According to a report in The Economic Times, Apple (NASDAQ:AAPL) has yet again lowered the price of its iPhone 5s in India. The price of this device, which first launched in late 2013, has apparently come down by nearly 50% over the last three months in the region.
It now starts at just $370, well below the $450 that even the lowest-tier iPhone sells for in the USA.
This price drop, with The Economic Times citing a "senior executive with a leading retail chain," was apparently prompted by weakening demand for the company's latest iPhone 6s/6s Plus models in India (which is unsurprising given how expensive these devices are).
As the smartphone market saturates, and as Apple aims to continue to grow its iPhone business, I believe that we're going to see more of these aggressive, region-specific price cuts of older-generation smartphones.
What Apple's strategy might be
Apple's primary strategy is to still own as much of the high-end/high value smartphone market as possible. This market is very large and it's where the real profits are to be made. Apple will do whatever it can to try to sell customers the most expensive iPhone that it possibly can.
However, the massive growth in the overall smartphone market is cooling and the more affordable low-end and mid-range segments are seeing more robust growth than the high-end segment that Apple designs its products for do.
Apple could go ahead and design special products targeted at these low price points, but as we've seen with the iPhone 5c, Apple products designed right off the bat to be distinctly "cheaper" than the flagship models don't seem to resonate all that well with Apple customers.
Instead, the company is using older-generation products to go after these segments. Although a phone that's two years old (as is the case with the iPhone 5s) is still going to lag the latest devices in terms of hardware specifications, an older flagship iPhone was still once a flagship iPhone, potentially making it more appealing than a targeted "cheap" iPhone.
From Apple's perspective this also works out nicely, as component costs for a phone that has been in production for several years should be quite low. Manufacturing yields on the finished devices should also be very high at this point, helping to further improve costs.
Is this a good strategy?
I believe that this is a solid strategy for a couple of reasons.
Firstly, Apple is able to address price points with such products that it wouldn't otherwise be able to. And, given that Apple's newer devices tend to be much more compelling feature-wise, there is likely minimal cannibalization of higher-end device demand with the availability of older products at lower prices.
Next is an interesting idea put forth by an analyst quoted in the Economic Times article. In particular, the analyst says that Apple is aiming to do well in the $250 to $400 price range in India in a bid to "lock in more customers into their eco-system." This, the analyst says, should create a "base for upgradation when newer iPhones are launched."
Even if those customers ultimately wind up buying price-reduced older-generation iPhones when they eventually need to replace their iPhone 5s phones, Apple still benefits. However, it's not unreasonable to expect that a good number of buyers that pick up relatively cheap iPhones today could be buyers of more expensive iPhones in the future as their personal financial situations improve.
Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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.