Tuesday, October 17, 2017

Walmart’s new strategy: Better pay

Great piece on QZ on how Walmart is working to reduce the income inequality gap: read more here.

The author starts with the fact that income inequality is the greatest in the USA among developed world countries. While most politicians are speaking about either taxing the rich or the government raising the minimum wage and increasing funding to welfare programs. There is a third way, one I have spoken about with my friends -- having corporations do the right thing.
Then there’s a third way, one that calls for increasing the pay of the poorest workers without government intervention, but through the free market.

It requires corporate executives to forget the lessons of finance classes and set aside their preoccupation with quarterly earnings and short-term results. It means taking the view that happier employees who care more, quit less, and work harder will, in the long term, produce better returns.
What a novel concept, but public corporations are in a hell of their own creation that requires them to view everything from a "quarterly" lens. The metrics for success don't take the long term prospects into consideration; a lot is sacrificed at the altar of YoY growth. Well, Walmart has recognized that its onus on cutting costs by under-paying employees has contributed to the decline in wages across the retail sector. In a Volte face, Walmart in 2015 increased the salaries of many of its employees. And when Walmart does something like this, the competition ought to follow...
Walmart employs one in 10 US retail workers, and one out of every 100 US private-sector employees. Just as the company forced competitors to hold the line on wages, increasing its pay is now pressuring rivals to match it.

In 2015, Walmart committed to spending $2.7 billion over two years on increased pay and better training. In April of that year, it raised starting pay for store workers, some of whom were making the federal minimum wage of $7.25, to at least $9 an hour, and bumped them up to $10 an hour the following year.
An improved customer experience is what Walmart was seeking, and it realized that the key to unlocking this change was happier employees:
Without explicitly acknowledging it, Walmart came to the same conclusion Costco and Starbucks arrived at decades ago. Paying workers more, and providing them with substantial benefits like health care and parental leave, attracts more applicants, and gives employers more choices when hiring. It also reduces turnover, which leads to more experienced employees with a greater investment in the health of the business. All of that pays off in a better customer experience, the critical component in whether shoppers return or seek out competitors.
While Walmart’s stock hasn’t returned to its pre-2015 heyday, things are looking up for the world’s largest retailer. I don't shop at Walmart but acknowledge the impact that they can have on the income gap and laud them for their efforts in this regard.


There is a lot more in this piece about Walmart, but the aspect that the author missed was how Walmart can continue down this path while remaining competitive with Amazon. From my vantage point, the last two large retailers standing post the great retail apocalypse are going to be Amazon and Walmart. In the final fight between these super heavy-weights, the victor will be decided based on who has more channels through which consumers can acquire goods. In the red corner, there is Amazon with its store, apps, affiliates, Whole Foods and Alexa. In the blue corner, we have Walmart with its gigantic store footprint, website and Jet.com. The difference-maker in my opinion is Alexa.

If I were in Walmart's Digital leadership team, I would push for a partnership with Google Home (and every non-Alexa enabled Smart Home device maker) to compete with the Alexa-enabled retail channel that Amazon has quietly established into a powerhouse. As of last week, Google announced a partnership with Target, but Walmart (and Jet.com) have the more optimized supply chain and better prices. Maybe Google could negotiate a better deal with Target, which would be why they went with them vs. Walmart. Walmart needs to fix this ASAP.

The reality is that Amazon is practically giving Alexa devices away in a manner reminiscent of how Gillette gave their razors away. Alexa plus Amazon getting into every retail segment plus Amazon branded items plus FBA plus Prime plus ... is a multi-prong approach that will require a number of companies to band together to counter. From my vantage point, no one company can compete against this Goliath / Ser Gregor alone.

Wednesday, September 20, 2017

Ugly Reality of M&A: Laying People Off

tl; dr: As an M&A Integration Leader, you will have to make the hard decision to lay some acquired employees off. Layoffs hit where it hurts most, people's self esteem. If you must, be deliberate with employee analysis and organizational fit, own the message, relay it with empathy, and push for an exit package that allows impacted employees to land on their feet.

As children, our immediate family and friends are all we care about. How we do at school is a part of our identities, but not the whole enchilada. As adults, a chemical reaction takes place in our heads, one that changes what we prioritize and how we derive our own self-worth. We become attached to how we are perceived at work — be it our own business or that of someone else — by our peers, other co-founders, other businessmen.

