This year, it's becoming clear that Apple (NASDAQ:AAPL) is going to face significant difficulty in trying to grow iPhone shipments. In fact, following a slew of analyst forecast revisions, it is now commonly believed that the company will actually see iPhone shipments contract year over year during both the company's fiscal and calendar year 2016.
However, many are bullish that this is a "one-off" fluke caused by the very difficult comparisons that the iPhone 6/6 Plus caused and that things should get much better with the iPhone 7 cycle (and beyond).
This is a fairly reasonable expectation. But in order for Apple to better the odds that iPhone revenue will return to growth, I believe that the company will need to focus on further improving average selling prices.
Continuing the iPhone 6 Plus average selling price boost
Apple priced the iPhone 6 Plus at a $100 premium to the standard iPhone 6, and continues this pricing scheme with the iPhone 6s Plus.
Early reports following the iPhone 6 launch suggested that Apple was selling about three times as many iPhone 6 Plus phones as it was the standard-size iPhone 6. It seems reasonable to expect that the split between the iPhone 6s and 6s Plus hasn't changed much, particularly as the phones are very similar size and shape to their respective predecessors.
However, I believe that with the iPhone 7 generation, Apple might have the opportunity to shift even more users to the larger-screen model, potentially helping to boost iPhone average selling prices. Here's how.
iPhone 7 Plus needs to be clearly "better" than the iPhone 7
Although the iPhone 6 Plus and 6s Plus phones are, in many ways, "better" than the iPhone 6 and 6s, respectively, it is not at all cut and dry.
For example, although the larger iPhones offer greater display resolutions and pixel densities than their smaller counterparts (text is noticeably sharper on my iPhone 6s Plus than it is on my 6s), third-party tests show that they offer lower contrast ratios and a bit worse color accuracy than the smaller-screen phones.
This is also something that's noticeable when the two devices are compared side-by-side. I'd imagine that this is something that a number of potential customers notice and could lead to a user ultimately choosing the smaller iPhone over the larger one.
Additionally, both the iPhone 6 Plus and the iPhone 6s Plus are thicker than their smaller counterparts. Buyers of the larger-screen device already have to contend with a device that's heavier, taller, and wider -- that comes with the territory. However, I don't think that buyers of larger screen devices should have to deal with thicker devices, too.
Finally, in terms of internal specifications, the larger iPhones are identical to their smaller counterparts save for the inclusion of optical image stabilization in the larger phones. Some additional differentiation on the internals could be worthwhile here.
The larger iPhone is a full $100 more expensive than its smaller counterpart, which means that it needs to be unequivocally better than the smaller one. If they came in at the same price point, then economics would dictate that some painful trade-offs will be made, but for the price premium, there are no excuses.
Will Apple deliver? Signs point to yes
Not much is known about the specifications of the next-gen iPhones. However, a report from the generally reliable KGI Securities analyst Ming-Chi Kuo reported some time ago that the iPhone 7 Plus will pack 3 GB of system memory while the iPhone 7 will pack just 2 GB.
This might be an indication that Apple plans to more aggressively differentiate the larger-screen iPhone from the smaller screen one in terms of hardware specs. It will be interesting to see if the differentiation is limited to simply memory capacity, or if Apple will be more aggressive in beefing up the iPhone 7 Plus relative to the iPhone 7 in different ways.
I hope that come next year there is a clear flagship in Apple's iPhone lineup, and that one should be the iPhone 7 Plus. If it is, then I could see mix shifting further upwards to the iPhone 7 Plus, ultimately driving increased iPhone average selling prices for Apple.