Stefan Mileschin

For years now Apple has followed a rather intelligent waterfall of its products down the pricing stack. With the arrival of every new iPhone, the previous generation gets a $100 discount from its on-contract price, and the generation before that one is offered for free on-contract. In the early days of this strategy, it was a great way to continue to build up the iOS user base without having to compete in the lower margin feature phone space. The strategy worked quite well.

During the days of the iPhone 4S the strategy made a ton of sense, as the 3GS was undoubtedly cheaper to manufacturer than the glass + metal iPhone 4 and 4S designs. No attention was paid to the impact on the iOS brand however of having a bunch of customers walking around with new 3GSes as recently as late 2011.

With the iPhone 5s however, Apple was caught in an interesting situation. The previous model leveraged the same industrial design, and it’s definitely not a cheap one at that. Capacitive touchscreen display costs increase with display size, making the iPhone 5’s display a more expensive option than its predecessor. Add in other flagship features like in-cell touch and premium construction and the iPhone 5 quickly became a device that Apple would rather not discount.

Keep in mind that Apple built its phone business much like it built its Mac business, by focusing exclusively on higher margin products. The incredible volumes that followed were a side effect of the state of the industry, not a deliberate change in business model. With its core motivations unchanged, Apple needed a solution to continue to make the 3 phone strategy work. The solution is the iPhone 5c.

http://www.anandtech.com/show/7340/the-iphone-5c-review