1. If it's intended to be appealing, why call it "5 Cheap"? Okay, Apple didn't call it "5 Cheap", but everyone thinks so, and in marketing, what consumers think is the truth. Additionally, Apple didn't try to correct people when everyone thought it would be cheap. Who is gonna buy a phone that is "cheap" but not cost effective?
2. The 5C isn't that appealing against 5. Yes, a new product is a new prodcut, but a flagship is a flagship. In emerging markets, why do people spend a month's salary for a phone? Because they want to show off to ohters, or at least so that people can't show off to them. Which one do you think have more "show off" power? The previous year's flagship (people don't know when you bought it) that looks identical to this year's flagship, or the "cheap" alternative?
3. The colorful back is suitable for really cheap devices, not seemingly cheap but actually expensive ones. They are liked by young people, mostly students, and new graduates. They don't have much money, and prefer cheaper devices. The 5C isn't cheap. Premium products are never colorful, for a reason.
4. The 5C is a worse product than the 5, technically. It probably has only about 10% larger battery capacity, but is 18% thicker and heavier. I can imagine how many cheap materials are used to make that happen.
5. If you look at the big picture, the trend is smaller and smaller differences between generations of iPhones. And because of the diminishing differences, people are more and more likely to choose an older generation for a cheaper price. According to one source[1], the 4S commanded 90% of all iPhone sales immediately after launch, and almost 75% a year later, before the 5 was launched. The numbers are 70% and 50% for the 5. Unfortunately, the difference between 5S and 5 is far smaller than that between 5 and 4S. Therefore, the appeal of the 5, if it were not discontinued, would only surpass that of the 4S in the past year, and maybe even able to seriously challenge the 5S in sales. The problem of the middle tier is not that it's not appealing, it's maybe that it's too appealing, making the flagship device not able to stand out. Maybe Apple acted this turn not by improving the quality of the flagship (they can't), but by lowering the quality of the middle tier.
6. If the 5C could generate similar earnings per unit as the 5S, why is it bad for Apple if it eats too much into the 5S's market? Because the success of the flagship relates closely to Apple's brand image, and Apple's success is closely tied to its image. People don't care about the middle tier, the success of the flagship is what reflects the company's technical prowess, and this is a battlefield in which Apple can't afford to lose.
I guess the sales numbers will tell who is right:), whether the 5C performs better than the 4S did in the last turn.
[1] http://macdailynews.com/2013/07/22/iphone-5-accounts-for-hal...