Apple is changing the way it sells iPhones in India in an attempt to increase its tiny market share there, reports Dhanya Ann Thoppil in the Wall Street Journal.
The changes may help Apple sell some more iPhones, but they won’t fix the biggest problem Apple faces in India and other emerging markets: Its phones are just too expensive for many potential customers.
Apple’s market share in India right now is a startlingly low 1.2%, IDC says–and even that figure that has dropped by half in a year.
Samsung’s market share, meanwhile, has soared to a whopping 51%, double a year ago.
Part of Apple’s problem in India is distribution. According to the WSJ’s Thoppil, Apple doesn’t have retail stores in India because local regulations make this too much of a headache, and Apple’s resellers don’t have a big presence in the country. To supplement this distribution, Apple will begin selling iPhones through a local subsidiary of the vast electronics distributor Ingram Micro.
Apple’s bigger problem, however, is price.
The iPhone is sold mostly through India’s cellular carriers, but unlike carriers in many other countries, these carriers don’t subsidise handset costs. As a result, the iPhone is astronomically expensive.
The iPhone 5, for example, is expected to be priced from 45,000-50,000 rupees, which is $850+. The “entry-level” iPhone, the iPhone 4, sells for 26,500 rupees (~$500).
India is a massive market, with 220 million handsets sold per year. But, as in other big developing markets, price is extremely important. Most of the phones sold in India cost less than $100, and according to an analyst cited by Thoppil, the high-end market is very small.
Selling iPhones through Ingram Micro could force Apple to give up more margin on the phones than it otherwise might.
But the larger issue here is that the smartphone market in the developed world is maturing, and the next few billion smartphone customers (in emerging markets) are likely to be much more price sensitive than the first billion.
If Apple wants to maintain its global market share, therefore, it may be forced to introduce lower-priced phones or sell its existing phones more cheaply. Apple could certainly afford to do this–it makes an extraordinary profit margin on each phone–but cutting prices would obviously eat into its overall profit margin.
The situation in India also reveals how dependent Apple is on carrier subsidies. As carriers try to increase their own profits, they’re trying to find ways to reduce the cost of these subsidies–by charging higher upgrade fees, for example, or reducing the frequency with which customers can upgrade. For now, the subsidy model appears to be holding steady, but if it were ever to start to disappear, the iPhone’s pricing could become a major issue for Apple.
Again, what’s at stake here is not Apple’s survival. The company is in robust financial health. What’s at stake is future growth, market share, and profit margin.
Apple already enjoys one of the highest corporate profit margins in history. And the downside of having a super-high margin is that, eventually, the only direction for that margin to move is down.
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