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The danger in Apple’s iPhone pricing strategy

(Source: www.marketwatch.com)

Apple Inc. generally saves the best features for its top-of-the-line devices, but this year its cheapest new model is looking especially good.

The company on Wednesday unveiled three new iPhones: The iPhone XR, a cheaper, LCD version of the iPhone X starting at $749; the iPhone XS, an enhanced version of the iPhone X beginning at $999; and the iPhone XS Max, a large-screen version of the X starting at $1,099. Apple will likely continue to draw interest for its most expensive phone from hard-core fans, but the iPhone XR might prove surprisingly popular in a way that Apple

AAPL, -1.24%

 hasn’t seen with the launch of low-end phones.

Don’t miss: Everything Apple just announced at its iPhone event

Paying between $1,099 and $1,449 for a phone sounds a little crazy, but the iPhone XS Max caters to a specific kind of Apple consumer. The device boasts a 6.5-inch screen — the largest ever for an iPhone — a new 512 GB storage configuration and a large battery that provides up to 90 minutes more juice when compared with the iPhone X.

A year ago, Apple launched three phones starting at $699, $799, and $999. This year’s lineup features phones beginning at $749, $999, and $1,099. That’s not a very big jump for the lowest-tier new phone, but it’s a massive jump for the middle-of-the-pack option for a phone that’s not a whole lot better than the one below it. It’s not so clear who the iPhone XS caters to, and Apple risks cannibalization of that device by the cheaper iPhone XR.

Like its predecessor, the XS offers an edge-to-edge OLED screen, facial recognition, a dual camera and 3D Touch. The iPhone XR offers an edge-to-edge LCD screen, facial recognition, a single camera that can still take portrait-mode and bokeh pictures, and haptic feedback that gives users a sense of feedback in lieu of full-on 3D Touch.

See also: Fitbit stock sinks upon announcement of Apple Watch Series 4

For many iPhone consumers, the presence of TouchID and the difference between LCD and OLED might not be very noticeable — nor worth an additional $250.

Both phones make use of Apple’s fancy new A12 Bionic chip, which the company said is the industry’s first 7-nanometer chip, so consumers would be getting faster processing and advanced features in either device. While the iPhone XS comes in silver, gold, and space gray, the XR comes in a number of more fun color options, which are potentially attractive to certain users.

Apple

Apple’s iPhone XR comes in yellow, blue, coral, black, white, and a Product Red option.

Read: There’s now a $1,000 gulf between Apple’s cheapest and most expensive iPhones

Apple has devised a winning strategy in the past year when it comes to the pricing of its phone, but the company may have deviated from it just now by making the iPhone XR too attractive.

The company has been able to make up for the fact that smartphone users are upgrading their devices at a slower rate by improving its “mix” — in other words, the company has been able to sell fewer devices for more money and reap handsome profits. The iPhone XR, though, could potentially hurt mix. It costs less than the iPhone 8 Plus and could lure a good chunk of customers away from the new iPhone XS by offering nearly identical features at a way better value. For context, the phone’s starting price of $749 is about what analysts expect the company’s overall iPhone average selling price to be this year and next.

The company will continue to sell the iPhone 7, starting at $449, as well as the iPhone 8, starting at $599, but it looks to be killing off the iPhone SE and 6S.

Don’t miss our live blog and recap from the Apple event

When it comes to shoppers looking for iPhones in the new line, Apple may end up seeing more consumers flocking to its lowest-priced new phones than in the past. The question is whether the company can make up for that through the ever-higher price of the top-tier model as well as what appears to be an effective price increase for the cheapest iPhone you can buy directly from Apple.

Apple shares closed down 1.2% in Wednesday’s session, though they’re up 37% over the past 12 months. The Dow Jones Industrial Average

DJIA, +0.11%

, of which Apple is a component, is up 18% in that time.

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