For simplicity’s sake, let’s boil down the multiple questions facing Apple today into just one: How much are Americans willing to spend on an iPhone?
It matters greatly for Apple Inc. as it seeks to balance the profitability and popularity of its most important product in the face of President Donald Trump’s sweeping and unpredictable tariffs. After brief hope of a reprieve, the company is braced for the findings of a US government audit of “semiconductors and the WHOLE ELECTRONICS SUPPLY CHAIN.” (Emphasis Trump’s.)
There are several possible paths, analysts at Bank of America say. Apple could increase the price of the iPhone. Alternatively, it could raise prices on related products like the Apple One subscription plan that provides cloud storage and other services. It could perhaps lean on its suppliers for better rates. Longer term, it could further diversify its supply chain, maybe eventually making the iPhone in the US (though this is unlikely for at least several years).
Let’s assume it passes on the costs to consumers. What’s the iPhone breaking point?
Analysts I’ve spoken to believe consumer tolerance will be high for a product many see as indispensable, the gateway to services like banking, ride-sharing and social media. Francisco Jeronimo of IDC is predicting a 20% price increase, which would raise the price of the current base model iPhone 15 Pro from $999 to around $1,200. “While statistical analysis has limitations,” he says, “the trend is clear. Consumers are willing to pay more for iPhones than any other brand, even in a scenario of price increases.”
IDC data suggests the average selling price of an iPhone in the US, across all models, now exceeds $1,100. With the median weekly wage in the US at $1,194 in the first quarter of this year, according to the US Bureau of Labor Statistics, “this suggests the average consumer is still in a strong position to afford high-end models,” Jeronimo added. (The average selling cost of an Android phone is just more than $500, though it has a much larger offering of budget devices.)
The first iPhone hit the market in 2007 at $499. Over the next few years, the device was available for $199, though it was subsidized by carriers that would lock users into a contract. By 2016, it was $649 for the base model iPhone 7, carrier free. From this point, the range began to expand: First a larger “plus” model, and then, in 2017, the iPhone X — an anniversary edition that brought its most significant cosmetic upgrade with the removal of the home button, an all-screen front and the introduction of face ID. These upgrades gave Apple the leeway to raise the price to $999, with upgrade options that could bring the cost to as much as $1,149. In an analysis at the time, Harvard Business Review said the product was passing “an important psychological barrier for consumers” by reaching four-digit territory.
Far from turning off customers, the iPhone X became that year’s best-selling model despite the existence of highly capable iPhone 8 models, which were also new that year, starting at $699. By introducing the more premium line, Apple cemented the iPhone’s role as more than merely a piece of tech but a device through which users now managed much of their lives.
Eight years on, the base model flagship iPhone Pro still starts at the same price of $999. “You could argue that they’ve added a ton of value and not necessarily raised the price much for that value that the consumers are getting,” said Michelle Verwest, a partner at Simon-Kucher. In 2019, the growth consultancy ran a study and concluded that there was “clear room” to go above the $700 to $1,500 range of the time. Indeed, 10% of respondents were willing to pay as much as $2,400 for the device if it came as part of a 24-month payment plan — and, presumably, was a drastic upgrade on earlier models.
Economic conditions before the pandemic, such as lower inflation, mean using the 2019 survey to assess the current market is difficult; Simon-Kucher has not rerun the survey more recently. But, Verwest said, the tariff introduction gives cover for Apple to raise prices without significant consumer backlash given the extremely well-publicized reason for the turmoil.
Analysts see financing options as providing Apple’s main lever through which to soften the blow of any price increase. Already, the majority of customers buy their devices this way rather than a one-off big purchase. In addition to carriers, Apple itself offers 24-month financing options — in the case of the latest iPhone Pro, it’s $41.62 a month.
As well as simply increasing the monthly cost — a $200 increase over two years would mean an extra $8 or so a month — Apple could decide to offer even longer financing plans without harming demand too fiercely. A recent Consumer Intelligence Research Partners survey, of 500 people who bought a new iPhone in the previous 90 days, found that 36% were replacing a device 3 years old or more, with 30% replacing a device that was 2 to 3 years old.
The longer-term upgrade cycles reflect the resilience of more recent iPhones and their tougher screens, faster chips and longer-lasting batteries. CIRP co-founder and partner Michael R. Levin notes one compelling detail about the cohort of consumers who were replacing the oldest phones: They most often opted for the most expensive possible configuration for their new device. “Those people aren’t cheap,” Levin said.
With that in mind, Apple could draw out more money from those willing to pay a premium for more storage and bigger screens, Levin suggests, allowing it to maybe even keep the price of base models the same — as has been the case for almost a decade despite inflation. “Their pricing structures are sacrosanct,” Levin added. “But then again, so are their margins.”
Which is the rub, here. Maintaining Apple’s legendarily strong margins will depend on careful planning and supply-chain management, none of which can confidently be done while Chief Executive Officer Tim Cook can’t be sure of the tariff landscape in a month — let alone by the end of the year, when the company prepares to flood the market with its newest iPhone model. Indeed, it may be that Apple will win itself an exemption, as it did during the first Trump term, though the president seems more persistent this time around.
While Apple can, on the above evidence, be confident consumers can eat increased prices, there will be a limit. The jump to $999 in 2017 was helped greatly by the perception the iPhone X was a significant upgrade. It will be hard to tell a similar story in 2025 or 2026, with headline-worthy hardware innovations in short supply and Apple’s artificial intelligence efforts — seen as one way to drive sales — falling well short.
A foldable iPhone, which is reported to be in the works, might be what it takes to beckon a new era of both form and price. But these are the kinds of innovations Apple has historically made in its own time, with astronomical success, rather than in hurried reaction to the policy whims of the White House.
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