Business, Technology

Classifying the mobile phone buyers in India (Part 1)

For 2 weeks now, I have been doing my bit about understanding the mobile handset market in India from a ‘qualitative’ perspective. It is expected that very soon 50% of the Indian population will have a mobile phone in their hand. I tried to understand 3 things – What works, what doesn’t – what does the consumer really look at when he goes out to buy a cell phone?

Overall, I have classified the consumer into 5 types – the base of this is Rama Bijapurkar’s 5 pronged classification of Indian consumer class in her book – ‘ We are like that only‘. (She classifies the consumer class into 5 categories – The destitute, the aspirants, the climbers, the consuming class, the rich) . In the mobile phone context, the definitions change a bit, but the concept remains the same.

  • 15cell.600The ultra cost sensitive – For this category, mobile phone is a result of months of savings. Typically, they would buy a mobile phone from a diwali bonus or through savings of around 4-5 months. An example of this category would be household maids working in metros. This category would buy the lowest cost phones available out there,
  • Cost conscious – This class is cost conscious but is willing to experiment. They are most likely to get influenced by peers / family members / children / society with respect to the choices they make while buying the phone.
  • Cost limiters but feature awareness – Typically a consumer, from this class onwards, is looking for an improvement over their earlier phone. This class will have a cost limit, but are aware of what features they use in the cell phone and are willing to buy a mobile phone which gives the best within the cost limits.
  • Feature sensitive – These folks are feature sensitive, for them, things like camera, looks of a mobile phone, size etc matter. An example would be the burgeoning consumer class. They have cost limits, but don’t mind exceeding them if they see utility in a particular product which suits their needs.
  • Cost indifferent , ultra feature sensitive – They do extensive research before buying a mobile phone. They look at websites, magazines, TV ads and most importantly, their peers before deciding what to buy. They also know a mobile phone geek , someone who knows about cell phones – who gives them choices – which become the sample space for these consumers.

(TBC – will continue this post over the weekend)

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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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Business, Finance, Marketing, Planning, Strategy

The Free Phone Concept and India

iphone3g-4678When iPhone 3GS was released in the UK and US a few months ago, the sales went soaring. The number of phone connections spurred! I was also one of those people who were able to get their hands on one and I am really quite happy about it. But lets consider in India, will anyone be able to buy such a device? A device worth Rs 35,000!

So lets try and see the concept of a free phone which exist in UK and US. A person signs a contract with a service provider like O2 or Vodafone for a duration between 1 to 2 years to pay a minimum fixed amount per month and in return gets an amazing phone and phone connection as well. So you can get an iPhone, a N97, any blackberry and most other phones for free!

Now it is widely known that there are no free lunches in this world! so there definitely must be some strategic concept behind this free phone deal right? Ofcourse there is one. The company is basically ensuring two things, firstly that you will not leave their service for next two years, and secondly the phone is not really free its just that its been spread over months just like buying something in installments. The catch is that people don’t mind paying a little extra per month but taking out a huge bulk of cash in one go is a problem. O2 allowed users to buy the iPhone for 375 Pounds and take a pay-as-you-go plan but most users went for the pay monthly plan. This can probably be related to the economics principle of instant gratification.

But coming back the the title of this article! India, probably the fastest growing market in mobile phones in the world! still does not really have the concept of free phones (except probably Virgin Mobile). But why?? Isn’t something missing in this picture? A market which is absorbing so many phones every month does not have a free phone concept. Actually there was a concept of free phone in India and it was started by none other than Reliance Infocom when it launched in India. By Paying Rs 501 and taking a 2 year contract could get you a brand new phone from Samsung / LG and wonderful calling rates. The marketing plan was a success but the execution was unbelievably dissappointing. People took the phones, unlocked it and started using Airtel / Hutch. The whole problem in India is that the legal system is a failure in terms of such contracts. Even if a consumer signs a 2 year contract the enforcability is quite dismal. Moreover there is no real concept of a credit history in India. In UK / US people will not default on any payment because of the risk to credit history and if a small payment ruins their credit history then their mortgage interest rates will go up! The companies compete but also communicate.

Thus we can view this both in terms of a virtue or a burden. If you do pay all your bills and fulfil all your contracts then probably it is a burden for you since you can’t use such wonderful schemes and are not getting any benefit of a good credit history. But if you don’t care and don’t keep your commitments then it is definitely a big big boon for you!

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