The price tag on the new iPhone X will test the applicability of Thorstein Veblen’s 1899 book “The Theory of the Leisure Class” to the 21st century, according to Josh Zumbrun and Tripp Mickle in The Wall Street Journal. Veblen, a Norwegian economist who coined the phrase “conspicuous consumption,” contended that in some markets soaring prices can stoke demand.
Both Apple and Samsung are putting this theory to the test in the cellphone world, Zumbrun and Mickle report, with Samsung’s $950 Galaxy Note 8 and Apple’s $1,000 iPhone X. They contend that the companies have to push price to maintain profits because they are running out of customers. They write, “Data from IHS Markit estimates there are just under 100 smartphones per 100 people in the U.S. and about 92 smartphones per 100 people in Europe.”
Nevertheless, at the beginning of the year IHS Markit reported, “The global smartphone installed base will grow from four billion in 2016 to more than six billion smartphones in use by 2020,” with revenues for smartphones shipped in 2020 totaling $355 billion. Of course, on the world stage Apple and Samsung will be competing with Chinese companies Huawei, Oppo, and Xiaomi.
Zumbrun and Mickle quote Steven Haines, chief executive of Sequent Learning Networks, which advises companies on product management, as saying price segmentation is normal in mature industries—luxury cars command high prices even as car ownership has become commonplace.
There is a question of exactly how much profit Apple will earn with each iPhone X sale. “The components cost an estimated $581, up from $248 for components in the iPhone 7, according to Susquehanna International Group,” Zumbrun and Mickle write. “The gap suggests Apple’s profit margins on the new device are slimmer than on existing lines.”
There are differences of opinion on the applicability of Veblen’s theory to Apple products. Zumbrun and Mickle quote Horace Dediu, an industry analyst at Asymco, as saying demand will be driven by functionality—he doesn’t believe Apple designers are sitting around thinking about how to stoke conspicuous consumption.
In contrast, they quote Elizabeth Currid-Halkett, a professor at the University of Southern California who studies consumer culture, as saying that Apple is “…clearly trying to demarcate the iPhone X from the other versions, and surely there’s a desire to make it a status good. Are you getting some extra utility out of this good? I think the answer is no. I don’t think a new animated emoji is better functionality. But it’s cool.”