let's see if people will be willing to pay even more for a 5G iPhone.
