By Alexander Chernev
September 6, 2017

Since its introduction 10 years ago, the iPhone customer base has grown dramatically, becoming increasingly more diverse both in benefits sought and in buying power. Consequently, Apple (AAPL) is not introducing just a new iPhone next week, but an iPhone product line anchored by the iPhone 8, its most advanced offering.

The iPhone 8 is expected to be a feat of technology, featuring a number of innovations that include facial recognition, edge-to-edge next generation display with punchier colors and deeper contrast levels, wireless charging with magnetic induction, and an improved dual-lens camera. These innovations, however, are likely to push the price of the phone beyond the $1,000 mark. The question, then, is how consumers will respond. Will they embrace the new phone and rush to upgrade? Will they hold onto their existing phones and wait for the next generation of iPhones? Or will they abandon the Apple franchise and switch to another brand?

The former two scenarios are much more likely than the latter. Let’s start with price. It’s true that a thousand dollars is a psychologically important barrier that might lead to sticker shock for some customers. Yet, Apple’s upgrade program is likely to offer the iPhone 8 at a relatively small monthly premium compared to the payment plans for its current offerings, which range from $37 to $46 a month. In this context, it is unlikely that a few extra dollars per month will end up being the stumbling block for the new phone. Also, let’s not forget that iPhone 8 is likely Apple’s most expensive phone offering and that its new product line will include lower-priced phones as well.

A potentially more problematic issue might be the removal of the home button and the replacement of Touch ID with facial recognition. Similar to the removal of the headphone jack from the previous model, the removal of Touch ID might give some consumers pause (and generate lively media discussion). After all, all of us are prone to loss aversion—a behavioral economics phenomenon in which people tend to place more weight on the benefits they give up than on those that they gain. Yet as long as the facial recognition feature works well, in a year or less, most consumers will overcome their initial reluctance to embrace this change.

But the main reason the new iPhone is likely to retain the vast majority of its customers and gain new ones is not just the new features, but the Apple brand itself. Apple customers are not just buying the Apple brand, they are buying into the Apple brand. For some, the brand means compatibility—assurance that their new iPhone will work flawlessly with other devices. Others view patronage of the Apple brand—known for innovation, creativity, and style—as a means of expressing their own personality; for these customers, the Apple brand has become an integral part of their self-identity. And for other customers, the premium-priced iPhone is a status symbol reflecting their financial well-being.

 

Given Apple’s strong brand image and its reputation for developing functional, user-friendly, and sleek consumer products, it is not surprising that most iPhone users are brand loyal and that many would not even consider a different brand. So even if customers are not thrilled about the high price and certain features of the iPhone 8, the plethora of new functional benefits, coupled with customers’ affinity for the Apple brand, is likely to ultimately outweigh any concerns.

The brand is a key source of iPhone’s competitive advantage in the market. iPhone’s product features—no matter how unique they might be—would eventually be matched by the competition. Unlike product features, iPhone’s brand image is unique and cannot be readily replicated. Thus, in the absence of a major brand crisis, the iPhone is likely to continue to be the preferred choice of new customers, and Apple’s current customers are likely to stick with (and ultimately upgrade) their iPhones.

Alexander Chernev is a professor of marketing of Kellogg School of Management at Northwestern University.

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