Apple's new iPhone trade in program will help them in emerging markets, and here's why!

It looks pretty much certain that Apple will unveil a trade-up program across its retail stores soon. 9to5Mac reported on it and iMore heard it was a go as well. TechCrunch claims it's already being tested at some stores, and has even through some numbers around. They’re suggesting an iPhone 4S in good shape might fetch as much as $200.

iPhone 4S is still an excellent phone, but it’s about 2 years old now

Keep in mind that a iPhone 4S is still an excellent phone, but it’s about 2 years old now. People who bought the 4S and want to stick with Apple’s platform (which I believe to be the majority of owners) may appreciate a simple trade-up program from Apple. Yeah, they could use Craigslist or eBay to get more for the phones. In fact I’d say those sites represent the true value of these phones. So if Apple can make the transaction super easy and fast, it’s worth something to the customer. That value goes to Apple, as they pay less for the trade-in compared to what a third party buyer might pay.

What can Apple do with that phone? Ship it off to a refurbishment facility. Replace the cover perhaps. Wipe the OS and flash to the latest version of the software. Put that nice plastic film back on the product to make it feel new again. Throw the cables and manuals in a box and sell it in the emerging markets as a next-to-new phone.

This is exactly what we expect to happen in South America, and probably other parts of the world too at some point. If Apple can buy a phone back from a customer at $200 (max), spend minimal on refurbishing it and sell it at $300+, the gross margin dollars are respectable. They’ll help Apple to profitably gain market share.

How will this work with the release of the rumored less expensive iPhone 5c? This introduces a lot of potential confusion. What if the 5C is build only for China while the refurbished older models are destined only for South America? This would avoid the problem while also serving as an interesting market test.

If the iPhone 5c is closer to $450, refurbished iPhones could remove an umbrella below that price point.

If the iPhone 5c is sold for anything below $400 I can’t see how it makes any sense for Apple to sell a product like the refurbished 4S at $300. I just can’t see that many people being interested in a 2-year older model for a $25% price reduction. If the iPhone 5c is closer to $450, refurbished iPhones could remove an umbrella below that price point.

Either way, I think the time has finally come for Apple to attack the emerging markets with a lower price point on the iPhone. Both the much-rumoured 5C and a trade-up program leading to the sale of refurb units in other countries will help Apple gain profitable market share. As an investor, that’s what I care about.