Will new and improved IOS 8 Maps find a successful route for Apple in India?

Indian smartphone market is growing at a tremendous pace and has become the third largest smartphone market in the world, after China and the U.S. 

As predicted by the International Data Corporation (IDC), annual smartphone sales growth in India is estimated to be at 40% for the next five years.

The smartphone market reached 10%, it reflects a major shift in consumer attitude in adopting smartphones.

There are many reasons which drive this growth of smartphone market in India:

1)   A new entry price and numerous brands

Due to intense competition between domestic and international players, smartphone makers are lowering their margins and making phones available at affordable price.

   

2)   Internet on mobile

Due to lack in robust fixed-line Internet infrastructure in India we rely on mobile broadband technologies (including smartphones) for high-speed Internet access to the masses. Industry reports suggest that more than 90% of Internet access in India is facilitated through mobile.

3)   Exclusive online distribution

Motorola's re-entry in the Indian market with Moto G opting for an online-only distribution model and joined hands with Flipkart, it has  started a new trend of online distribution of smartphones. Other smartphone brands like Xiaomi and Asus etc, have also made good use of the online distribution channel.

This model helps companies save a lot of money as there are no distributors and retailers margins, which usually account for about 6-15% of the total cost and that is spent in building up a physical distribution network and offer their product at a more lucrative price. Experts estimate that the smartphone companies are able to cut costs by about Rs 3000-5000, which appeals many consumers who would have not considered it otherwise.

4)   EMI options

The last couple of years have also seen EMI options from smartphone makers, which have made them affordable, fuelling the overall growth of smartphones in the country.

5)   The road ahead

According to predictions by IDC, the below '$200 segment' will play a very significant role in driving growth in the smartphone market with a great contribution from first-time smartphone buyers, and from the ones who have a limited disposable income.

APPLE – 6 & 6 Plus, an Evolutionary innovation and not a Disruptive one:

Apple has created a buzz around the globe by the LIVE launch of Iphone 6 & 6 PLUS which was much awaited product of the year. It has led to a rage of owning these smartphones amongst Apple loyalists and also the aspirers of Apple. With 900 million mobile users, only 10 % use smart phones in India and are growing with a stupendous momentum and are estimated to reach 80 million this year.

But Apple just has around 2% market share as compared to its arch rivals Samsung which has about 29%, Micromax around 18%, Motorola around 5 %, etc.

Apple has always been a bit reluctant in doing business in India due to the multilayer distribution network i.e. it has to tie up with national, regional and local distributors to get its products to consumers. At each stage the company pays fees to its partners, taking a hit into profitability.

         But now in 2014, Apple has reported it sold more than 10 million iPhone 6 and 6 Plus models over the weekend - a three-day record for a new model. This beat the previous record of 9 million for last year's iPhone 5S and 5C. The two models went on sale in the US, Australia, Canada, France, Germany, Hong Kong, Japan, Puerto Rico, Singapore and the UK.

However, according to GlobalWebIndex report, which takes into stock mobile audiences across 32 countries, “Just 20 per cent of the mobile audience were using Apple’s iOS on their phone versus a mighty 68 per cent using Android.”

Furthermore, on a country-to-country basis, it’s clear, Apple performs much more strongly in some of the most mature markets – with the iPhone enjoying its highest usage figures in Australia (42 per cent), the USA (41 per cent) and Canada (38 per cent).

Nevertheless, Android is still ahead even in these markets and, if we then turn our attention to the top 10 nations for Android usage, Apple’s problem is clear to see. Across a wide-range of fast-growth markets – where internet populations are rising rapidly each year and where the mobile internet is a hugely important gateway – Android’s usage figures are typically four to five times higher than those for Apple, this is particularly true for a price-sensitive market like India where Apple is unlikely to capture the mass market, challenging Samsung and Micromax. Chinese mobile maker Xiaomi too has done significantly well on exclusive sale through Flipkart in India. The new phones will however capture premium buyers as every launch of Apple products almost always does. Also the company’s launch of bigger screen is also likely to attract new consumers who prefer big screen mobiles.

Hence, CEO Tim Cook is positive and shown high propensity towards capturing market with fast-growing smart phone and tablet markets in Asia, BRIC nations, especially India.

Of late, Apple has indulged in aggressive marketing strategies in India with various objectives.

