Marketing, Strategy, Technology

Apple iPhone and its India Strategy

iphone-3gsAs we all know iPhone is one of the most sought after possession in the recent times. The phone which combines iPod with a mobile phone and wireless connection which enables us to connect to the web has captured the imagination of the people all around the one and lots of them are dying to lay their hands on it.

iPhone 3G was released on August 22, 2008 in India, thus allowing the Indians to lay their hands on iPhones legally. Indians who till then had mostly heard about the iPhones and a few had got it from US through some relatives could now “legally” own it. But as history tells us it was a flop in India. Now that Apple is preparing to release its next version of iPhone, iPhone 3G, we can try and see what went wrong with Apple’s strategy last time.

1. Pricing: Most people do tell that the high pricing of the iPhones were a deterrent to the people who wanted to buy it. The reason was that the people knew that iPhones were being sold at $199 in US which is equivalent to around Rs 10000/-. So they had expected that it will be around the same level in India too. But what they hadn’t factored in and what apple has till now failed to educate is that it is a highly subsidized rates being provided by the carrier and you need to get into a 2 year contract for that with the carrier.
The carrier, AT&T in this case, had used the opportunity to lock in thousands of users. Take for example the recently announced one of its best ever spring quarter results in which they added 1.2 million cell phone users and activated 2.4 million iPhones in the quarter. And most of them came in the last two weeks of the quarter when the new iPhone 3GS was released. Also many don’t know that you are forced to take up data plan with the carrier leading to its increased revenue. This is one of the main reasons that AT&T subsidizes iPhones in US.
But in India, though the people were bound by the contract to the carriers, they did not subsidize the phones, leading to the higher price. Though many blame apple for the high price, I think it should be the carriers in India who should be blamed for it.

2. Carriers: And now coming to the carriers, why were Airtel and Vodafone so uninterested in subsidizing the phone and in providing unlimited data access which Apple wanted.
For that let us see how AT&T benefits from being the carrier which enables it to give the subsidy. AT&T is a leader in the wireless provider market in US and it has exclusive distribution rights for iPhones in US. It provides GSM services whereas its closest competitors Verizon and Sprint are both CDMA shops. With the exclusive agreement with AT&T, Apple is barred from developing CDMA version of the iPhones for next 5 years. Thus, making this a much sought after item, if AT&T subsidizes the price, it can attract more users from its competitors and lock them in.
Whereas in India, Apple is going in with both Airtel and Vodafone as carriers. And they are the leading competitors in the wireless provider market, at least as of last year. And by simple logic as the prices were pretty much similar with both of them, they knew that attracting users from the other is very hard by giving subsidy as the other would also follow the suit. That way there was no guarantee of them increasing their market shares due to iPhones. Hence, the lackluster attitude of both the companies towards iPhone. It is also rumored that Apple is not happy with both of them as they did not aggressively market iPhones, but were interested in marketing blackberries and their own phones. The reason for this too would be the same.
Regarding unlimited data access, the reason for Airtel and Vodafone to not provide unlimited data access might be the very low ARPU. Since the ARPU in India is very low most of the companies make their revenues in the data access which they provide and Airtel and Vodafone would be very much disinclined towards reducing their profits by providing their main revenue earning service for unlimited use.

Although these are the main reasons, there are many other reasons for the failure too, like the non availability of 3G which was the selling point of the phones in US. But I don’t feel that that would be an important reason, because not many Indian users would be buying it for the 3G factor, but most of them would be buying it as a novelty factor.

So what should Apple do to improve its performance in India?

1. Try and educate masses about the price they see in US and that in India. Although unlocked iPhones in US and other places sell at almost the same or higher prices than in India, not many know it. All they see is the price on the apple store which lists the price at $99 for 8GB 3G phone and $199 and $299 for the 16GB and 32 GB 3GS ones respectively. What they don’t see is that an unlocked iPhone 3GS 16 GB costs $600+ and 32 GB $700+.

