As all rumors indicate, there will be two iPhones coming out this fall, one fancy for high-end users, one cheap for teenagers, and most Chinese.
Coincidentally, I watched a rerun of Shark Tank a few days ago, and one person was rejected pretty much because she wants to expand to low-end market while Sharks think she should stay high-end. Sharks made a lot of sense. If you are profiting beautifully from high-end market, why shrink your profit margin to go for low-end? Think LV, Hermes, PRADA etc etc (I have been shopping with my girl way too much...)
However, intuitively, it always seems to be a good idea to extend your market to the widest audience. The average profit margin may be low, but the total amount of profit is surely up.
The problem is that making your product available to general public would hurt your high end market, since people wouldn't pay as much for luxury if the same luxury name can be acquired with a much lower price (I don't think people who buy luxury care about the quality difference between 2-year lifespan and 5-year lifespan. I don't even think they can keep those stuff that long). People are competitive, but people don't want to brag and look like b&$%#. Therefore, people want their "better" stuff to be noticed in the most obvious way, brand name. Whether a product is made of the best cloth material on earth or just cotton, as long as it is not obvious to general public, i.e. friends, it is not worth the extra 200% money spent.
People in car industry had the right idea, spin-offs. Everybody feels it is worth the money to spend much more than they should for a Luxus / Lincoln / Acura / Cadillac, but not for a Toyota / Ford / Honda / Chevrolet. As a result, everyone is happy. Rich people distinguished themselves by spending tons more for a different logo, rich people's average Joe friends settled with good quality bargains, and the company squeezed every last penny from everyone.
Other industries have similar things as well, MiuMiu and PRADA, Marc and Marc Jacobs, dENiZEN and Levi's (Levi's IS high-end in China), etc etc (again, been shopping with my girl too much).
When I watched that Shark Tank, I was wondering why nobody proposed the idea of dividing the company. It might be because Sharks only focus on make small businesses take off rather than consider long-term strategies, or it might be because Sharks won't say that to a person who is obviously not interested in others' opinion.
In the case of Apple, however, I believe it is very possible that either 1) all high-end iPhones in the future are going to look radically different from low-end ones, or 2) there will be a name spin-off for all entry-level iPhones, so Apple can perform the old trick of price discrimination to maximize total profit. Apple is big enough to go after markets with smaller profit margins, and Apple is famous enough as well.
I don't think the price of a phone will go up by much, since people have a certain budget for things they are very certain will be changed in two years (people change purses more frequent than that, but a purse *looks like* can be used forever). However, the cost of producing a phone will be reduced while the price won't. Hence, the entry-level iPhones can go ahead and compete in the price war, while the high-end ones stay on top.
Maybe I should start a rumor about Apple like everyone else... mmm...
