Will the iPhone 5 take a bite out of Apple’s own profits?

In Uncategorized by tdaplyn

Apple have unveiled a new strategy for boosting iPhone sales by splitting its product range into premium (5S) and basic (5C) models.

The move is clearly designed to broaden the appeal of the iPhone, particularly in China where iOS has just 8% of the smartphone market compared to Android’s 88%.

"Apple Earth" copyright JD Hancock via Flickr

“Apple Earth” copyright JD Hancock via Flickr

One of the biggest challenges with any new product launch is to ensure you’re winning market share from your competitors, not cannibalising the profits from your own existing product line. No doubt Apple will have done a lot of market research (contrary to the popular myth) to make sure this is the case.

One of the key research techniques behind product line development is called Conjoint Analysis. Conjoint studies are all about understanding and modelling consumer preference and decision-making. Often conjoint studies take the form of a survey which asks consumers to imagine purchasing a new product (a TV or smartphone for example). They are then asked to choose between alternative feature sets at different price points.

Each respondent to the survey may only make a dozen choices but over a large enough sample it is possible to develop a quite robust statistical model of how feature sets and prices can be mixed to win market share away from competitors while protecting your existing product range.

Simplified conjoint choice task

A simplified conjoint choice task

So next time you’re looking for a new TV, car or phone, consider the vast array of choices presented to you. Each one has been carefully designed to win market share from a competitor or to tempt you up the value chain to a higher-margin product. The amount of work that goes into product range design is huge and it’s a much more sophisticated process than many people realise.