Why Apple Is Selling Its High-End Phones First

Apple Inc.’s (AAPL) decision to kick off its iPhone release schedule with pricier models forms part of a calculated strategy to squeeze more money from customers, the The Wall Street Journal reported.

The Cupertino, California-based company plans to launch its organic light-emitting diode (OLED) devices, the iPhone XS and XS Max, five weeks before its least expensive new phone, the XR, hits stores. The LCD screen XR has a starting price of $749, while the XS and XS Max, due to be released Friday, cost in excess of $1,000.

People familiar with Apple’s production plans told the Journal that the current release schedule has been purposely imposed to boost sales of higher-end iPhones. The company started ramping up mass production of the XS ahead of the XR model, they added, in order to give Apple a one-month window to test the water with its pricier devices without facing cheaper competition from itself. (See also: What the New iPhones and Watch Mean For Apple.)

Josh Lowitz, co-founder of equities analysis firm Consumer Intelligence Research Partners, told the Journal that the strategy to start with a high asking price and then lower it until a buyer accepts is similar to a Dutch auction. “The people who are most committed will pay to get early access,” he said. “Then you get to the people who are making a choice and may settle for the $750 phone. This could become the new normal.”

Other industry experts suggested that Apple’s staggered release strategy could also help to simplify stocking and in-store promotion for retail partners such as Best Buy Co. Inc. (BBY) and AT&T Inc. (T). John Haber, a supply chain consultant at Spend Management Experts, told the Journal that retailers will now spend September and October promoting the higher-priced models before shifting to the cheaper XR ahead of Black Friday. “It’s difficult to have everything great for one release, but three new releases is very complex,” he said. “You’re relying a lot on retail stores to handle logistics.”

An Apple spokesperson dismissed claims that its schedule has been purposely orchestrated, telling the Journal that the company releases its products when they are ready. Last year, Apple released its high-end iPhone X six weeks after launching its other two new, less expensive smartphones, reportedly due to production complications involving its OLED screen.

Analysts Bullish

Based on production orders, it would appear that Apple is expecting to sell more iPhone XRs than XS or XS Max models. According to UBS, the company has ordered production of 38 million iPhone XR, 32 million iPhone XS Max and 13 million iPhone XS devices and also plans to sell older LCD models, including the iPhone 7 and 7 Plus and iPhone 8 and 8 Plus.

Analysts are confident that the company’s decision to launch its higher-end phones first, and sell the XR for $50 more than last year’s least expensive new model, will help lift average selling prices by about 6% over the next fiscal year. “For that price point, they’re going to sell a lot of XRs,” said UBS analyst Timothy Arcuri. (See also: Apple Options Traders Bet Shares Will Rise 15%)