With iPhone 8 and iPhone X, Apple creates another tier of luxury

Do you want the newest iPhone, or the best iPhone?

Those two things are typically one and the same, with Apple’s latest phone being sleeker, shinier and more powerful than those that came before it. But with the announcement of the iPhone 8 and the iPhone X on Tuesday, Apple has created a tiered system: two phones, equally new, one of which is undoubtedly more powerful than earlier models, and another even more powerful than that.

It’s a strategy that may confuse some customers, but one that makes sense for a company reliant on its flagship gadget to generate revenue, analysts and business experts said.

Starting at $999, the iPhone X is the most expensive iPhone ever released. It’s $300 more than the base model iPhone 8 — which itself is more expensive than Apple’s previous highest starting price for a base model phone.

The iPhone X has an edge-to-edge OLED screen, facial recognition technology and a display more vibrant and vivid than other models. But its guts aren’t too different from that of the iPhone 8 or the larger iPhone 8 Plus. Both phones have the same A11 Bionic chip, can support augmented reality apps and can be charged wirelessly using Qi standard technology.

That’s a big departure from the last time Apple introduced a lower-spec phone: the iPhone 5c, which unveiled alongside the more sophisticated 5s in 2013.

“The iPhone 5c was a ‘good enough’ phone for developing markets. It was to get into China, India and Latin America,� said Jefferson Wang, a senior partner at IBB Consulting. “Here, the iPhone 8 is still the flagship phone. They haven’t bumped anything down. They created an ultra-premium layer.�

It’s a strategy that could help reestablish Apple as the premium smartphone brand. Apple products have traditionally been more expensive than comparable offerings from competitors, creating a sheen of exclusivity that has led to higher demand from those who want the latest and greatest. But as the market for smartphones has become saturated and once-emerging markets such as China have matured, the iPhone has lost some of that sheen.

“Apple’s introduction of a $1,000 iPhone is consistent with its business strategy of differentiation and exclusivity,� said Loizos Heracleous, a professor of strategy at Warwick Business School. It’s “targeting the higher end of the market rather than just aiming for a larger base of users.�

The approach also has to do with market maturity. About three-quarters of Americans own a smartphone, according to Pew Research Center. When everyone who wants the latest and greatest phone has gone out, lined up and bought it, it’s time to reach the people who don’t care as much.

With the announcement of the iPhone 8 and the iPhone X, Apple did not indicate that it would discontinue any previous models. Which means the company now offers the 2015 generation of iPhone 6 and iPhone 6 Plus, the 2016 models of the iPhone 7, the iPhone 7 Plus and the iPhone SE, and the 2017 models of the iPhone 8, the iPhone 8 Plus and the iPhone X.

“That means they’ve got the widest range of prices and models Apple has ever offered, [and] they’ve created five tiers of phones starting at $350,� said Frank Gillett, a principal analyst at Forrester Research.

In other words, an iPhone for everyone — wealthy or not, early-adopting fanboy or not.

Having so many phones on the market complicates Apple’s supply chain, but the pricing strategy could help counterbalance material shortages, Wang said. For example, the OLED screens in the iPhone X are scarce, which means Apple might not be able to produce enough to meet demand. Its premium price in part could help restrict demand until supply ramps up. At the same time, Apple wants lots of people using its new augmented reality software, which is one of the key things that differentiate its newest phones from iPhones’ past and from competitors’ offerings.

“If they just launched the iPhone X and not everyone can get the X, they’ll have limited their differentiator,� Wang said. By equipping the iPhone 8 with similar insides that support augmented reality apps, it gives people ready for a phone upgrade another Apple option.

Another thing the two new phones share: glass backs that enable wireless charging. The company isn’t selling its own proprietary charging dock. Phone owners will be able to use any charging dock that supports Qi wireless charging, which is the same standard for Samsung devices. At its keynote event, Apple announced that it was working on a charging mat called AirPower, expected to launch next year, that will simultaneously charge an iPhone, Apple Watch, and AirPods.

Apple also announced that Apple TV is getting 4K (it will cost $179) and that a new Apple Watch comes with 18 hours of battery life and built-in cellular service — a boon to athletes who want to work out without toting a phone (starting at $399, no cellular pricing plan announced).