Not Understanding the Concept of a Trade-In

Peter Cohan, founder of Peter S. Cohan and Associates, writing for Inc under the jacktastic headline “Apple Is Offering a 40 Percent Discount on iPhones. Here’s Why Steve Jobs Would Hate It”:

How so? On December 2, Apple added a new banner to the top of its website advertising the iPhone XR for $449, $300 less than its official sticker price. The deal, noted with an asterisk and described at the bottom of the page, requires customers to trade in an iPhone 7 Plus, a high-end handset from two years ago.

O how mighty Apple has fallen!

To put it in perspective, the plunge in the iPhone gross margin has been precipitous. As I mentioned, In 2012, the iPhone had a 71 percent gross margin. Before the 40 percent discount, the iPhone X had a much lower gross margin of 48 percent — its price was $749 and the cost of the parts was $390, according to IHS Markit.

By discounting the price to $449, the iPhone gross margin drops to 13 percent.

I’m not even sure where to start here. First, it is indeed interesting that Apple is promoting the iPhone XR based on the $450 price with a trade-in of an iPhone 7 Plus. Does this signal that XR sales are weak? Does it run counter to the iPhone’s premium brand? Reasonable questions.

But did the iPhone have 71 percent profit margins in 2012? No, it did not. That’s nonsense. But as I wrote about Cohan six years ago, when he was calling for Tim Cook to be fired, “He’s like a stage magician doing a card trick who asks the audience, ‘Hey, everyone close your eyes for a second.’”

If you’re trading in an iPhone 7 Plus to get an iPhone XR for $450, you’re not just giving Apple $450. You’re giving them $450 and an iPhone 7 Plus. Apple refurbishes and resells traded-in iPhones; they don’t just toss them in the trash. Refurbished iPhone 7 Plus models are not cheap, either: $480/$570/$650 for 32/128/256 GB.

★ Monday, 10 December 2018