Both Apple and Samsung do the same thing with their flagship phones. They discount them next year, and then again the year after that. So Apple's phone pricing is really from $399 up, not $649 up. And then, Apple came out with the somewhat lower priced 5C, which is expected to be replaced this year too.
An advantage Apple also has is that there are a lot of people who are willing to spend more for their product. Those people may not be thought of as potential customers, but they are. We can see that in China.
And then, of course, is the fact that Apple isn't interested in selling cheap phones, unlike Android manufacturers, Apple has an extensive software ecology, and third parties making Hardware. Apple is therefore interested that users have satisfaction in performance, while Android manufacturers have no such requirement.
That iPhone sales are continuing to grow strongly is enough for Apple to be satisfied with their position of profitability, without worrying that said profits are keeping sales down. And after all, a company that is strong financially is in the best position to lead.