Apple Inc., which has struggled in emerging markets because of the price of its new iPhones, has devised a strategy for India that’s starting to pay off: It’s pushing older models that offer cachet at affordable prices.
The iPhone 4, which was released in the U.S. in June 2010, is still available. So is the iPhone 4s that went on sale in October 2011.
“You flaunt an iPhone, but you don’t flaunt an Android,” said Punit Mathur, a 42-year-old vice president of a digital media company who switched to a new iPhone 4s from a Nexus 4. An iPhone 5s that would cost 53,500 rupees ($874) is too expensive, “but the 4s is still an upgrade,” he said.
Apple doubled sales in a market growing faster than China and the U.S. as it tries to close the gap with Samsung Electronics Co. and domestic makers Micromax Informatics Ltd. and Karbonn Mobiles India. The strategy is critical to Apple’s success in a nation where two-thirds of the population live on less than $2 a day -- and it may become a model for other emerging countries.
“Once Apple has fully proven this model in India, you’re going to see them roll it out to other markets,” said Ken Hyers, an analyst with Strategy Analytics in North Carolina. “Particularly Brazil, Russia, Indonesia, the other large emerging markets where they want to gain market share.”
Apple’s approach in India has helped it build traction in a country where 225 million smartphones will be sold this year, said Brad Rees, chief executive officer of London-based Mediacells, a marketing company. Apple, the fifth-largest vendor in India, more than doubled sales there in the first quarter to 325,000 iPhones from a year earlier, according to researcher Canalys.
Competition in India is intensifying. Xiaomi Corp., the four-year-old company that outsells Apple in China by offering inexpensive devices with high-end features, began offering its Mi3 mobiles in India at 13,999 rupees on Flipkart.com. In three limited online sales, 35,000 phones were bought within minutes.
Apple has historically used the strength of its brand to lure consumers instead of price. However, its success stems in part from carriers that offer discounted devices or allow consumers to pay for a mobile phone over a multi-year contract.
“Apple has started to understand India is a more price-sensitive market,” said Katyayan Gupta, an analyst at Forrester Research Inc. in New Delhi. “Indians want to show their status, so people want Apple. It doesn’t matter if it’s a two-year-old phone. It’s an Apple at the end of the day.”
While an unlocked and contract-free, 16-gigabyte iPhone 5s is listed for $649 on Apple’s U.S. website, Verizon Wireless offers the same device for about a third of that price when customers agree to a two-year contract. China Mobile Ltd. gives monthly rebates for users who buy an iPhone and sign a two-year contract, according to the carrier’s website.
China Mobile, the world’s largest phone company by users, in April posted a third straight drop in quarterly profit as expenses for subsidizing the iPhone and building networks increased. NTT Docomo Inc., Japan’s largest wireless operator, missed its full-year profit forecast in March after offering the iPhone for the first time in September to lure subscribers.
Bethan Lloyd, a London-based spokeswoman for Apple, declined to comment on the company’s sales strategy in India.
Carriers in India typically don’t subsidize the costs of phones because the majority of customers don’t sign multi-year agreements. That’s because it’s difficult to check a person’s credit-worthiness or enforce contracts, said Rajan Matthews, Director General of the Cellular Operators Association of India, in New Delhi.
Most Indian consumers buy phones from retail shops, not carriers, and use prepaid cards to charge their devices with talk time, Matthews said. Wireless operators earn an average $2 per month per user, another reason Indian operators don’t subsidize phones as they do in the U.S., he said.
“At that rate, it would be extremely difficult to get a payback in two years,” Matthews said.
Bharti Airtel Ltd. is the largest carrier in India, and the only one among the top three to offer iPhones. Ashutosh Sharma, a company spokesman, declined to comment on Apple sales.
The iPhone 4 was shipped to India as recently as May, said Jessica Kwee, a Singapore-based analyst for Canalys.
Sathish Babu, founder of UniverCell, an electronics retail chain in South India, said he received an iPhone 4 shipment manufactured in January. “It’s not old stock,” he said.
Suresh Subbian, 42, bought an iPhone 4 in June for his wife, paying about 19,500 rupees.
“We don’t want to take a big risk by buying a new model,” he said by phone from Chennai. “I thought I’d buy her a simple model and try it. It’s about half the price of a 5s and that’s an important factor.”
Apple is doing a few things differently in India that have driven its performance, Kwee said.
“But the main reason is that Apple is focusing its efforts on selling cheaper and older products in India,” she said.
The average price of an iPhone in India is about $450 due to the larger proportion of older models sold, according to Kwee. That compares with $600 to $700 in the U.S., she said.
The approach helps get users into Apple’s network for selling applications, music and movies. The iPhone 4s is also available on Apple’s website.
Apple’s strategy also likely includes shipping factory-refurbished phones from developed markets, according to Hyers of Strategy Analytics.
“Our ability to keep customers is very good and our ability to show other products that Apple produces to a family that’s buying Apple products is also very good,” Apple Chief Executive Officer Tim Cook said on an earnings call April 23. “If we can get them in on the entry iPhone, it gives them a great product, at a great value and gets them into the ecosystem.”
Apple had a successful second quarter of iPhone sales in Brazil, Russia, India and China, a sign the company is building a footprint in emerging markets, according to a July report from IDC Corp.
Some stores in India are finding success by offering installment plans to purchase iPhones for consumers with credit cards.
Himanshu Chakrawarti, chief executive officer of Indian retail chain The Mobile Store Ltd., took out full-page ads in major cities about a year ago promoting installment plans for iPhones.
“In India, you have to pay that whole cost upfront,” Forrester’s Gupta said. “There aren’t that many people who can pay $800 in one lump sum for a phone. That’s the cost of a laptop. But as soon as you divide that $800 over 24 months, you can sell it.”
Reliance Communications Ltd., the fourth-largest carrier in India, began offering iPhones in November to credit-card holders who agree to fixed monthly payments for two years with no down payment. Rajeev Narayan, a company spokesman, declined to comment on sales or strategies.
Selling older models will become more central to Apple’s plan in India as its product line matures, said Rees of Mediacells. And as the company looks to boost sales in markets including Vietnam and Brazil, it may repeat the India gameplan.
“You will see Apple bringing back more of its older models in more markets globally,” Hyers said. “It’s a great way to build mind-share and bring them into their ecosystem, and kind of make those customers who have bought these perhaps lower-end Apple devices want to upgrade to the next generation when they can.”