Each year, Apple’s new smartphone generation hits the channel with wide impact swiftly after launch, propelled by the weight of its popularity and the efforts of major national carriers Verizon, AT&T, Sprint and T-Mobile. Every retailer with a postpaid smartphone assortment moves quickly to adopt Apple’s latest iPhone generation in order to present shoppers with these in-demand items, and this speed of adoption is again expected for the vendor’s new launch. A complete spectrum of retailers ranging from electronics chains and mass merchants to warehouse club stores integrate the latest iPhone models as quickly as Apple delivers them, giving a wide variety of buying options to consumers.
Like past generations, iPhone SKUs attached to Verizon and AT&T are expected to be the most common sights across in-store and online channels, followed by Sprint and T-Mobile variants, the latter of which is slightly behind its rivals due to a slimmer distribution that favors the un-carrier’s own storefronts over national outlets. Following an initial availability at Apple stores, unlocked variants of the latest iPhones are expected to expand into the online assortments of national chains roughly one month after launch to appease a wider audience of adopters who are not fans of carrier-commitment. Apple then uses retailers’ holiday-season refresh cycles to introduce prepaid versions of its latest iPhones into the channel, which in the past has been led by Walmart’s Straight Talk Wireless MVNO by offering the most aggressive hardware price tags (10-13 percent lower than channel averages). Prepaid activity has played a greater role within the first six months of the past two iPhone cycles, with the segment representing 7 percent of the iPhone 7 generation’s overall presence at this junction, up from the 3 percent of the iPhone 6s generation that were prepaid SKUs.
Even with Apple’s increased involvement in the traditionally budget-aligned prepaid realm, the iPhone 7 generation was able to maintain a premium over the pricing trend of the iPhone 6s, a strategy that Apple is employing again with its new launch. Since the iPhone 7 generation’s debut, the average price of the iPhone 7 has fallen from $775 to $704, compared to the iPhone 6s’ decline from $757 to $714 over its initial 10 months. Similarly, the iPhone 7 Plus kept its premium over the first portion of its life, with an average price decline from $908 to $849, versus the iPhone 6s Plus’s trend from $851 to $825 during its early stages. Only after the debut of the iPhone 7 models did pricing for the iPhone 6s generation take a more rapid descent. This is again expected for the iPhone 7 generation in the wake of Apple’s new debuts, with average pricing likely dropping by $100 in the weeks immediately following the launch.
With price tags higher than previous generations, will initial deals be harder to find on Apple’s new iPhones? Absolutely not. Apple has reserved a large portion of retailer advertising space to ensure a big impact for its latest launch. While the company is historically very reserved when it comes to raw discounting, the launch of the iPhone 7 generation immediately brought those items down to $0 for eager upgraders, and the same will be seen for this year’s launch. The first two months of the iPhone 7’s availability were among the strongest for advertising, led by widespread trade-in offers that yielded free handsets ($650 value) and guaranteed $200 discounts, along with $50-$200 merchant gift cards. The fall season continued with iPad bundles that were initiated just prior to Black Friday, while the year end instigated on going buy-one-get one free (BOGO) iPhone promotions to target lucrative multi-line upgraders.
Moving forward, Apple will increasingly look toward these BOGO and free gift promotions in order to compete with the market and to maintain pricing premiums that would be otherwise impacted by traditional instant savings. The majority of Apple’s iPhone ads offer no incentive (40 percent), a dramatic difference compared to its flagship rival Samsung, which leaves less than 20 percent of its ads incentive-free. Expect to see more bundles and free gifts that leverage its Beats portfolio, iPad line, and other peripherals as Apple mirrors other vendors' ecosystem plays. Smart home hubs have recently emerged as a common bundle item, which Apple may move to tie into its mix as well (HomePod), while Samsung shows no sign of halting its free TV offers as a strong differentiator during key promotional periods.
Other notable activity that stands to shape the lifecycle of Apple’s latest iPhone generation is the vendor’s overall increase in prepaid segment participation, marked by a dramatic 207 percent increase in retail channel placements between Q2 2016 and Q2 2017 (46 vs. 15 SKUs in channel). Consecutively, Apple's Q2 prepaid retail placements are up 35 percent from its Q1 2017 presence in the channel, with its biggest gains coming from elevated exposure for its Total Wireless (up 300 percent), Simple Mobile, and AT&T (up 125 percent) portfolios. Costco is a net new retail account for Apple prepaid in Q2 2017, while AT&T (up 200 percent) and Best Buy (up 125 percent) were also avenues for the vendor's growth. Interestingly, Target now ties Walmart for the widest prepaid selection in retail with its AT&T and Consumer Cellular gains, while Apple's involvement with Total Wireless enhances its position inside Best Buy and Walmart.
While much of Apple’s prepaid future will be handled by its aging handsets, Sprint’s prepaid MVNO Virgin Mobile made a major shift to its business this June with the announcement that it will only sell Apple-branded smartphones moving forward. The bold pivot comes in the form of what it calls Inner Circle, an iPhone-exclusive plan structure that offers unlimited data, text, and calls, as well as other bonuses from Virgin-owned properties. An Inner Circle subscription sets users up to receive exclusive Virgin Perks and Member Benefits, which include a free companion ticket to the UK via Virgin Atlantic, a free night at a Virgin-branded hotel, or discounts on Virgin America flights and wines.
With the shift, Android devices will no longer be sold by Virgin Mobile, which makes the MVNO the first iPhone-only carrier within the US. Virgin Mobile customers will also have the option of making iPhone purchases at Apple stores, marking another significant change for the prepaid carrier. Currently, Virgin Mobile offers iPhones including the SE, 6, 6s, 6s Plus, 7, and 7 Plus inside Apple stores and online. It will be interesting to see how Virgin Mobile’s channel footprint changes once its iPhone-only portfolio is executed. The move gives one less opportunity for vendors competing within the prepaid realm while also representing reduced choice for the retailers that align with lower-tier shoppers. Pricing for current Virgin Mobile SKUs ranges from $29.99 up to a limit of $199.99, but with its iPhones ranging from $279.99 to $769.99, the MVNO is tasked with realigning its branding upmarket, a challenge for most prepaid entities.