Apple hopes lowering iPhone prices in China leads to a massive number of upgrades

According to CNBC, Apple has officially cut iPhone prices in China as the reopening country is about to celebrate an online shopping festival known as 6.18. While the official Apple website in the country did not change its pricing, other channels through which Apple officially sells its handsets in the country did reduce the cost of current iPhone models. For example, on Tmall users can purchase a 64GB iPhone 11 for 4,779 yuan (equivalent to $669.59); that works out to a 13% discount from the phone's original price of 5,.499 yuan ($774.35).

Also on Tmall, the 64GB iPhone 11 Pro has been discounted by 13% from 8699 yuan to 7579 yuan. ($1,067.25). The 64GB iPhone 11 Pro Max has also been reduced in price by 13% dropping its cost from 9,599 yuan to 8,359 ($1,177.09). The cheapest phone in Apple's line up is the 64GB second-generation iPhone SE. Tmall is selling this model for 3,099 yuan ($436.39) which is a 6% price break from 3,299 yuan.

Rival online retailer JD.com wielded a slightly sharper price-cutting tool taking the 64GB iPhone 11 down to 4599 yuan, 180 yuan cheaper than Tmall's price. The iPhone 11 Pro starts at 6,999 yuan and the 64GB iPhone 11 Pro Max is tagged at 7,499 yuan. That is a difference of 580 yuan and 860 yuan from Tmall's prices respectively. The 64GB iPhone SE is priced at 3,069 yuan by JD.com, which is an official Apple reseller and works with Apple on iPhone pricing. The etailer says that it is cutting prices every day although the amount of these discounts could change on a daily basis.

The discounts are having their desired effect. A spokesman for JD.com says that sales of Apple products during the first hour of the promotion yesterday tripled from the same time period last year. The 6.18 shopping festival takes place on June 18th and can run over a number of days. The country has a similar Singles Day every November 11th and that celebration also runs officially for 24 hours. But just as retailers in the U.S. run Black Friday sales for days before and after the official date, the online retailers in China offer discounts around both the 6.18 and Singles Day festivals.

Apple usually doesn't take part in the 6.18 festival and according to IDC's Will Wong, this is only the second time the company has done so. Wong said, "Last year when they did it the reception was good and they had a good result by giving discounts and promotions. This year, we see it as good timing during this post-lockdown season because people are very careful (about spending) and discounts will stimulate demand." Apple did not comment on the discounts.

Apple is reportedly hoping to draw buyers from among the large number of active iPhone users in the country looking to upgrade to a newer model. That line of thought is doubled by Nicole Peng, Canalys' vice president of mobility. Peng told CNBC that "The cheaper iPhones are actually attracting quite a lot of attention these days. They are trying to target the older generation iPhone install base for example (those on a) iPhone 6, iPhone 7, and iPhone 8. They don’t want to spend much more compared to what they previously spent, but they will need a device upgrade."

There are several reasons why Apple would cut iPhone prices. In April 2019, Apple cut the price of the iPhone XR in China due to currency fluctuation. The strength of the U.S. Dollar against the Chinese Yuan at that point in time forced the company to pick one of two bad options. It could keep prices the same and receive fewer dollars in exchange for the Yuan it receives. Or, it lowers its prices in China to make its devices more competitive to make up in volume what it loses in revenue.

In January 2019, Apple cut the wholesale pricing of several models in China. While the public didn't automatically benefit from these price cuts, the Apple Premium Resellers or licensed online stores had the choice of increasing their margins by keeping their retail prices unchanged or cutting their prices to attract buyers.