Why Apple should raise prices for its iPhone 6S

Although consumers and product reviewers continue to speculate up to the moment about the features to be included in the new Apple iPhone 6s, what’s really interesting from a business perspective is the bigger picture: Apple’s pricing power.

Like everyone else – in spite of supposed leaks, we’ll learn Apple’s proposed price at its announcement today. But as pricing experts, we’ve got a strong and perhaps counterintuitive opinion: The price needs to increase.

Whatever that price is, pundits will likely analyze it in terms of feature set, raw-materials costs, and effects on future revenues. Some are already predicting that Apple will retain its current pricing, a risk-averse approach.

We think that’s unfortunate, because what really matters is pricing power. In a recent study covering all major industries across multiple geographies, we found that the most important statistical predictor of better profits from pricing was a combination of gross margin and market share in comparison to industry peers.

A new study analyzes revenue, market share, and margin data from more than 800 global giants across more than 15 different industries over 10 years. We found that the electronics industry was able to significantly increase pricing power, driven by Apple and Samsung. (see figure below)

Our top-down, statistical perspective suggests that even Apple, the most profitable company in the world, has ample room to better monetize its position.

What does that mean for other companies that have great products but may struggle to monetize them? How can they apply this wisdom to their own situations? We suggest the following four tips:

1. Be grateful when the market leader in your category raises prices. This is not the time for you to discount! Rather, float up on the rising tide. Use the leader’s price shield to make more money.
2. Encourage your sales channels to reduce any unnecessary discounting—explain how you all gain from maintaining prices. Consider now tightening your terms and conditions and selling more directly.
3. If your sourcing activities are producing cost savings, don’t pass them on automatically. Use cost savings to increase margins.
4. Now may be the time for to raise your own prices to align with the market leader. Hire sales managers and staff that are familiar with price increases and can stand their ground in the trenches—it’s a surprisingly rare skill.

We haven’t looked at the Apple iPhone 6s, so we don’t know specifics about its situation. But in general, pricing power suggest: the price of the iPhone 6s should go up.

Frank Bilstein is a Düsseldorf-based partner in the Strategy, Marketing, and Sales practice of A.T. Kearney, a global management consulting firm. He can be reached at [email protected]. Felix Kloetzke is a Berlin-based consultant in A.T. Kearney’s Strategy, Marketing, and Sales practice. He can be reached at [email protected].