How Apple's iPhone 6 Has Customers Paying More

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When Apple unveiled the iPhone 6 last month, it made no adjustments to its pricing policy. Despite offering a larger phone, the base model of the iPhone 6 retails for just $649 -- the same price as the iPhone 5s that preceded it.

Yet, more subtly, Apple did make a change to its iPhone lineup, one that could entice its customers to pay more for their new iPhones. Although Apple has offered no hard data on the subject (and likely won't -- it doesn't traditionally break out iPhone model sales) a recent survey suggests that the iPhone 6's more expensive models are far more popular than in prior years.

New storage tiers
With the iPhone 6, Apple unveiled a new, high-end storage tier: 128 GB. This replaces the previous max, 64 GB, which now occupies the iPhone 6's mid tier. Somewhat surprisingly, the iPhone 6's base storage -- 16 GB -- remains the same.

With apps steadily increasing in size, 16 GB is far from ideal, and may even hamper an owners' overall experience. Some Apple enthusiasts have been surprised with the company's decision, and even longtime iPhone fans like Daring Fireball's John Gruber have been critical.

Still, it makes sense in the context of Apple's margins: The larger iPhone 6 is more expensive to build. Analysts estimate that the iPhone 6 carries a lesser gross margin than the iPhone 5s, with gross profit varying by as much as 12.9%. That applies to all forms of the iPhone 6, including the 128 GB version, but higher storage tiers are more profitable than the lower-priced alternatives.

In other words, if Apple can entice its customers to pay an extra $100 or $200 more for their iPhone, it can recoup some of that lost profit. With the higher storage tiers offering much more relative to their price (for an extra $200, a buyer can increase the iPhone 6's storage by a factor of 8 -- twice as much as in prior years) it seems logical to expect many of Apple's customers to opt for the more expensive versions of the iPhone 6.

Apple's customers are paying more
In a survey conducted last month, analysts at Piper Jaffray found evidence that the shift to more expensive iPhones is taking place. Last year, analysts found that 35% of iPhone 5s buyers opted for the base, 16 GB model, while 39% chose the 32 GB option, and only 25% paid the additional $200 for the 64 GB variant. In contrast, this year, a full 52% went for the 64 GB mid-tier option, and only 22% opted for the iPhone 6's 16 GB base model.

Piper Jaffray's numbers likely do not apply to Apple's entire customer base -- the survey, which was conducted among 386 customers waiting in line for the iPhone 6 on its debut weekend -- was likely skewed by the presence of eager enthusiasts. Less aggressive customers, unwilling to wait in line, may be less likely to pay more.

Expect the iPhone's ASP to increase significantly
Nevertheless, Piper Jaffray's survey does support the notion that iPhone buyers are rational: Given the prospect of a better deal, Apple's customers are willing to shell out more for higher-priced iPhones. In the coming quarters, that should translate into a higher average selling price.

Last holiday quarter, for example, the average iPhone sold for $637. When Apple reports earnings in January, it should be expected to absolutely crush that number. That won't be too surprising, as the iPhone 6 Plus (which retails for $100 more than the iPhone 6) will certainly contribute, but the increased popularity of more expensive storage tiers could lead to a figure far higher than expected.

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