Apple turns to trade-ins, deals to boost iPhone sales
Apple is experimenting with iPhone marketing strategies it rarely uses — including discount promotions through generous device buyback terms — to help boost sales of its flagship product.
Company executives moved some marketing staff from other projects to work on bolstering sales of the latest handsets in October, about a month after the iPhone XS went on sale and in the days around the launch of the iPhone XR, according to a person familiar with the situation. This person described it as a “fire drill,” and a possible admission that the devices may have been selling below some expectations. The person asked not to be identified discussing private strategy changes.
Since then, Apple has embarked on a series of aggressive trade-in offers that have temporarily reduced the cost of some of its latest iPhones, a rare step for a company that’s been raising device prices in recent years to lift revenue and profit. Apple spokeswoman Trudy Muller declined to comment.
Apple has added a banner to the top of its website advertising the iPhone XR for $449, $300 less than its official sticker price. However, the deal, noted
“The question yet again is, ‘What’s the next phase of innovation?’ ” Michael Olson, Piper Jaffray analyst
with an asterisk and described at the bottom of the page, requires customers to trade in an iPhone 7 Plus, a high-end handset from two years ago.
Apple has lost about a fifth of its market value since the start of October on signs of waning iPhone demand. Supplier Cirrus Logic cut its holiday quarter sales forecast by 16 percent because of “recent weakness in the smartphone market.” Apple has also stopped reporting iPhone sales, sparking concern its most important product is no longer growing.
The Cupertino company’s shares slid 4.4 percent Tuesday to close at $176.69. HSBC downgraded the stock, saying iPhone growth is over for now. “What has made the success of Apple, a concentrated portfolio of highly desirable (and pricey) products, is now facing the reality of market saturation,” the bank’s analysts wrote in a note to investors.
The new marketing push may give holiday sales a bump and help the company with a broader goal of increasing the number of Apple devices in use. However, the approach may undermine a key bullish argument from analysts: That higher prices will make up for lackluster sales.
Last week, the company started offering a limited-time promotion that boosts the trade-in value of older iPhones by an additional $25 to $100. Apple retail employees have also been told to mention the program more often to customers, according to another person familiar with the situation. Some Japanese wireless carriers also began offering subsidies that reduce iPhone XR prices.
Last year, there were similar concerns about sales of the iPhone X, but the handset ended up selling well. And Apple has used similar marketing tactics before. In 2007, it cut the price of the iPhone by $200, less than three months after its release. When the iPhone 3G debuted in 2008, Apple worked with carriers to subsidize the cost. It has also quietly increased trade-in values for older iPhone models in the past.
Apple marketing executive Greg Joswiak tried to quell concern about sales, by telling Cnet last week that the iPhone XR has been the company’s best seller since it hit the market at the end of October.
Regardless of such efforts, “investors are very focused on the longer term strategy and growth outside of iPhones, given what we’ve seen now coming out of this last iPhone cycle,” Wedbush Securities analyst Daniel Ives said. “In a fearful technology environment, investors aren’t going to give Apple the benefit of the doubt.”
Apple is working on several new products and services, including an augmented reality headset, driverless car technology, and digital offerings like original video. Analysts also expect a new business model centered on subscriptions. Those options are riskier than the iPhone, which for a decade enticed millions of consumers to hand over hundreds of dollars for a new handset every two years. The public hasn’t flocked to AR technology in the same way yet, while Netflix has a huge head start in digital video, Alphabet’s Waymo leads in autonomous vehicles, and Amazon Prime has nailed subscriptions online.
“The question yet again is, ‘What’s the next phase of innovation?’ ” said Michael Olson, an analyst at Piper Jaffray. Apple spent $35 billion on research and development from 2016 to 2018. What emerges from this huge investment “needs to become a new engine of growth,” he added.
Finding another hit like the iPhone will be almost impossible. Since Apple launched the device in 2007, it’s become one of the most successful products on Earth. The gadget generated $167 billion in revenue during Apple’s latest fiscal year, about the same as Google parent Alphabet and the Walt Disney Co. combined.