Apple is tired of making Coca-Cola and now wants to sell champagne

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Powered by Guardian.co.ukThis article titled “Apple is tired of making Coca-Cola and now wants to sell champagne” was written by Alex Hern, for theguardian.com on Wednesday 22nd March 2017 12.02 UTC

For the past decade, Apple’s philosophy has been summed up by an Andy Warhol line about Coca-Cola.

“What’s great about this country is that America started the tradition where the richest consumers buy essentially the same things as the poorest,” Warhol wrote in his 1975 autobiography. “You can be watching TV and see Coca-Cola, and you know that the president drinks Coke, Liz Taylor drinks Coke, and just think, you can drink Coke, too. A Coke is a Coke and no amount of money can get you a better Coke than the one the bum on the corner is drinking.”

Apple’s mobile product lines, like the iPhone and iPad, have suggested that it wants to make the Coca-Cola of the technological world. Not for Apple the vast segmented portfolios of the likes of Samsung. Instead, it has generally had an incredibly simple offer: the best phone or tablet it can make, or, for the more price-conscious, the best phone or tablet it could make last year.

It’s more than just a matter of principle, of course. On the one hand, it’s a question of branding: every phone with the Apple logo on it was once (in its opinion) the best phone in the world. No one need be ashamed of carrying an iPhone, and that’s the way Apple wants it to stay.

On the other hand, the sheer economics matter. Apple gains incredible economies of scale from making the vast majority of its devices in the same basic way – so much so, in fact, that it has occasionally faced diseconomies of scale, being limited by the total capacity of its providers. By shipping last year’s devices, the company can also steadily increase its profit margin, ironing out the niggles in the production process for a second year running.

That philosophy has been coming under increasing pressure in the last couple of years, however. Apple faces opposing pressures at opposite ends of its line.

For more price-sensitive customers, the cost of building a “good enough” phone continues to drop, and even though Apple has never been one to chase the genuine budget market, it wants to grow its user base just like any other company.

At the other end, though, the introduction of the iPhone Plus has shown that the company’s more dedicated customers are willing to pay extremely high prices for the latest and greatest.

In other words, the company is tired of making Coca-Cola. It wants to start selling Champagne, something that can absorb a near-infinite increase in price at the top end, while still maintaining a luxury image for anyone able to afford it. How can Apple carry on selling increasingly expensive gear to the top end of the market, without losing its chance to expand at the bottom?

The iPhone 5​​C
The iPhone 5C became the first Apple device to be introduced with an explicitly budget aim and appearance. Photograph: REX/ZUMA

First, Apple began introducing increasing segmentation in its product lines. First the iPad mini blurred lines as to what the “best” iPad was in any given year; then the iPhone 5C became the first Apple device to be introduced with an explicitly budget aim and appearance, and the SE followed the same pattern.

Those devices all offered something to the budget conscious buyer, but Apple’s Coca-Cola offering remained, largely, intact. Now, though, the new plan is really breaking through.

On Tuesday, Apple introduced the new iPad, a replacement for the iPad Air 2. If you thought that tablet had already been replaced, you aren’t alone. When the smaller of the two iPad Pros was introduced, many assumed that that tablet was to all intent and purposes the iPad Air 3 – the name change to Pro, rather than Air 3, being a branding push to better justify the £100 increase in price.

The new iPad challenges that analysis. It is a cheap device, but it doesn’t look pitched at the budget-conscious: instead, everything about it, from the name itself to the advertising push, says that this is the new mainstream device, with the iPad Pro occupying a top tier for those who want only the best.

In other words, for the first time, the Coca-Cola you drink and the Coca-Cola the president drinks might be different.

But market segmentation seems on its way and there’s another area where Apple has signalled this is exactly the direction it wants to take: wearables. The Apple Watch was launched with two orders of magnitude difference in prices between the cheapest aluminium watch and the most expensive gold one. That discrepancy has been dialled down a bit – the new Apple Watch Edition is made of ceramic, and costs “only” $1,200 (£962) – but when it comes to devices that can double up as jewellery, of a sort, Apple knows that its richest customers are willing to pay.

The real revelation will probably come this September. That’s when we’re expecting to see new iPhones, and the rumour mill suggests that we could be in for the biggest change in strategy the company has seen in decades: the introduction of an “iPhone Pro”.

That device, it is rumoured, is likely to come with radical design upgrades: a bezel-free display, and maybe a fingerprint reader hidden under the screen, while the new vanilla iPhones will not. But the pricing of the Pro will likely match its ambition, potentially breaking $1,000 for the first time. The iconic phone will no longer be one model fits all, but clearly aimed at two tiers.

“All the Cokes are the same and all the Cokes are good”, Warhol’s musing concludes. “Liz Taylor knows it, the President knows it, the bum knows it, and you know it.” For Apple, as for Coca-Cola, that was a powerful thing to be able to claim. “The President has a better iPhone than you because we couldn’t work out a neater way to charge him $1,000 without losing your custom” doesn’t quite capture the imagination in the same way.

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