The chemical change, the one that ascribes a large chunk of our sense of self to performance at work has many consequences. A wise man told me when I was starting out at Microsoft that, “Many a relationship has been sacrificed at the altar of professional growth”. His advice was to leave work where it belongs, at your desk, and to go home with a slate wiped clean. An impossible undertaking, I know that now.

We adults get so caught up in the race that we let our health — mental, physical, and emotional — suffer as we climb that next rung. With our identities so wrapped up in work, we do not prepare for the worst. Which is why when something as unsettling as a layoff notice comes our way, it upends every notion of being an adult that we hold dear. In my 15-some years of corporate travails, I have observed that folks who are laid off fall into two large categories:
  1. The ones that anticipated the change; and,
  2. The others that had no clue.
Regardless of where staff fall in this broad characterization, a layoff notice hits everyone the same way: like a sack of bricks! Behavioral analysts differentiate between layoffs so as to express the intensity of the suffering that ensues. According to them, when an entire team or division is laid off, the impacted employees are less likely to question their self worth than when folks are singled out for separation from the company payroll.

They are wrong!

No matter the circumstances, no matter your “crystal ball juju”, a layoff hits every impacted employee hard. Being laid off after the perceived HIGH of being acquired, of a successful start up or company exit, aggravates the pain. Personal situations further exacerbate the underlying feelings of depression and loss of self worth. Friends who have had this happen to them describe it as a “punch to the gut”. As if the morale squelching isn’t enough, being laid off has far reaching implications for kith and kin. Mortgage and car payments, health insurance, care and education for the children; the stress concomitant with the event has been shown to put a real strain on relationships.

The unfortunate truth is that a change in control like an acquisition leads to layoffs. Adding to the variability is corporate policy on layoffs/separation. The good corporations take care of the impacted employees with sufficient notice time for folks to find another opportunity, generous separation packages, and fair terms for COBRA/health insurance coverage continuity. The bad ones get bad reviews on Glassdoor. Here’s the net-net:
  1. If you are reading this, I hope you aren’t impacted. 
  2. If you are, I pray that you chose to be employed by one of the “good” corporations. 
  3. If you answered NO to the first two, God speed success with finding the next opportunity.
  4. If you are an HR Integration Leader or people manager who has to deliver the devastating news, my only advice to you would be to own the message. Deliver the news with sincerity, empathy and awareness of the impact. Be prepared for any eventuality — to provide a shoulder for grown people to cry on or for a confrontation. The former outcome will take you by surprise no matter how much you prepare; prepare nonetheless.
In my next post, I will talk about the tools at your disposal to help you find your next great opportunity. Until then, try to find your inner zen, talk to colleagues impacted, share your true feelings with your closest family, and know that there is light at the end of the tunnel. Not all is lost, yet.

Friday, July 28, 2017

Realizing the full potential of an acquisition

McKinsey Research recently published their findings from a survey on M&A leading practices. If you are either an M&A integration leader, aspire to run an M&A IMO, or lead the commercial function for an acquisition, I highly recommend that you read the article until you have internalized the details. The writing is crisp and the findings align very closely with considerations that I have found are critical to successfully managing M&A integrations, namely:

  1. Validate the deal model; 
  2. Preserve existing revenue;
  3. Retain key talent; and,
  4. Manage cultural differences.

From a tactical standpoint, here are some additional tenets that an integration leader (applicable at the functional leadership level too) should maintain front and center:

  • Articulate an integration strategy and the deal value drivers prior to kicking off the integration;
  • Use the value drivers to continuously prioritize and re-balance integration activities and resources; and, 
  • Ensure leadership treats integrations as critical business processes, and prioritizes integration decisions appropriately.
Good luck with your integration activities.

