Problem definition (Scope)

iPhone sales growth has declined in recent years, while its services business has grown exponentially. Sales are highest in Q1 (October to December) and decline in subsequent quarters. Q1 2023 ended with $65 billion in sales. I want to conduct a price sensitivity analysis for the iPhone15 to identify the optimal price point for profitability in Q1 2024.

What is Sensitivity analysis?

It is a technique for analyzing how changes in one or more variables affect another variable. It is a useful tool for businesses to use when making decisions about pricing, sales targets, and other important factors

Assumptions for my analysis

1. Goal is to have a 2% increase in revenue from last year (2023), equivalent to $67B

2. The 128 GB prominent model is a good indicator of all the other storages

3. The unit price of the iPhone will increase by $50 this year

4. Revenue share breakdown across different iPhone sizes of new generation follow old generation revenue share

iPhone15 ~ 25%
iPhone15 plus ~ 11%
iPhone15 Pro ~ 28%
iPhone Pro Max ~ 36%

Pricing Model

Analyzed how changes in product price and sales targets affect revenue

1. Identify the variables that have the greatest impact on revenue (product price and sales targets)

2. Develop a model that shows the relationship between the variables (input: unit price and quantity; output: revenue)

3. Use the model to vary the product price and sales targets and see how the revenue changes

Conclusion

Apple should keep the starting price at $899 for the iPhone 15 in Q1 2024. This would allow them to maintain a healthy iPhone revenue of $67 billion. If Apple were to keep the same price of the iPhone 14, they would need to sell significantly more units in order to achieve the revenue target.