Here’s How Apple Inc. Could Price New iPhone Models in 2018

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Next year, Apple (NASDAQ: AAPL) is expected to launch three new iPhones. The lowest-cost model appears to be a phone with a 6-inch liquid crystal display, the mid-priced model should be a direct successor to this year's iPhone X with a 5.85-inch display, and the highest-priced iPhone should be a larger version of the mid-priced phone, sporting a 6.46-inch display.

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Let's consider how Apple might price these new iPhones, and why such a pricing structure would make a lot of sense for Apple's business.

The pricing

I expect the LCD iPhone to come in the same two storage configurations that all three of this year's iPhone come in: 64GB and 256GB. I also expect the baseline model to start at $799 -- the same price Apple's asking for the baseline iPhone 8 Plus this year -- with the higher-end storage configuration to go for $949. In other words, next year's cheapest new iPhone would be priced as the iPhone 8 Plus is today.

Next, I could see Apple retaining the same pricing structure for the next 5.85-inch iPhone X: $999 for the configuration with 64GB of storage and $1,149 for the variant with 256GB of storage.

The first two iPhones in the lineup are priced similarly to this year's models, but where things have the potential to get interesting is in how Apple prices the rumored 6.46-inch iPhone X.

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It may be tempting to think Apple will follow the same basic pricing pattern in going from the iPhone 8 Plus to the iPhone X, but after giving it some thought, I'm not convinced that it makes sense for Apple to release both 64GB and 256GB variants of an ultra-ultra-premium iPhone. Instead, I think it's more likely that the 6.46-inch iPhone X will be a device targeted at the most enthusiastic of iPhone enthusiasts. To that end, I expect storage configurations of 256GB and 512GB for the 6.46-inch iPhone X.

If I'm right, then the 256GB model could be priced at $1,299, a $150 premium to the 5.85-inch iPhone X with the same amount of storage, and the 512GB model could come in at $1,499.

Boosting Apple's iPhone business

I think this product stack has the potential to help Apple's iPhone business in several important ways. First, with the presence of iPhone X models that start at $999 and $1,299, the LCD iPhone, which I think Apple will simply market as "iPhone" with no suffixes, starts to look like a good deal, especially if it shares the same basic internal specs as the higher-end models -- an A12 applications processor, Wi-Fi and cellular capabilities, a TrueDepth camera, and so on.  If Apple can successfully convince people that an iPhone that starts at $799 is a good deal, then that's a pretty big win for the company.

However, this product stack would do more than that. I think the introduction of a $1,299-plus large-screen iPhone has the potential to boost Apple's iPhone average selling prices and revenue in a big way. Indeed, such a device would cater to customers who want something like the iPhone X, but bigger. Given the continued industry shift toward larger-screen designs, I'd say this isn't a small market.

In addition, while Apple gave its engineers a lot of freedom to build something great with this year's iPhone X by increasing the asking price, allowing the engineers and designers to use more expensive and more premium technologies and materials, a hypothetical $1,299-plus large-screen iPhone X could give Apple's teams still more freedom.

I wouldn't be surprised to see, in addition to the larger display, some unique camera and display features in the 6.46-inch iPhone X to differentiate it from the 5.85-inch model. This could help push customers who want the absolute best iPhone technologies and user experience to pay even more for the larger 6.46-inch iPhone X.

Apple really has an incredible opportunity to grow iPhone average selling prices in the years ahead, which could serve to mitigate the fears that industrywide smartphone unit growth has peaked.

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Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.