Apple’s Winning Strategy in India

Image Source: BBC (http://www.bbc.com/news/world-asia-india-36329348)

Apple recently lost a huge market share in China, which used to be one of its prime markets. Apple’s shipment of iPhones in China fell down 23% from 2015 to 2016. This was primarily because the local Chinese manufacturers — Oppo, Vivo, and Huawei — started shipping out cheaper smartphones with a lot of comparable specs. In 2016, Oppo’s shipments increased by 122% year-on-year whereas Vivo’s shipments increased by almost 97%. Samsung’s global marketshare fell by approximately 3% due to the new Chinese entrants in the smartphone market.

After losing a significant proportion of market share in China, Apple is in a dire need to tighten its grip on India, which is now world’s third-largest smartphone market. This is why, earlier this year, Apple opened a local manufacturing unit that started assembling iPhones in India. Moreover, they recently announced their strategic decision of making older iPhones (in addition to iPhone SE) through this manufacturing facility in Bangalore.

Smartphone Market Size in India

Almost 292 million people own a smartphone in India, as of 2016 — approximately 22% of total population. This number is expected to increase to 468 million by 2021.

India is able to show a consistent growth of over 18% in the smartphone market as of 2016, compared to the global smartphone market which grew at a modest rate of 3% in 2016. This penetration rate is likely to increase in future, as Internet and cellular networks become more accessible in the remote areas of rural India

Apple’s Current Market Share

As of Q4 2016, Apple holds a market share of 1.9% in the Indian smartphone market — whereas Samsung is at 25% which makes it the top smartphone vendor in India. Globally, Apple holds a market share of 15% whereas Samsung holds almost 23%. This is a huge gap and show that Apple does not focus much on targeting the needs of an average Indian customer.

India is largely dominated by Android. As of 2016, 97% of the smartphones in India were running on Android — whereas only 2.4% were running on iOS. In addition to the cheaper price point of Android devices, this is also due to the fact that Android focuses a lot more on making their OS friendlier to the local audience.

  1. Google maps is very powerful at navigating local destinations in India
  2. Google’s voice assistant talks to you in an Indian accent which the audience can easily comprehend
  3. Google’s speech recognition properly understands Indian accent
  4. Apple Pay is not available for Indian audience while Samsung Pay is starting to be accepted at major retail chains around India
  5. It is a lot cheaper to develop apps for Android than it is to develop for iOS. In addition to the cheaper devices, this is also the reason why a lot of small logistics and delivery based companies use apps that are developed solely on Android.

Indian smartphone industry is heavily dominated by Chinese brands such as Xiaomi, Oppo, and Vivo. These manufacturers are able to provide a good quality, high functioning smartphones at a significantly low price point with specs comparable to the iPhone. The most popular price range of smartphones in India is below $200. These Chinese manufacturers are able to offer their smartphones at highly competitive prices in this range. This price point is way lower than the price of the cheapest iPhone available in India. Hence, the only iPhones customers can afford in this segment are refurbished old iPhone models.

The Charm of an iPhone

Apple’s products signify elegance and sophistication throughout the world. In India, especially, owning an iPhone is a huge status symbol. Apple’s products have been traditionally owned by customers with a high disposable income. However, in India, the population in upper and upper-middle class with high disposable income is tremendously low. Purchasing and owning an iPhone has a very emotional connection to the average Indian customer because it brings the feeling that the customer now belongs to an elite group of iPhone owners.

This is primarily the reason why even the older iPhones are still very popular in India. There are a lot of smartphone users who strongly trust Apple — they still prefer to own an iPhone with comparatively lower features than any other Android device available for a lot cheaper. Even though Apple is not manufacturing older iPhone models any longer, refurbished or second-hand legacy iPhone models are still a very common sight in India.

Apple has a very strong brand equity in India which they could easily leverage to become a dominant player. Strong brands invoke a strong emotional connection with their customers. Apple now needs a good pricing strategy to gain a strong foothold in the Indian smartphone market.

The lowest priced iPhone in India is the older model iPhone 5s, which is currently selling for almost $300 (Rs. 20,000). However, this model is relatively older than the other smartphones available in this price range — all the other Chinese smartphones by Oppo, Vivo, and Xiaomi offer comparable specs (some even more) as the iPhone 5s for a lot cheaper. Apple launched iPhone 5s almost 4 years ago which makes it very less likely to properly support the newer iOS, making the phone slow and buggy.

