Samsung Might Have A Folding Phone. But This Apple Tactic Reveals Where The Money Is

With recent iPhone releases from Apple and the expected future releases of the Samsung Galaxy S10 and folding Galaxy F, the smartphone world has been getting lots of attention lately.

But did you know that the smartphone market holds hidden revenue growth lessons too? They’re definitely there but stay neatly tucked out of view.

Now I’ve told you about how unlikely situations can give you excellent business insights. However, some business success secrets just take place openly, right in front of your eyes. You just miss seeing them because they’re too obvious. Unfortunately, that means we can’t learn from them and use them ourselves.

Here’s one you can take from the smartphone market.

The folding Samsung Galaxy F (concept) is long awaited but Apple's revenue holds a secretPhone Designer / NieuweMobiel

Where Is The Revenue In The Smartphone Market?

I recently noted why analysts look at revenue as business health. So let’s look at where the revenue is in the smartphone market.

When it comes to straight unit sales, Samsung took the lead in 2017.

Looking at total shipped units for 2017:

Apple = 215.8 million units.

Samsung = 317.3 million units.

So, Samsung sold almost 50% more smartphones than Apple in 2017. Lets zoom in.

Looking at Q4 2017, total shipped units:

Apple = 77.3 million units.

Samsung = 74.1 million units.

Not as big a difference as the annual figures. In fact this time Apple sold slightly more units than Samsung.

However, things get interesting when you look at Q4 2017 smartphone revenue:

Apple = US$61 billion

Samsung = US$19 billion

So, although they both sold a fairly similar number of units at this time (in comparison to the revenue results), Apple made almost three times much revenue from their smartphone sales than Samsung did.

In fact, Apple’s smartphone sales alone account for more total revenue than the rest of the entire global smartphone industry combined.

What Is Causing This Revenue Imbalance?

For starters, the average selling price of a smartphone rose 18% in one year from $255 in Q4 2016 to $300 in Q4 2017, even though overall shipment volumes decreased. That tells you that the average price of a smartphone is going up.

But if you look at Apple, their iPhone’s average selling price is approaching US$800. That’s almost three times higher than the overall industry average.

Spotting The Trend

So, Apple makes roughly three times as much revenue as other companies do, from their smartphone sales. Of course, you can see that the iPhone’s average selling price is three times higher than the overall industry average too.

The average unit price is the driver of Apple’s strong revenue.

The Business Takeaways

One method that’s in practice here, is to offer a greater range of products in order to capture a wider audience.

Then you need to include an ultra-high-end product, packed with new features.

Even though most of those new functions are seen as luxury features, this practice helps to boost the sales of the regular high-priced products from the previous generation.

It’s like offering a premium version in order to boost sales of the regular version (and some people will still buy the premium option).

Here’s a real life example.

The Williams Sonoma Bread Maker

When Williams Sonoma launched a bread maker, they decided to price it at $275.

The problem? Sales were really slow. They just couldn’t figure out how to price it. In the end, the management looked to a marketing research company.

They suggested that Williams Sonoma make another bread maker. Only this time, they should give it some more features, make it bigger and position it as a more premium machine. The main suggestion was this second new bread maker should be twice the price of the first machine.

Williams Sonoma got to work. When they released the second bread maker as a premium product, sales instantly shot up. However, it wasn’t the sales of the new premium bread maker that grew.

It was the sales of the first bread maker that exploded.

What Is Going On?

The exact same thing that happens in the smartphone market is what is happening here. And this is just one of many methods I know will work to grow your own revenue (because I’ve personally tested it).

In the case of Williams Sonoma, the first bread making machine was a new idea in the marketplace. No one knew what a bread maker really was or how much it was worth to be able to make bread at your home.

There was no true idea whether the $275 price point was good value or not. However, what the introduction of the first bread maker did do is serve as a price anchor.

That way, when the second bread maker was released at a much higher price point consumers received the gift of clarity. And that is essential when asking someone to make a purchasing decision.

All of a sudden, buyers could see that a $600 bread machine was available, and that seemed like a very expensive option. But in comparison, the first machine at a $275 price point seemed like a bargain. Sales of the first machine rocketed.

So, when you’re building a product or service, remember how pricing tiers work. Can you introduce a regular and a premium version? Or perhaps offer a seemingly more manageable monthly payment option instead of one big lump sum up front. And remember, next time you see a smartphone commercial, be thankful that you can pick up your own revenue generating tricks from watching Apple and Samsung battling it out in the smartphone wars.

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https://www.forbes.com/sites/michaelmaven/2018/10/11/samsung-might-have-a-folding-phone-but-this-apple-tactic-reveals-where-the-money-is/

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