It should be said that this is a problem most businesses would like to have but it's also something of a problem for
Apple has the prototypical good-news, bad-news scenario on its hands, with soaring sales of its flagship iPhone 5S contrasting sharply with souring sales of its “for the colorful” iPhone 5C.
“Our latest channel checks confirm that Apple indeed has cut back 5C production by 35 percent and increased 5S production by 75 percent,” NPD DisplaySearch analysts Tina Teng and Shawn Lee posted today.
As I've mentioned before cutting the orders of a new product after launch doesn't show that the product is a failure: only that you have now satisfied that first early bolus of demand. However, the increase in orders for the iPhone 5s is showing us something a little different.
It's worth thinking back to the basic problem that Apple is trying to solve here. Every producer of anything knows that there are some people who are willing to pay more than you're charging them for whatever it is. Every producer also knows that there are other buyers out there who would buy if only the price were a little lower. The problem is, how do you get those people who would pay more without losing those who will only pay less? And similarly vice versa as well. The answer is market segmentation through product differentiation.
Apple is a very highly regarded brand (as it should be) and can charge premium prices for its products. But they also would like to get the business of those who like the product but aren't quite so keen on the premium. That's the basic idea behind the two new iPhones, the 5s and the 5c. Those who want the top notch experience and who are willing to pay for it will get the 5s. Those who are more money conscious will have the plastic case (it's important that the difference should be visible!) and the iPhone 5c.
One company doing this in spades is VW. They have only a few platforms upon which all of their cars are built: but they've many brands. So, for example, the upcoming Bentley SUV, the VW Touareg, the Porsche and
Apple having the two new products on the market is just a method of doing the same thing. Getting more money from those willing to pay more and also getting the cash from the more price conscious. But here's the difficulty: if Apple is increasing orders for the iPhone 5s then that means they underestimated the demand for that model. There's no shame in this, such estimations are always informed guesses after all. People will pay up for the top of the line of the Apple brand, fewer wanting the functionality but not that brand.
Where this gets interesting is what it means for the future iPhone releases. It could go either way really. Apple might conclude that as people seem to want the top of the line iKit, are willing to pay for it, then why bother with moving downmarket with an entry level iPhone? Alternatively, they might think that the $100 or so price difference isn't enough and they'll really go for an entry level iKit next time.
No, I don't know which way they'll go and there's no surprise in that for I'd be astonished if they know which way they want to go yet. But it is true that this experiment in market segmentation is going to lead to some heavy thinking at Infinite Loop. For the result, so far at least, seems to be that people will happily cough up for the iPhone 5s, so, err, why worry too much about product differentiation at all?
