Apple’s iPhone X price gouging strategy was a big success

Apple CEO Tim Cook.Brendan McDermid/Reuters

• Apple’s decision to charge $1,000 for the iPhone X was vindicated by one important stat in its third-quarter financials — the average selling price.
• The price people paid for an iPhone rose 11% year on year to $728, and it had a big impact on Apple’s total revenue.
• That shows more people are willing to pay for pricier iPhones, even as sales growth levels off.
• There’s no reason why Apple won’t keep gouging superfans for an ultra-expensive successor to the iPhone X while that strategy works.

Apple’s most loyal fans apparently treat the company as though it’s a religion, meaning they’ll be cheering on the company’s latest quarterly results, which were impressive by most counts.

Perhaps they shouldn’t, though, because there are signs that Apple has hit on a successful price-gouging strategy that it won’t be stopping any time soon. And it will be the superfans being milked for their cash.

One of the most important numbers Apple analysts look at is the iPhone’s average selling price, or ASP. That number shows the average price worldwide that the iPhone sells for.

In the three months to the end of June, the average selling price of an iPhone was $728, up 11% year on year. At the same time, Apple also said the number of iPhones sold was relatively flat at 52.2 million, up 2 million year on year.

Given that the iPhone still accounts for most of Apple’s revenue, and revenue was up 17% year on year this quarter to $61.1 billion, this tells us something important: Apple didn’t rely primarily rely on more people buying the iPhone to make money. Apple relied on more people being willing to pay an eye-watering $999 for its top-of-the-line iPhone X.

If the iPhone’s ASP had remained flat, Apple’s revenue would have grown just 6.5%, according to Bloomberg. The 17% revenue boost is a big vindication for its price hike strategy.

Get the most out of your iPhone X.Tomohiro Ohsumi/Getty Images

When Apple announced the iPhone X in 2017, company watchers responded with a mix of excitement and scepticism. Would even the hardiest Apple fans cross the $1,000 price barrier? Even the most expensive predecessor, the iPhone 7 Plus, cost $769. The iPhone X was a 30% price jump.

And why confuse people by adding on a super high-end phone to the iPhone line-up? Between 2014 and 2017, Apple had been releasing two iPhones annually — a flagship phone, and a more expensive, larger phone. The iPhone X was the first time Apple had released three iPhones in one go, and people worried the new device would cannibalise sales.

Evidently, none of this has really mattered. A pricier iPhone model, plus growing revenue from “services” like AppleCare, the App Store, and iCloud, and new product categories like the HomePod smart speaker all suggest Apple is still on a strong trajectory.

The success of the iPhone X pricing, plus supply chain rumours, suggest Apple will try and replicate the strategy this year.

A UBS note ahead of Apple’s earnings this week predicted an iPhone X+ that will cost more than $1,000 because, clearly, the die-hard fans are willing to cough up.