Conspicuously missing is North America, home to two of Research In Motion Ltd (NASDAQ:BBRY)’s top three markets: the U.S. and Canada. BlackBerry wants to push the cheaper Q5 phone primarily to developing markets, where consumers would be unwilling to pay $600 to $700 or more for a high-end BlackBerry. On the other hand, the company clearly doesn’t want U.S. keyboard lovers to trade down, because Research In Motion Ltd (NASDAQ:BBRY) needs to drive high-margin Q10 sales to return to profitability. By not offering the lower-cost option in North America, BlackBerry is employing mild price discrimination to boost its margins.
What does this mean for Apple Inc. (NASDAQ:AAPL)? In large developing markets such as China, India, and Latin America, Apple is locked out of much of the smartphone market, because most consumers can’t afford a high-end smartphone. While Apple has had some success in these markets (particularly China), the incremental opportunity from offering a lower price point is substantial and should easily outweigh any “cannibalization effect.” For example, a trade-in promotion that reduced the effective cost of the iPhone 4 from $485 to $360 in India led to a tripling of the sales rate.
By contrast, Apple already holds 39% of the U.S. smartphone market, according to comScore. The opportunity to increase market share through a lower-priced product here is outweighed by the potential effect of cannibalization on margins.
Producing a cheaper iPhone that’s available only in “selected markets” would therefore make a good deal of sense for Apple. The company could introduce the product in developing countries and test it in a few smaller developed markets to judge the effect on “regular” iPhone sales. That would allow Apple Inc. (NASDAQ:AAPL) to pursue the vast mid-range smartphone market opportunity it’s currently missing, without raising the bears’ fears of massive margin compression. In this one case, Apple should definitely consider taking a page out of Research In Motion Ltd (NASDAQ:BBRY)’s playbook.
The article This Time, Apple Should Follow BlackBerry’s Lead originally appeared on Fool.com and is written by Adam Levine-Weinberg .
Fool contributor Adam Levine-Weinberg owns shares of Apple and BlackBerry and is long January 2014 $13 calls on BlackBerry. The Motley Fool recommends and owns shares of Apple.
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