Strategies:

i)             Variance in launching date: Apple launched its model 6 & 6 Plus in first grade countries i.e. US, Australia, Canada, France, Germany, Hong Kong, Japan, Puerto Rico, Singapore and the UK which created a far-stretched thrill even in the countries where they were not launched and holds greater potential than most of the above mentioned countries. This delay in launch, in countries like China and India works out for Apple as it creates a strong urge and lust to have the product for any given price they quote. This may lead to increase in the percentage of innovators from traditional 2.5% to as much as possible and capture the maximum profit in shorter duration.

ii)           Strategic launch in India: Alike previous year, even this time Apple is anticipated to launch its models around Diwali (17^Th Oct) which is an auspicious festival, many people buy new products like apparels, consumer goods, smartphones, white goods, etc. which will give them a good start in India.

iii)          Arrangements with retailers & etailers: Apple has worked out arrangements with large and small retailers and etailers like Amazon, Flipkart and Snapdeal to sell the older iphone versions (4S, 5C, 5S) online for lower price compared to the store price and the loss amount will be compensated by Apple through some negotiated schemes. Apple is trying to clear out stocks of its older iphone versions at the earliest which will get a substantial downward price revision when the new flagship iPhone model is launched. Apple has also indulged in aggressive marketing strategies like zero percent interest rates and buy-back schemes. Besides, it provides an additional benefit to Apple, its old versions which are cheaper, would be bought by the iphone aspirer's and lower income group increasing their market share. These new entrants would in turn be key players for iphone’s growth in India in future as they may become a loyal customer of Apple and eventually update existing devices.

iv)          Increase in Marketing Budget: The US company has increased its marketing budget to around Rs. 100 crore. Also, they have introduced buyback, exchange and easy monthly instalment programmes besides ramping up retail presence in top urban cities in India over the past several quarters, which has clearly worked in its favor.

v)           Reach expansion: Apple also plans to deepen its reach into the Indian market and targets smaller cities with small format, neighborhood retail stores, which will sell all of Apple's products aided by distributors Redington and Ingram Micro besides existing trade partners.

vi)          Demand Recognition: Apple recognized the demand for affordable smartphones and brought in the subsidized iPhone 4 8 GB variant even when its global sale had been stopped. It even added the entry-level version of the iPhone 5C 8 GB. Counterpoint Research showed that iPhone sales were among the highest in three months of January to March with about 0.32 million devices, and three quarters up until June 2014 take the total sales to 0.85 million. iPhone sales in India doubled in the second quarter 2014, over last year while sales increased by 55% in the first half of 2014.

vii)         Competitors: As a part of strategy to promote its flagship model 6 & 6 Plus, Apple has reduced prices of its older versions and fall under range of Rs.18,000 to Rs. 35,000 which has led to its presence in mid-level smartphone segment and that will be a serious competition to Samsung, Micromax, HTC & Sony.

viii)        Online Presence: Apple besides making iphones available through retail channels, they will be available online on various e-tail sites. The ones that are anticipating major traffic are Flipkart, Amazon and Snapdeal. These prominent E-tailers have good established distribution channel, which would put them to the task of supplying one of the most awaited cell phone of this year. Apple is trying to push its phones through integrated Click and Brick model.

Consumer Behavior:

To succeed in a diverse market like India, a manufacturer needs a strong brand, extensive reach, quality products and above all a presence across multiple price bands. But, it also needs to research about consumer behavior to do well in this market. Many smartphone makers and lifestyle brands are increasingly sourcing consumer data research from e-commerce firms on the back of rapid growth of online shopping and product searches in the country, pitting the likes of Flipkart and Snapdeal. Hence, after intense research about Indian consumers behavior, Apple is deploying both, push and pull strategies to attract customers through its trade channels as well as directly by giving what the Indian customers are wolfish about such as EMI scheme, credit card facilities, possibly contract phones through operators, etc. One of the major reasons of the launch is to capitalize the festive season and make a quick buck from the Indian counterpart customers.

Various Segments:

There are mainly 5 major distinct segments of smartphones which are as follows:

Super Premium (Above Rs. 35K)

High-end segment (Rs. 25K - 35K)

Mid level segment (Rs.15K – 25K)

Budget segment (5k- 15K)

Base Entry level segment (< Rs. 5,000)

The budget segment has seen a lot of traffic and most of the Indian smartphone customers lie in this group. According, to Counterpoint Research, smartphone shipments rose to 70% in jan – aug 2014 (30 million to 50 million).

Extension of product line by Motorola, Micromax  and also by Xiaomi. Google is the new player coming in this segment with its Android One handset in Rs 6K - 6.5K.  Xiaomi and Motorola have been launching smartphones in India too for this segment.

  

Competition & Apple:

According to a latest IDC report, the top performers in the smartphone market in India are Samsung, Micromax, Karbonn and Lava. Samsung and Micromax are selling eight to ten times more smartphones than Apple and are locking millions of consumers in the Android ecosystem every quarter, says Neil Shah, research director at Counterpoint Research.

While Apple has the brands and quality products, it lacks the reach and broader portfolio, both of which can squeeze the margins. Apple's India profit for fiscal year 2013 plunged to Rs 112.66 crore from Rs 311.5 crore a year ago as it aggressively chased volumes by unleashing a marketing blitz and promotional campaigns such as zero EMIs and smartphone buybacks to lure more Indians. Last year, it changed its business model by moving away from its practice of selling phones exclusively through operators such as Airtel and Vodafone. The efforts did pay off — sales jumped 51% to `3,030.11 crore. But this came at the cost of profit. The lowered margins and profits denote that they have not been successful on establishing a strong connect.