Monday, July 17, 2017

Doomed to repeat our mistakes

Our intrepid leader, Mr. Donald Trump, is as wise as a concrete block. He barely reads, doesn't quite appreciate nuance in an argument, has a strong revisionist take on history, and gets his news from Cable TV. Therefore, I wasn't surprised when I read this piece on Steel tariffs being imposed by our President (emphasis, mine):
As part of his “America First” principles, president Donald Trump and the steel industry figures he has brought into his administration, including commerce secretary Wilbur Ross, are planning to overrule virtually his entire cabinet to impose 20% tariffs on steel imports
This brings to mind an adage that most of us have heard,
Those who do not learn history are doomed to repeat it.
Mr. Trump's Republican predecessor (George W. Bush doesn't seem like such a bad choice for President right now, doesn't he) tried a similar tack in 2002 to appease the steel industry:
In 2002, president George W. Bush imposed tariffs on steel imports for much the same reason as Trump—combatting cheap imports from other countries—but ended them when the World Trade Organization ruled them illegal. Over the 18 months that the tariffs were imposed, a spike in steel prices put 200,000 workers out of their jobs
We live in a connected world in which every action has unforeseen, downstream (or upstream) consequences. This is the issue that protectionist policies fail to take into consideration before drafting new policies and laws. In this particular case, an increase in the cost of raw materials is bound to increase the overall cost of goods sold, which will either be passed on to the consumer (likely) or be absorbed in the organization's balance sheet thereby impacting overall profitability (highly unlikely given the capitalist world in which we live). The only countries that can afford to do this are the likes of China where the government absorbs the impact on behalf of the sectors it supports.

Mr. Trump and his government are fighting legal challenges from multiple quarters already, which has impacted their ability to fill critical government spots (diplomatic ranks are thin) and distracted from the critical task of administering this country. With myopic policies like these steel tariffs to appease their "vote bank", they might be asking for new lawsuits from major industries:
When Bush’s tariffs went into place, Ford and GM challenged him in court. We’re likely to see the same scenario this time around, so expect to see a clash of Donald Trump versus America’s carmakers.
Continue to watch this space...

Sunday, July 09, 2017

The Next iPhone: Speculating on SKUs and Pricing

It's fast approaching the manic time of the year again; the next iPhone is going to be announced soon! This, the 10th anniversary of the original iPhone's launch, is supposed to be a blockbuster year for the groundbreaking device, and rumor sites and technology blogs, twitter feeds, podcasts, etc. have been abuzz with iPhone chatter.

@gruber started a controversy this past week (he opined that the iPhone "Pro" will start at $1500), which he then retracted with a long post this weekend. His take, complete with his opinions on pricing (the need for differentiation between premium and standard offerings) and potential insider info, is colored by his personal preferences (he has a huge following and a particular slant on issues), but his perspective is very US-centric. Having traveled all over the World, and extensively in Asia, I know that iPhone pricing is the biggest sticking point for prospective buyers in developing markets. @gruber doesn't seem to extend his analysis to other geographies. The reality is that India is Apple's next growth engine, and given its dire situation in China, Apple cannot afford to ignore India and its burgeoning middle class (of equal parts budget and non-budget customers).

Apple needs to prioritize profit margin vs. price competitiveness in all markets, and I believe it has the right slate of products to make a strong play in 2017. Let's use the 4P framework to determine the right product and marketing mix to maximize returns (i.e. one that favors Apple vs. the customer):

  1. Product: iPhone (SKUs up for consideration)
  2. Price: Up for consideration (by SKU)
  3. Place: Apple has cracked the retail nut in India, and is quickly building a sizable footprint in the metros (no further analysis needed here).
  4. Promotion: Apple doesn't believe in promotions, and carriers don't discount iPhones. A discount is perceived as dilution of the Apple brand, and this isn't something I recommend.

Before we dive into the SKUs, I want to head off three questions that might arise when you see the prices I am suggesting:

1. Will Apple be able to maintain a high profit margin across all SKUs?
My research on the Bill of Materials (BOM) for SKUs already in circulation indicates that Apple will net > 35% profit per device even at the original component prices (which are at least 12-months old). No additional R&D costs need to be factored into the equation; i.e. the BOM is the COGS ex- packaging, warehousing, shipping and display.
2. Will the lowering of the ASP of the iPhone send ripples through the stock market?
It is my firm belief that increased revenues will calm any jitters in the stock market.
3. Can Apple break into "developing" markets?
Apple needs to decide "who" it wants to be for customers in all markets, not just the USA. It can be the "King of the Hill" in markets like India, it needs a phone in the $399-449 price point (a budget offering) all the way up to the premium category.
Without further ado, here are the Product SKUs and associated Prices:

