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Apple's Business Strategy is changing under the Cook Doctrine

1 - COVER  IPHONE X STOCK PHOTO 2

 

Beneath the headline revenue and profit figures, Apple's CEO Tim Cook seemed to have solved two of Apple's longest-standing problems: its heavy reliance on the latest flagship iPhone to buoy its profits, and its lack of affordable offerings to help budget-minded buyers see the benefits of joining Apple's ecosystem of hardware and software. And all Cook had to do was stop Apple's unusual Steve Jobs-era policy of ruthlessly killing off old products when better ones came along.

 

The Reuters report on this topic stated that "To see the effect of the Cook Doctrine, look no further than Apple's current, unprecedented line-up of five different iPhones. The flagship iPhone X, priced at $999, has drawn most of the media attention for the holiday shopping season.

 

But far from the limelight is the humble iPhone SE - essentially an updated iPhone 5, which came out five years ago. It retails for only $349 and appears to have played a major role in Apple doubling its revenue in India, an important emerging market.

 

Cook Doctrine of letting older models linger and drop in price appears to be working. Apple hit analyst expectations by shipping 46.6 million iPhones in its fiscal fourth quarter, though with lower average selling prices.

 

That doesn't mean Apple is leaving profit on the table. On the contrary, more phones - whatever the price - help boost the services business, which includes Apple Music and the App Store. Services brought in $8.5 billion in revenue in the quarter compared with analyst estimates of $7.5 billion, though that included a favorable $640 million adjustment.

 

The bet Cook seems to be making is that if Apple lowers the price of entry for getting a taste of its flagship iOS operating system, its customers will want to spend more money in Apple's ecosystem, even if they do not spring for its most expensive devices. So far, that bet is paying off."

 

Patently Apple posted a report on Wednesday before Apple's financial conference call and made note that a new statistical chart from Counterpoint revealed that Apple was now participating in the three of the six price bands or tiers in China. This was something I and most Apple fans were unaware of at the time. This is exactly what the Reuters report and our chart below confirms.

 

2 APPLE COMPETES IN 3 PRICE TIERS

In Wednesday's report I had noted that "As a general observation, Apple could, beginning late next year, either drop the iPhone SE to make the iPhone 6s become their new entry price point with a much larger display, or move the iPhone SE down into the $250-$299 price band where Apple currently doesn't compete. This would allow Apple to compete in a fourth price band in China and other emerging markets."

 

Now that Reuters sees this as the Cook Doctrine, then it's very possible that Apple could very well enter a fourth pricing tier next year, if the doctrine goes beyond a third tier. While only time will tell, it's starting to look promising and needed as Apple's growth may rely on entering and succeeding in emerging markets over the next decade.

 

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