Take a look at what Ewan Spence of Forbes posted earlier last week, shortly after Apple’s iOS7 keynote that introduced the new iPhone 5C and iPhone 5S.
Spence says that introducing a new, low-budget iPhone that is priced significantly lower than Apple’s flagship product builds on Apple’s character of being a luxury brand. I couldn’t agree further,
because what Apple has done, was instead of selling an older product as the discounted option, they now support a current product as a more affordable option. With the iPhone 5C priced at $99 under contract, what they’ve done is avoid falling into the soup of other brands giving away phones for free on subsidy of telecom networks. If they would have made the iPhone 5C $0 after contract subsidy, than you’d create a product that has no visible scarcity, and this would decrease the market’s desire for Apple’s new entry-level iPhone.
Spence has a great article that expands on this point, and I recommend you give it a read.