During Apple’s quarterly conference call, Tim Cook told us that they sold less iPhone 5Cs than expected. We don’t know the actual ratio of 5Cs to 5Ss, but we know that the 5S outsold the 5C.

Before explaining why this happened, we must first ask why the iPhone 5C was created. The 5C allows Apple to give price conscious buyers a better experience. Previously they would have bought last year’s old phone (the n-1 phone) and then keep it for 2 years. This is especially problematic given that the older phones have a 3.5” screen (vs 4”) and a dock connector (vs lightning). Apple doesn't want customers buying hardware that is already out of date.

There are two reasons why the 5C helps sell more 5Ss. The first reason, which Apple most likely understood, is that you can bring customers into your store with the allure of the cheaper 5C, and then upsell them to the 5S based on the premium feel and features.

The second reason is related to psychology, and I think this reason accounts for the inventory/production misjudgment on Apple’s part. The iPhone is still seen as a luxury/status item in many parts of the world. When buying the 5C, it says that you are too cheap to buy the flagship iPhone 5S. People may think, oh why couldn’t he/she afford the 5S? I know this sounds arrogant/pompous, but people are constantly trying to impress random strangers that they don’t know. The old strategy of selling a year old (n-1) phone didn’t have these same problems. If I were to buy the n-1 phone, nobody on the street would have any idea if I bought it yesterday or one year ago. The perception issue didn’t matter. With the 5C, you are making a statement that you want an iPhone, but can’t/won’t pay for the latest and greatest. This perception issue helps explain why Apple sold more 5Ss and less 5Cs than they expected.

The 5C wasn’t created to sell more iPhones. It was created to provide a better experience to price conscious buyers. It just so happens to drive up the ASP.