The perceptual map accurately describes the current placement of all smartphone brands relative to their Brand Value and Price-to-Feature ratio. A high Price-to-Feature ratio indicates that the smartphone available is priced higher compared to the features provided; whereas a low Price-to-Feature ratio implies that high amount of features are available for a relatively lower price point. The decision boundary is hypothetical: it denotes the highest price which the average Indian customer in affordable segment would be willing to pay (with respect to the features) while purchasing a smartphone. Samsung’s logo is relatively larger compared to other brands’ due to its diverse variety of smartphones available in different price ranges.

Apple’s Winning Decision

Recently Apple announced that its manufacturing arm in India will start assembling the older iPhone models such as iPhone 5s again. These iPhones along with iPhone SE will sell in the affordable smartphone segment. India very recently got the 4G network infrastructure on a national level — credit goes to Reliance Jio. Apple’s devices have been supporting 4G since iPhone 4 — which was launched ages ago. Therefore, Apple’s legacy iPhones are fully capable to support the present network infrastructure in India.

The iPhones that are under distribution in India are imported from overseas, which means they are subject to import duties of more than 12%. Hence, the locally manufactured iPhones are now likely to be available for lot cheaper than before — lower import duties and lower shipping costs.

After introducing the older iPhones at a lower price in the affordable segment, Apple will be able to cross over the decision boundary — as depicted in the perceptual map. With a lower price-to-feature ratio and a high brand value, Apple will emerge as a highly competitive player in the affordable price segment. The existing brand value is Apple’s competitive advantage but with a revised pricing strategy, Apple will be all geared to capture a significant portion of the Indian smartphone market.

Every year Apple gets a lot of old, used iPhones back in US and other parts of the world through upgrade offers. These older models are then refurbished and sent to India to be sold at lower price. However, conservative Indian politicians have raised their concern towards Apple treating India as a dumping ground for older iPhones. Out of 2.6 million iPhones that were shipped to India, 55% were older models.

This decision to manufacture older iPhones in India was taken in the wake of Indian government’s proposal to Apple, under the ‘Make in India’ scheme, asking for a certain level of commitment towards capital and job creation in exchange for attractive tax breaks.

Considering the relatively low user base of iOS devices in India, Apple might be a little unsure about making such large bets on Indian smartphone market at this stage. However, if Apple is able to lure the Indian customers to Apple ecosystem through cheaper iPhones then it stands a much better chance to capture a huge chunk of the market. With more customers moving to iOS, there will be more users on the App Store, iTunes, Apple Music, etc — this would significantly increase Apple’s price realization per customer.

A Plea for a Lighter and Developer Friendlier iOS

If Apple is going to start selling older iPhone models in India, then they need to make sure that the newer iOS runs properly on those models as well. Usually older iPhones are not able to completely support the new iOS which makes them slow and energy inefficient. Apple can consider launching a lighter version of iOS which has newer and stable features from the most updated iOS, which can also optimize the battery usage accordingly. This would be similar to Android Go launched by Google — which is a lightweight version of Android solely focusing on cheaper smartphones.

What sets iOS apart from Android is its design centric approach and usability. Nonetheless, Android still dominates the third-world countries. Apple needs to take-away certain points from the Android approach and tweak it according to their core principles. For example, Android is highly developer friendly with a $25 one-time fees to develop app on Android and after that no fees required to distribute your app through Play Store. However, Apple charges an annual membership fee of $99/ year to put your app on the App Store.

High development costs could discourage a lot of small-scale, independent developers in third-world countries to develop for iPhones and iPads. Apple should consider dropping this fees to a lower price point to foster and further build the iOS developer community in India. There are a lot of small enterprise apps in India focusing on logistics that are only available on Android because the users of those apps only primarily have cheaper Android phones. Apple could target these enterprises as well with cheaper iPhones and low development costs.

Although offering older and cheaper iPhones in India would definitely boost purchases of iPhones, if Apple wants to effectively conquer a large third-world market like India, they need to focus on building a better developer ecosystem.

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