Apple iphone upgrade program for business

On September 9, 2015, Apple Inc. (Apple) launched its new iPhone 6s and iPhone 6s Plus models and, at the same time, announced the "iPhone Upgrade Program," a new way to purchase those iPhone models in Apple's retail stores throughout the U.S.2 Under the program, eligible consumers could buy an iPhone 6s and 6s Plus and, as a form of payment, agree to a 24-month loan in partnership with Citizens Bank (Citizens).3 An iPhone purchased under the program was unlocked, meaning customers were able to switch their wireless carrier according to their contract terms. The offer included Apple's AppIeCare+ service, which provided extended warranty and software support compared to the regular one-year limited warranty. After one year the iPhone customer could turn in her old iPhone, get a new iPhone model, and enter into a new installment loan agreement, with a new two-year payment obligation.4 In the event the iPhone upgrade program was terminated by the customer, the customer was responsible for any outstanding balances due under the terms of the loan with Citizens.5

Following the announcement, several financial analysts reacted positively to the new upgrade program; some of them described it as a "smart move" forward.6 According to one UBS analyst, the "Upgrade Program increases stickiness and makes the iPhone look more like an annuity business."7

Another J.P. Morgan analyst estimated that Apple's margin for an iPhone sold under the new program could be four times higher than that for iPhones sold through the carrier channel, as Apple was charging $50 more per device under this program.8 A UBS analyst wrote that the iPhone Upgrade Program "could be a big deal," as it allowed Apple to take control of the customer relationship.9 One observer predicted that 75% of Apple's iPhone customers would eventually switch to an annual upgrade, increasing Apple's U.S. iPhone unit sales by 10% over three years.10

HBS Professors Jonas Heese and Krishna G. Palepu, Professor H. David Sherman (Northeastern University), and Case Researcher Monica Baraldi (Case Research & Writing Group) prepared this case. This case was developed from published sources. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not Intended to serve as endorsements, sources of primary data, or illustrations of effective or Ineffective management.

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