  #     Product SKU (chip)     USD Price     Storage (GB)  
16S-Plus (A8X)$39964
27 (A9)$44964
37 (A9)$499128
47-Plus (A9)$54964
57-Plus (A9)$599128
67S (A9X)$64964
77S (A9X)$749128
87S-Plus (A10)$76964
97S-Plus (A10)$869256
10iPhone Pro (ARidik)$99964
11iPhone Pro (ARidik)$1099256

Notes:
  1. SKU-1, or what I call "the obliterator", is for developing markets only. This makes Apple *THE* go to option for budget shoppers. My moniker, "the obliterator", is based on how this SKU will decimate the likes of Samsung, Xiaomi, OnePlus, and every other iPhone pretender peddling its wares in the market today. All these manufacturers, bar none, cuts corners to cater to the budget/entry-level market. Apple makes no such compromises, and I am living proof of that fact: I love my iPhone 6S-Plus. It takes great pictures, is plenty fast, and with the A9 chip upgrade, I know that I am set for iOS upgrades for at least the next 3-years. This last point is key; budget conscious consumers want a device that lasts at a good price. An analyst could argue that the Xiaomi's of the world price their phones around $349 (or equivalent) but let me tell you this from 100s of conversations: the iPhone is the device that all these consumers "aspire" to own. They pick the cheaper knockoffs solely because they cannot, repeat CANNOT, afford an iPhone.
  2. SKUs 2-5 are this year's model being sold at $100 less than today's prices. This aligns with Apple's strategy with the N-1 release. These come in only 2-storage configurations (64, 128) to streamline offerings.
  3. SKUs 6-11 are based on multiple rumor sites and the report of one very authoritative analyst -- Min-Chi Kuo of KGI Securities.
  4. Specifically, SKU 10-11 are the new coming of the Jesus iPhone Pro. It will ostensibly feature an edge-to-edge OLED screen; touch-ID built in to the display; vertically oriented, dual cameras; mind-reading powers (kidding!).
Where I particularly disagree with @gruber is with his speculation on the price for the iPhone Pro, starting at a whopping $1200. The primary reason he cites is component availability (Samsung, etc.) and associated yield issues. He doesn't say this, but in the subtext one might read that were Apple to do this, they would have the option of dropping the price to something like $999 within 6-months, a la the original iPhone pricing strategy.

I think this is a mistake. If the iPhone Pro (or whatever the official moniker) starts at $1200, they will hand the "premium" market to Samsung. The equivalently kitted Samsung Galaxy S8 starts at $799 (or thereabouts based on Place and Promotion), and the Galaxy S8 Note will come in around the same price. It would be foolhardy for Apple to expect folks to fork over $1200 for an iPhone. I don't buy the notion that they will price the phone so high just to quell demand. That Samsung, the key supplier for OLED screens for the forthcoming iPhone, can only make 10-million OLED screens for the device by the end of 2017 isn't reason enough to artificially jack up the price to a sky high amount. Case in point: the AirPods.
The AirPods were released at a reasonable price of $159. Reasonable when you compare what good quality, bluetooth headphones were sold for when the AirPods were announced. The AirPods were revolutionary, and it was obvious to everyone who watched Apple that these would be in very short supply for the first few weeks. Weeks turned into months; my AirPods were delivered 6-months after they were ordered!!

Knowing that there would be yield issues, Apple could have released the AirPods at $199, even $249, to control demand. This move could have bought Apple time to work out logistics and yield issues with new components and overall design. Once fixed, they could have reduced the price to $159 like they did with the original iPhone. They didn't; the AirPods started out at a competitive price and people have waited patiently for supply to catch up with pent up demand.
What's your take?

Tuesday, June 27, 2017

Strengths in Excess

Building and managing teams is equal parts challenging, rewarding and frustrating. It does get better with time and practice, and if you work at the skill, which it surely is, your maturity and depth will increase. A great book I have found to help me improve is, "FYI: For Your Improvement". The practical advice in this book has helped me navigate new situations as a people manager.

