Apple is able to reap significant advantages by replacing “last year’s model” with a new design:

1. The price-to-entry for a “new” iPhone is half of what it was previously in subsidized markets. 
2. They can return to a youthful, hip, “colorful” appeal in their marketing without compromising the affordable luxury status of the flagship 5s.
3. Margins on the middle-tier device will improve through reduced manufacturing costs
4. Moving customers up through the price tiers becomes much easier than it previously had been.

The last point is something that I deserves much more attention that it has thus far received.  I believe the iPhone 4 continued to sell much better than Apple expected over the last year.  A primary role of the 5c will be encouraging customers to choose a new iPhone (whether 5c or 5s).  There are two steps up in Apple’s iPhone product line and both are significantly more enticing than they previously had been.