Samsung has been targeting high-end consumers with Note Series, and Micromax has upped its ante by bringing in Hugh Jackman as brand ambassador for Canvas series. Samsung and Micromax have engaged in heavy promotional activities, advertising and marketing strategies – something that has certainly not been Apple's strengths. Although India remains low on Apple’s marketing radar compared to its competitor Samsung, iPhones do command loyalty in India in niche, premium segments. Apple is likely to spend around Rs. 100 crore on the launch of its phones in India.

Samsung may spend around Rs. 150 crore for promotion of its new products launch - Note 4 and Galaxy Alpha. Sony may spend Rs. 50 crore on promotions of Xperia Z3 and HTC which is a silent rival and is more a follower - cum - nicher rather than a challenger, is planning to advertise heavily before the Diwali with its campaign for launching its new variant in Desire series. Also HTC One (M8) in the premium phone segments.

As far as Apple advertising goes, the company has already released its first two ads with singer/actor Justin Timberlake and talk show host and comedian Jimmy Fallon. The ad features their voices and hands along with the phone’s features. The tagline says ‘Bigger Than Bigger’ (although that claim falls short since Samsung’s Note 4 has a slightly bigger screen than iPhone 6 Plus).

But clearly the celebrity duo have given a touch of humor and ease to the ads while highlighting key features.

The war between Samsung and Apple has already started by tie-ups (negotiations) with larger and small retailers. They are anticipated to come up with many trade schemes to push their respective products through these formats. The other competitors are also fighting for the shelf- space and exclusive display and providing a good incentive schemes.

HTC India country head Faisal Siddiqui has announced its Diwali dealer incentive scheme for its new launches in 12k-25k range. HTC and Sony will unveil their smartphones to distributors, dealers, Bloggers and the media. The strategy is to get good reviews from these important channels which will lead to a good start in this race. Both of this company has lost its market share to its competitors. Samsung on the other hand is expected to launch its smartphones a week before Apple 6 & 6 Plus. The strategy may work out good for Samsung to come up with this solid variant and launch it before Apple 6 as it would eat away the creamy layer.

It is true that Apple users may not switch over to Samsung or other rivals but at least the people aspiring to have a high end premium phone may go for Note 4 due to its style and the features. Also, the people who are not happy with older versions of XPeria and Desire are likely to switch over to Samsung rather than Apple due to high price point difference between both.

Product:

Apple has improvised its A8 processor which is 25% faster and 50% more efficient than A7, which means it can deliver that performance for longer with basically the same battery capacity. Also has a graphics chip that's 50 percent faster and have advanced iSight and FaceTime HD cameras.

But, Apple variants have the features which are not that differentiated than its closer competitors. The tech giant played catch up once again, with Apple Watch, making its foray into wearable tech segment, a year after Samsung launched Samsung Gear along with its premium phone Galaxy Note 3 and Sony launched SmartWatch. The watch, touted as a comprehensive health and fitness device, is the most personal device Apple has ever created, according to Cook.

Apple Pay and improved Icloud Drive are some value added feature which could benefit the people. These models are expected to be heavily priced and range more than Rs. 60,000. Apple lovers are excited about the new 6+ model with increased screen size but only time will tell whether it would be a successful model in India and people would pay almost 10% extra for the bigger size phone.

“Apple’s skill lies in stitching together own ideas with outside technologies & wrapping the results in elegant software and stylish design. An orchestrator & integrator of technologies, Apple is unafraid to bring in ideas from outside, but always adds its own twists” Forbes.

Apple's Dilemma

"Apple does not have the right product for the Indian market and there is a mismatch of Apple's global vision with the Indian market," says Jessica Kwee, analyst at Canalys, a global IT and mobility research firm. Analysts say Apple's problem in India is not to do with strategy, but it's more of a dilemma of a global company.  In India, it's a lost opportunity for them, it doesn't have a right product for Indian market.  If it brings down prices, not only will that cut into its brand equity, it will also eat into its profit margins. They need to understand that it cannot just depend on offers and discounts (as mentioned in the article) to sustain consumer interest as it is going to have a negative impact on the brand in the long run in terms of margins and brand perception For instance, while over the past few quarters Apple has seen its sales volumes grow annually in India, it has been driven largely by older models such as iPhone 4/4s. It does want to increase its share in the third largest smartphone market in the world, but this can't happen without cheaper devices. So, it's a catch-22 situation for Apple and is a difficult choice to make for them in India.

          

          We’re yet to see if Apple’s swing at the ball is going to score it a home run, but until then, you can do a thorough research and then decide for yourself, which smartphone is the better one. The iPhone 6 however, marks the company's first major departure from Steve Job's legacy – he did not believe in phones with bigger interfaces which is one of the differentiation in the new 6 plus of thin and larger body, is a matter of time to know whether it back fires or it does find a good grip in users pocket and their hands. Apple’s gamble with the launch of its larger iPhones - appears to have paid off in other countries but may lose big hand to its competitors in India.