"The iPhone is Apple's central 'gateway product' to other devices like iPads and Macs,"Apple (NASDAQ: AAPL) CEO Tim Cook told employees at an Apple Retail Store meeting in June. "[S]o it is critical that the Apple smartphone is sold via an Apple Store so new customers are immediately exposed to iPads, Macs, and other devices on the showroom floor," Cook continued. The Apple chief went on to explain that he would like to boost iPhone sales at Apple locations through various promotions. A recent study by Consumer Intelligence Research Partners (via AllThingsD) suggests Apple's tactics are working.
The halo effect
It's no secret that Apple's product sales benefit from a halo effect, or the tendency of Apple customers to purchase additional Apple products. The company's integrated ecosystem of products, along with Apple's powerful brand, keeps customers coming back for more.
There's no arguing that Apple is one of the most powerful consumer brands to ever exist. And the just-released Forbes list of most valuable brands ranks Apple No. 1. The Apple brand has a value of US$104.3 billion, according to Forbes. Second-place Microsoft was far behind at US$56.7 billion. With a brand like this, a halo effect undoubtedly plays an important role in Apple's strategies.
This halo effect is likely why Cook wants the percentage of iPhones sold at Apple Retail Stores to grow. Having customers buying Apple's "gateway product" in-store could help the tech giant boost sales of other devices — or at least generate greater interest for potential future purchases. In addition, the more Apple products buyers own, the more likely these customers will continue to buy Apple products that fit right into their existing ecosystem.
Cook provided a recent example of the halo effect in Apple's second-quarter earnings call. After acknowledging that iPad sales are cannibalising some Mac sales, he emphasised nonethless that the huge growth in iPad sales seems to be benefiting sales of Macs. Buying an iPad, he explained, "pushes you to think about that product in a different manner, [and] may make you consider a Mac." Cook is probably hoping a greater percentage of iPhones sold in Apple stores could have a similar effect.
Is the in-store trade-in program working?
Some programs Cook cited at the conference that could help boost this percentage were the company's back-to-school promotion, an in-store trade-in program, and the possibility of extending its price-matching policies. The most notable new program this year, however, is undoubtedly Apple's in-store trade-in program for iPhones.
Apple's trade-in program allows users to receive a gift card in exchange for older devices, but the card must be applied immediately toward the purchase of a new iPhone. While third-party trade-in programs have existed for years, this is the first time one has been implemented in Apple Retail Stores.
As the major change this year to the way Apple markets its iPhones, the in-store trade-in program is likely one of the chief reasons the company is seeing a higher percentage of iPhone sales at its own stores. A survey from Consumer Intelligence Research Partners suggests that about 25% of iPhones are now purchased at an Apple store. At the Apple retail conference in June, that figure was 20%.
The benefits
Whether it's a result of the trade-in program, or other incentives like new features in the Apple Store or its just-launched Apple Store app built specifically for the iPad, the implications are positive for the company. Higher exposure to other Apple products via iPhone sales during the holiday season could be one of the driving factors that may help Apple report its biggest quarter ever. More important, it could get a higher number of customers more familiar with Apple's ecosystem early on.
