A 16GB iPhone 6 costs Apple just $200.10 to manufacture, according to a report by IHS research group. Meanwhile, the iPhone 6 costs consumers $649.92 without a contract. The touchscreen is the biggest expense at $52.50 for the 5.5-inch iPhone 6 Plus. IHS also reports that the extra 0.8 inches of screen size of an iPhone 6 Plus only costs Apple $16 more to produce than the standard iPhone 6. The cost passed onto consumers? That’s another $100. So why is the coveted iPhone 6 so expensive? The answer may surprise you.
Research and Development
It may take $200 (and ten cents) to actually manufacture the iPhone 6, but that’s only the cost of putting it all together. Apple spends big bucks on research and development along with the software and distribution of the iPhone. According to Apple Insider, research and development costs reached $1.9 billion in 2015.
Consider that at every release, the iPhone has new features and design. For example, the iPhone 6 is Apple’s thinnest display and is made from anodized aluminum, stainless steel and glass. To do this, multiple prototypes are created, tested and redesigned until it’s ready for market.
Marketing and Advertising
Apple’s ad budget reached $1 billion in 2012, according to a report by CBS News. That is up from $691 million in 2010. As marketing and ad costs grew, so did Apple’s sales and general and administrative expenses. In other words, as more iPhones and other Apple products are produced and distributed, so does the company’s overhead costs. Those costs then trickle down to the consumer in order for its products to reach a marketplace and find a competitive price point.
Despite the sticker shock of nearly every newly released smartphone, it’s usually pretty easy to find a deep discount. Even shortly after its release, the iPhone 6 could be bought for a mere $199 without going on the black market. Why?
The smartphone industry attracts customers by offering a subsidy lock when they buy at a discount from a carrier. For example, AT&T pays the full price to Apple and passes on the discount to the customer. Cellphone carriers do this because they’re really in the business of selling data plans. It’s also why carriers typically require at least a 2-year contract and charge early termination fees for breaking contracts early. However, many retailers, such as Apple and Best Buy, are dropping their AT&T subsidies altogether. This could be good news for Apple as consumers could upgrade their iPhones whenever they wanted without the obstacle of being locked down to a lengthy contract.
Payment Plans and Free Trade-Ins
There are ways for consumers to make the iPhone 6 more affordable, even without a subsidy. T-Mobile sells the iPhone 6 at the full retail price of $649.92, but with $0 down and no contract. Unlike most carriers, T-Mobile offers a payment plan for a reasonable $27.08 a month for 24-months. Customers can also pay an additional $10 to $15 a month for the Jump program, which enables them to trade in their phones early three times a year. It’s less of a risk to invest in the smartphone you want, regardless of the expense, when there’s flexibility to trade up for the next device hitting the market.