There’s going to be a lot of hidden value added to Apple if they release this rumored 4″ plastic iPhone.
Value Addition #1 – Opening the Apple ecosystem up to many new users. This one is self explanatory and something that Tim Cook has reiterated a half dozen times – customers introduced to their first Apple product have a tendency to buy additional complementing Apple products.
Value Addition #2 – Accelerating the iPhone 5 & 5s upgrading cycle. The psychology behind this one is simple, people that currently have a 3.5″ iPhone 4 or 4s will feel compelled to upgrade to a 4″ model. Why? Because having a cheaper iPhone with a known 4″ screen will make that 3.5″ screen user feel that they are out of the loop. And once you have an iPhone 4 or 4S, you won’t want that 4″ plastic version, you’ll want the 5 or 5s instead.
Value Addition #3 – The rational factor. Rational people purchase android phones because they’re a cheap smartphone that get the job done. The 4″ plastic iPhone will also be a cheap smartphone that gets the job done and then some.
Value Addition #4 – The lust factor. It’s natural to lust over a premium product when you’ve enjoyed the experience you had with a cheaper version of a similar product. A lot of people by a 3 series BMW, fall in love with it and then years later upgrade to the M3.
Value Addition #5 – Gross margins. I’ve mentioned this before in one of my past articles, but this plastic iPhone will be significantly cheaper to produce. Hypothetically speaking, if the 4″ plastic iPhone costs $150 to produce, Apple could sell it for $249 and still bank a 40% Gross Margin while simultaneously bringing down the ASP (average sale price). ASP is very important to Wall Street and Analysts, but if Revenues and Profit Margins are up then who cares! At that point, ASP would become irrelevant.