2. Stick to one carrier so that it has some incentive to provide subsidized rates in India. But again the problem here is up to what level the contract can be enforced by the carriers in India. Especially in a country where there is jugaad in every work, the users can easily get the phone unlocked and use it after buying it cheap. Can something be done to make sure that breaking the contract has the same penalty as in US? This is something for the carriers to think and make their contracts stricter.

3. Instead of selling iPhones at unsubsidized price and being locked to the carrier for a year, it would be better if they could sell the iPhones in apple stores. The people who were not buying it because of the contract (now I know this would be a very miniscule amount) would then consider buying it. At least I have seen many people buying iPhones from Hong Kong where the prices are almost similar (many be a couple of thousands less), just because you are getting an unlocked iPhone legally and for a lesser amount than in India.

4. Now that the iPhone 3GS is being introduced, instead of phasing out the older 3G version in India as it is being rumored now, provide it at a lower price, which could be affordable for the upper middle section of the society. This would allow more number of people to have the feel of an iPhone and as I have seen many of them would be hooked for a long time. And don’t give me the reason that Apple wants it to be a niche phone. When they can allow it to be sold at a subsidy (with many plans you get an iPhone without any payment and you pay the amount in installments over the period of contract) in US and can have 2.4 million people buy it in 10 days, does it really want to play to niche game in my view.

(This post was written by Arun K S. We thank him for his insights, and look forward to his further posts. For more on Arun, check his previous post here)

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10 thoughts on “Apple iPhone and its India Strategy

  1. Kaushik says:

    Good analysis. However, you have said – “Instead of selling iPhones at unsubsidized price and being locked to the carrier for a year, it would be better if they could sell the iPhones in apple stores”

    We know that Apple does not have a strong retail presence in India. So this might be a bit problematic.

    “Try and educate masses about the price they see in US and that in India.” – I didn’t know about this fact in detail till I read your article, and I read your article because it is on strat.in. Similarly there are many like me. The question arises – in this country where millions are not comfortable with technology, how is this possible on a large scale. If Apple decides to go niche, and educate only its target segment, how do they do it?

    Also, I was talking to a colleague who owns a HTC touch phone. It is nothing compared to an iPhone, yet my colleague feels that since it does a good enough job for him, why does he need a iPhone that is double the price. Yes, he admitted that there would be pride in owning an iPhone, but very little beside that.

    I know he has a point, and also the fact that a supporter of an iPhone can talk him out of it on a tete-a-tete, but how do Apple deal with thousands like him on a mass scale. It can’t run on word-of-mouth, right? Neither would advertisements sway such people much because they are very very aware of the product.

    Whats your take?

  2. dinusonu says:

    nice article. i have read somewhere iphone doesnot have message forwarding capability & that is also a reason for less sell.
    as u says on subsidized rate people will start using jugaad thing but i tell u if their is not huge difference betweenUS and indian prize only few will try your jugaad because it will goes to most of upper class where people feel insult on using jugaad. in india people buy phone for showoff not for use.
    u have not mention flash video playing problem ?
    thanks for post

  3. Kaushik says:

    http://blogs.economictimes.indiatimes.com/tech-now/entry/ok-so-india-iday-has

    the blogger writes: “so lets get some conspiracy theories going:

    #1: Apple is still to get its India act together:

    Sometime in December last year, Apple decided to restructure its India ops, moving it from South East Asia to EMEA (Europe, Middle East, Africa) so Apple’s India head would now report into London rather than Singapore. In June however, Apple India’s Country Manager, Alok Sharma put in his papers. Apple’s only statement since then: “Tom Preising is Apple’s new acting country sales manager for India responsible for the day-to-day operations in the region. Apple continues to invest in India as a growing market for the company.” It could be, that in the absence of a full time country head, Apple EMEA just doesn’t have the bandwidth to concentrate on India at the moment.”

    This might be this guy’s personal opinion, but I feel he has a point

  4. Jagan says:

    Very well written.
    If i may i would like to point out to somethings that have to be considered as well.
    The most important reason why an iphone is successful (why its ommph factor was actually there) is because of what it can do on a good network, that is why it is considered a good machine to have.

