AllThingsD relays their theory citing the iPad mini and iPod nano as examples:
In each case, Apple sacrificed a portion of its typically high margins to field a high-end product with enough mainstream aspirational appeal to expand its market share.... Presumably, Apple feels much the same way about the smartphone market.
“Currently Samsung dominates this segment ($200-500 price range) with 35+ percent market share. … We believe Apple could take 20-25 percent of this market in the next 12 months (from almost no market share currently), if it prices a lower-priced product at $350-400 levels.”
Take a look at the diagram below to visualize these price bands. A photo allegedly depicting a cheaper polycarbonate shell for the iPhone was leaked last month. Check it out here.