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Apple Inc. and iPhone Segmentation: It's All Good

By Ashraf Eassa – Mar 3, 2016 at 1:30PM

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As the smartphone market matures, Apple is doing the right thing to maximize revenue and profit for its stockholders.

Apple's iPhone 6s in four colors. Image source: Apple. 

Once upon a time, Apple (AAPL -1.12%) used to release just a single variant of its popular iPhone. This began to change in 2013, when the iDevice maker released both the iPhone 5c (in place of the prior-generation iPhone 5) as well as the more premium iPhone 5s.

Then, the company took it a step further in 2014, launching not just one premium smartphone but two -- the iPhone 6 and the even more expensive iPhone 6 Plus. Now, according to KGI Securities analyst Ming-Chi Kuo, Apple is planning to take this a step further with the iPhone that's expected to arrive this coming fall.

Say hello to the iPhone Pro
The next-generation flagship iPhone is said to come in three variants. First is the standard iPhone 7 with a 4.7-inch display, next is the iPhone 7 Plus, and last -- according to Chinese website -- is the iPhone Pro.

There aren't all that many details available for any of these three phones yet, but the iPhone Pro is said to feature a dual-lens camera, leveraging the technology that the iDevice maker got when it acquired privately held LinX Imaging in early 2015.

This segmentation has some in a tizzy, but it's just fine
This kind of product/feature segmentation is not sitting well with a number of Apple customers/enthusiasts. Indeed, in the various discussion threads at various Applecentric websites (MacRumors, AppleInsider, 9to5Mac, and so on), there are a number of users who take issue with the iPhone lineup growing to include so many models.

However, as some have rightly argued, this growth is not only acceptable but in fact necessary as the iPhone matures. The iPhone customer base is just gigantic, and if the company wants to hold on to those users, as well as attract new ones, it needs thoughtfully targeted products to serve them all. 

For example, prior to the iPhone 6/6 Plus launches, there were people who really wanted larger iPhones. Once Apple made available not one but two larger iPhone sizes, iPhone sales skyrocketed.

Although the larger iPhones were welcomed by many customers, it is not uncommon to see iPhone users grumble about how they preferred phones with 4-inch displays. Rather than completely ignore the wants of those customers, Apple is said to be preparing to launch a new 4-inch iPhone with a very modern set of internal specifications known as the iPhone SE. 

On the other side of the spectrum, there are those customers who would like to see Apple adopt more expensive, cutting-edge technologies like the dual camera. By introducing a "Pro" iPhone tier above the Plus, Apple has more bill-of-materials headroom to add in interesting, albeit costly, new features for those willing to pay for them.

And, given Apple's iPhone average selling prices, I'd say that there are quite a number of Apple customers willing to pay more to get more. It's a win-win for those customers and for Apple, which should see a boost in average revenue (and profit dollars) per iPhone from sales of such high-end products. 

Embrace a wider, more diverse lineup of phones
Apple is doing the sensible thing by expanding its iPhone lineup, and I believe that shareholders and customers should wholeheartedly embrace this. I look forward to seeing what interesting features Apple has planned for the so-called iPhone Pro. The dual camera alone will make it interesting, particularly as this feature promises some nice image quality enhancements, though I can't help but wonder if the iDevice maker has additional tricks up its sleeve for this ultra-premium iPhone flagship.


Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. 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.

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