One of the keys to managing and motivating a large team of people is tailoring your approach based on an individual's strengths and weaknesses. As a team, we just completed "The Strengths Finder" assessment, and it was eye-opening for me to see that my strengths had morphed since I last did a self-assessment. It was also instructive to see the spread of strengths across our team; I am reading the accompanying book again to identify strategies to collaborate with my team. Speaking of strengths, one series of questions in the assessment honed in on my perspective on "strengths" and "weaknesses". The questions used words like, "maximize", "capitalize", "leverage" for strengths, and "explore", "improve upon", "fixate on", "overcome" for weaknesses. I figured this out eventually; the questions were trying to ascertain whether I was someone who maximized my strengths or worked on my weaknesses. Given the headspace in which I was residing at the time of the assessment, my responses colored me as a person who, "works on his weaknesses".

The reality is a lot more nuanced. I tend to capitalize on my strengths while being aware of my weaknesses. This balanced approach ensures that I delegate tasks that I know are not best suited for me to someone on my team who can hit them out of the park. I add training courses, reading materials and the like to my "individual development plan" so that I can overcome my weaknesses over time. Career coaches, pointing to a growing body of psychological research, are advising their clients to do the same. The mantra they are proposing, as I understand it is, "Use your strengths; work your weaknesses".

This great piece on QZ starts with the notion of, "Too much of a good thing":
This concept is referred to as strengths in excess. I see this same pattern in people at all levels, no matter their rank, industry, gender, or role. A doctor who excels at staying calm and even-keeled in high-pressure situations may also struggle to express emotion with patients who crave empathy. A landscape architect who’s highly detail-oriented will excel at her job, but may sometimes veer into counterproductive perfectionism. A marketing assistant who’s a loyal team player is admirable—but not if he puts so much value on trying to fit in that he has no boundaries, and lets other people push him around.
Hmm. Sounds like trouble to me...
Strengths in excess can lead to inflexibility. If left unchecked, we become susceptible to overconfidence or arrogance...
This can be remedied by taking the middle path between maximizing strengths and overcoming weaknesses. Self-awareness, is key:
The solution is not to fixate obsessively on our weaknesses—according to research, overly harsh self-criticism undermines motivation and can lead to procrastination. Instead, what we need to do is change our understanding of our strengths. As author and business consultant Marcus Buckingham explains in his book Now, Discover Your Strengths, “Strengths are not activities you’re good at, they’re activities that strengthen you … after you’ve done it, it seems to fulfill a need of yours.”

Put simply, it’s rewarding to do things that we find difficult. In psychology, this is called self-efficacy— and it’s the foundation of confidence.
Read more about overdoing strengths at HBR.

Friday, June 09, 2017

Serenity through stoicism and acceptance

God, give me the serenity to accept things I cannot change,
Courage to change the things I can,
And wisdom to understand the difference

Today's US edition of Quartz has been spectacular. I happened upon this article on how to find peace given everything going on around us: Happiness through an understanding of what you can control.

The author, a practitioner of Stoicism, writes this as his mantra (Epictetus's promise):
If you truly understand the difference between what is and what is not under your control, and act accordingly, you will become psychologically invincible, impervious to the ups and downs of fortune.
I lost my mom earlier this year, and the wound is still very fresh in my heart. I speak to my heartbroken dad and brother every week, and some days are harder than others. I hear the anguish and sadness in their voices, as hard as they might try to mask their inner feelings, and it cuts me to the core. A loss of this magnitude, with or without notice, is a hard one to rationalize, and I have struggled to rediscover the locus of my existence. I blame myself sometimes, and sometimes I bemoan the actions of those around her when she first fell sick; but mostly, I am numb and powerless.

This philosophy, dogma, approach to life, call it whatever, provides me with a groundswell of hope. Called, "The Stoic Dichotomy of Control", it shows me the path forward.
... the dichotomy of control has countless applications to everyday life, and all of them have to do with one crucial move: shifting your goals from external outcomes to internal achievements.
I did everything I could have but her disease and subsequent events were entirely out of my control. I need to act accordingly -> honor her memory, live to be the person she raised me to be, control my actions, and be nimble when things out of my control go awry. My mom used to say that I worry too much about things out of my realm; she was so wise.
... it is the mark of a wise person to realize that things don’t always go the way we wish. If they don’t, the best counsel is to pick up the pieces, and move on.

