Instead of Apple actually listening to customers and make the existing iPhone more affordable, they go down and reduce the storage to 8GB, in which around 5.3GB is only usable.
Apple talks about providing a great experience for its customers, and providing as little storage as possible is NOT A GOOD EXPERIENCE. A minute of 1080p video recording takes around 800MB, god knows how much storage it takes to take some burst photos, and let's not even start talking about games which some could take up to 2GB.
8GB iPhones are targeted mostly for first-time iPhone buyers who looking for the cheap, and not providing a good experience for these first time buyers will make them search for something else next time they want a phone. I don't like MicroSD cards, but the $129 Moto E provides up to 32GB of external storage, which costs like $15 these days. If Apple offers some external storage just for photos and videos, it would make up a lot for offering as low as 8GB.
The NAND flash is one of the cheapest components on the iPhone, yet Apple takes damn advantage of it and becomes so greedy with it.