    (a) In india the networks arent that great

    (b) Localization of content – the number of users hasnt reached a critical mass yet, therefore people are not interested in the phone as those in the us or europe where the utility of the iphone (thanks to the 65K + apps) is unbeatable

    (c) data acess in india is still through gprs – slower more irritating, 3g is vital in increasing the appeal of the iphone.

    (d) data access for iphones in India is either a value based package (metered rate) or flat rate – similar to europe but more charge higher to literally fleece the subscriber (just to point out data access in india is around 3% of ARPU – not really to high compared to global averages, so it wouldnt be a really difficult thing to convert it to unlimited access, infact thats the way europe introduced mobile internet, before moving to metered / pay per use systems)

    (e) subsidizing the phone makes sense if ur gonna do it to capture high arpu subs, because they tend to have higher ltv (life time value) to the operator, but in india it being a majorly prepaid dominated market and second highest churn in the region it doesnt make sense for an operator to subsidize to such an extent., the blackberrys are more business focussed and only serious subs (with really high ARPUs / businesses) subscribe to it and since the roi on the blackberry is higher now the focuss is more on them which makes sense.
    One of the bigger deterrents to subsidizes from operators is the number of jail broken / hacked instruments available in the black market, people who want the phone can get it for cheaper and with out software restrictions in the grey market then why come to an operator and pay so much more and get locked in, i believe that these practical considerations have convinced the operators not to try and market it too aggressively, although this would change once 3G becomes a reality, then they can provide more services on it and restrict those services to un hacked instruments…. until its full bouquet of services are not accessible the iphone will never truly enter india

  5. If I am allowed to digress a bit ..I phones could never stand rough usage they are not robust.

    Besides, there are many who would prefer something sleeker. On the light side, my old man would look at this and say , “It looks like a ‘hathoda’ “

  6. @ Kaushik,

    Yeah, serious lack of focus on the Indian market. I seriously wonder why they had move it from South East Asian market to Europe, Middle East and Africa sector. How is India connected to these markets??

    @Jagan

    Thanks, Yes i had considered a few of those points, but didn’t want to expand on all those as it would have lengthened the article. So i tried to keep it short. But very valid points.

  7. D Thyagin Menon says:

    When can i expect to buy an unlocked iphone from the Apple store or online store in India?? Before Diwali?? Been waiting for long.

  8. orca says:

    Comparing the US market to the India cell phone market is pointless.

    I know people who’ve owned Nokia N Series phones for more than 2 years and still havent downloaded a single app, nor have accessed the net even once!

    The way people perceive the iPhone in India is very different from the way its is perceived in the US. In India, the iPhone is still a cell phone + other value adds like music player, touch screen, a vibrant app store etc etc. And with our telecomm infra still aint upto the mark, the iPhone loses most of its sheen. Simple statistic – iPhone users in the US spend only 45% of their time in voice transactions as compared to 71% for the other phones.

    What makes the iPhone unique is the presence of a unique digital ecosystem – you take that away and you are left with a touch screen + iPod + phone which doesnt justify the price. The fundamental issue is that Indians do not perceive that the value of the iPhone justifies the price.

  9. Bumpy says:

    Nice article but some stuff wasnt true….well it wasnt fair to sell iphone for abt 35k here in india wen itz much cheaper in other markets with contracts…if they were really serious about selling their product they would hav studies the market pretty good and followed nokia’s path. even for a price tag of may be 20 to 25k withour contract pple would hav bought it. and all this contract thing is leagally not allowed in india. so i dnt think they failed coz there were no 3G ..it clear that the price and the contract thing dont work out here..and they lacked aggressive marketing..u wanna sell a product in india u got to market it heavily buddy…i knw atleast 10 pple who got htc phones which is abt 25k..and wen i askd him why dint u go for iphone all of em were againist the price and contract…i believe in germany apple sells it unlocked and no contract…so why dont they do it here…try and they might sell more than they sell in US…good luck apple

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