On September 20, the iPhone 11 was released. The smartphone flew off the shelves and has sold over 12 million units since launch, at a 15% higher rate than the previously released iPhone XR. Long considered a luxury good, iPhones have been accompanied by high price tags and boundary-breaking technology since their first incarnation in 2007. However, the iPhone 11 seemed to show Apple’s purposeful shift of the iPhone from a luxury to a necessity.
What is a Luxury Good?
According to Investopedia, a luxury good is a highly desirable item that is not necessary for humans to own in order to live. For example, while your first car may be considered a necessary good, your car collection of vintage Mercedeses would be considered luxury goods. These goods have an elasticity of demand, meaning that their worth will increase and decrease alongside wealth. As people become wealthier, the demand for luxury goods will heighten and the prices will rise. Similarly, as wealth decreases, so does the value and price point of these luxury goods.
When the iPhone was first released in 2007, it was the first smartphone ever invented, and therefore, considered a luxury good. While the majority of the population continued with their Motorolas and flip phones, the iPhone was only used by the wealthy, thus limiting its demand. As time passed, more smartphone designers like Samsung and Google emerged with significantly lower price tags and newer technological advancements and Apple had to adapt in order to stay at the top of the smartphone supply and demand chain.
From a Want to a Need
Apple’s newest iPhone 11 nomenclature shows the final conclusion of a price analysis of the iPhone as a necessary good. When this phone was released, there were three different incarnations – the iPhone 11, the iPhone 11 Pro and the iPhone 11 Pro Max – each with its own pricing structure. The cheapest model boasted a lower price tag than even that of the previously released iPhone XR. Additionally, by naming the intermediate model “Pro,” Apple nods more to practicality rather than luxury. While the iPhone 11 is a necessary good for anyone in this society, the iPhone 11 Pro is a utilitarian necessity for the creatives and artists – or anyone who aspires to that level.
Competitive Pricing Models
Their newest competitive pricing model offers top-of-the-line technology at similar prices to their competitors. This technique follows that of other luxury brands attempting to heighten the price point of necessary goods in order to maintain the demand elasticity. For example, as wellness trends rise throughout society, brands like Ritual and Fabletics offer premium subscription packages that offer luxury split into manageable monthly chunks. Similarly, phone companies like Verizon and AT&T offer monthly plans that calculate the costs of both the phone and plan at varying prices.
As the world changes, luxury brands must constantly analyze their products in order to stay above the consistently fluctuating demand elasticity that occurs as luxury becomes a necessity. So the next time you mindlessly scroll through your brand new iPhone, take some time to consider the alterations Apple made in order to market this good as a necessity.