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Case Details

Case Code: ECON069
Case Length: 14 Pages 
Period: 2007 - 2019   
Pub Date: 2018
Teaching Note:Available
Organization :Apple, Inc.
Industry :Smartphone
Countries : US; Global
Themes: Pricing/Price Elasticity of demand
Case Studies  
Business Strategy
Human Resource Management
IT and Systems
Leadership & Entrepreneurship

Economics of Apple, Inc.`s iPhone

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iPhone gestures, focused on dynamic finger movements, such as bouncing of lists, tapping, dragging, pinching, and rotating became industry standards and were emulated by all makers of smartphones and operating systems. Blending such gestures with a highly responsive touch-screen made the small screen appear much larger and more suitable for diverse activities, whether work related or otherwise. This user friendliness ensured that the smartphones were perpetually close to the consumers’ physical selves, right away handy for interaction..

Economics Case Studies | Case Study in Management, Operations, Strategies, Business Environment, Case Studies
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Analysts came up with estimates of the profit that Apple made on each iPhone device. In 2014, an analyst at Sanford C. Bernstein said that the gross profit margin on an iPhone was around 50%. In April 2016, IHS Inc. estimated that the 16 GB version of the iPhone SE, the lowest-priced iPhone model available then, cost the company approximately $160 to manufacture. The iPhone 6S Plus, the highest-priced iPhone model then, cost an additional US$76..


In 2007, along with the debut of the iPhone, Apple also unveiled its iOS mobile operating system – at the time of debut, the iOS was known as iPhone OS1, and its name changed from ‘iPhone OS’ to ‘iOS' with the unveiling of the fourth version of iPhone OS1, iOS4, in 2010. iOS had its genesis in Mac OS X. In 2008, Apple introduced the App Store to the then newly launched version of iOS. The App Store was an online store from which users could download third-party applications (apps). Apple had total control over the sales and app-approval ecosystem. The company had to approve the apps prior to their being sold, which implied that a smaller number of spam apps and viruses reached the end devices..


Apple unveiled three new iPhone models on September 12, 2017 – the iPhone 8, iPhone 8 Plus, and iPhone X. The iPhone 8 and iPhone 8 Plus were primarily updated renditions of the iPhone 7 and iPhone 7 Plus models. The 64-GB version of the iPhone 8 was priced at US$699, whereas the 256-GB version was priced at US$849. The 64-GB version of the iPhone 8 Plus was priced at US$799, and its 256-GB version was priced at US$949. The iPhone 8 and 8 Plus models came with a glass back and featured louder speakers, speedier processors, and improved cameras. Customers could pre-order the two iPhone 8 models from September 15, and the company began shipping the devices on September 22..


Apple’s charging US$999 and above for the iPhone X also came into focus – the company was entering unchartered territory with its four-digit price tag. Several experts felt that Apple’s pricing strategy was correct. Daniel Gleeson, an analyst at Ovum , said, “The price (of iPhone X) is driven by two factors. The premium smartphone market is very heavily saturated – there’s no organic growth – so for Apple the only way to continue growing revenues for iPhone is to actually raise prices. Secondly, the components involved in building the iPhone X are quite limited in supply, so by having a very high price, Apple is also limiting the demand to some extent, and should help curtail any shortages it might have.”


On November 3, 2017, hundreds of individuals queued up in front of Apple stores in USA, Australia, Singapore, Japan, and the UK. In New York, several had camped outside the Apple store the previous night. In Los Angeles, nearly 400 individuals had camped out near the Apple store. In Australia, nearly 400 individuals lined up outside Apple’s flagship store in central Sydney.


According to Strategy Analytics, in the first calendar quarter of 2018, the iPhone X was the largest-selling smartphone globally with 16 million units shipped. The iPhone 8 and the iPhone 8 Plus models, according to Strategy Analytics, claimed the second and the third places respectively. The number of units of the iPhone 8 and iPhone 8 Plus models shipped was 12.5 million units and 8.3 million units respectively..


Exhibit I: Apple’s Financial Performance (2011-2017)
Exhibit II: Details of iPhone Models Launched between 2015 and 2016
Exhibit III: iPhone Unit Sales (in thousands) in USA
Exhibit IV: An Estimate of the Various Costs in Manufacturing an iPhone
Exhibit V: Details of Net Sales and Unit Sales of iPhone
Exhibit VI: Prices of iPhone X and Select Competitors