If you succeed in shifting your goals internally, you will never blame or criticize anyone, and you won’t have a single rival, because what other people do is largely beyond your control and therefore not something to get worked up about. The result will be an attitude of equanimity toward life’s ups and downs, leading to a more serene life.
This advice reminds me of a theme in the Bhagavad Gita: Dharma (and Heroism). The Lord Krishna tells his disciple Arjun to focus on his place and mission in life, because that is under his control. The Universe has its own plan, and he is but a piece of a bigger puzzle. My mom taught me this when I was struggling at the start of my career. She was wise, wiser than I gave her credit for.

Thanks, mom. I will always love you. Yes, that's under my control.

Trump uses cowardly management tactics, among other things

In the aftermath of James Comey, ex-FBI Director, a number of things are becoming clear about the management style of Donald Trump. We now have evidence, in sworn testimony, that confirms traits the press has been uncovering since the man became POTUS: manipulative, conniving, cowardly. I need to add another to this list: shrewd. This man uses the power of suggestion and "presuasion" to make his subordinates do his bidding. Read this excerpt from analysis over at QZ.com:
But no matter what happens to Trump, the exchange pulls back the curtains on a tactic much beloved by manipulative managers across industries. “Ambiguous language, like telling someone you hope, or suggest they do something, is the secret weapon of leaders who put covering their ass ahead of uncovering the solution,” says Nick Tasler, an organizational psychologist and author of The Impulse Factor: An Innovative Approach to Decision Making. “It’s a brilliant way to let accountability roll down hill.” Put simply, some managers will use “hope-speak” and other vague language to influence their subordinates while maintaining plausible deniability if things don’t work out the way they hope.
If the man were to have any ethics at all, he would recognize that his actions belie the essence of the office he holds (emphasis, mine):
“As a manager, it’s your job to clearly communicate how your team can accomplish your goals ethically,” says Davey. “If you continue to exert pressure without giving your team an option for how to succeed, you set them up to behave unethically. That is your failing as much as it is theirs.”
Our feudal lord of a President is quickly taking us back to the dark ages. Strap yourselves in for a bumpy ride... 

Monday, June 05, 2017

Apple HomePod: Likely DoA

Update: The Verge did a great comparison of the "Smart" speaker marketplace earlier today. Here's what they found.



Apple announced its Siri-based, smart, home speaker today. Dubbed the HomePod, the speaker is supposedly a marvel of engineering - acoustic prowess, AI chops and home automation - in a sleek package. This was supposed to a shot across the bow of Google Home and Amazon Echo. Alas, it is going to be Dead on Arrival (DoA) for four big reasons:

  1. Price: $349 is a ridiculously high price point for a speaker that is yet to prove itself in a market in which speakers of the same size aren’t more than $200 (and have strong pedigree, compatibility with numerous online services) such as the Sonos Play 1.
  2. Siri: There are critically acclaimed home assistants that double as speakers (Amazon Echo, Google Home) which defined the market and are arguably better assistants than Siri.
  3. From (1) and (2) it should be clear that there is a lack of differentiation from market offerings.
  4. Availability: Launch in December gives the competition a chance to catch up on the cool "speaker" features.

I recently invested in a pair of Sonos Play 1 speakers because Apple Stores featured them as best of breed. Apparently, the HomePod is going to be better because it has been designed with music in mind. It has 7-tweeters, can automatically adjust its acoustic response based on the room in which it is placed, and will connect to another HomePod automatically (if you have another $349 burning a hole in your wallet). Great. So can the Sonos Play 1. Siri can get me scores for my favorite teams and the current weather. Great. So can Alexa or Google's assistant. All for a fraction of the price.

Almost all the electronic equipment in my home office and in my bedrooms is Apple branded: MacBook Pro, iMac, AppleTV, Airport Extreme, iPads and iPhones. On balance, even I won’t buy a HomePod.

I wonder why anyone else will…

Sunday, May 07, 2017

Apple's India Problem

Based on Apple’s Q1 revenue call and guidance for the rest of 2017, they are looking to India and China as their future growth engines. Unfortunately, the status quo is bleak: iPhone sales are down in China and they never really picked up in India. In my objective estimation, Apple’s forays in these markets needs an infusion of new ideas if they are to turn things around. The problems stem in the product portfolio and overall Go To Market strategy.

Apple’s current Go To Market strategy isn’t going to work in these markets because of three critical differences between them and the West (USA and Europe):
  1. The degree of price consciousness in these markets is very high.
  2. The person(s) defining the strategy for these markets do not understand market dynamics intimately.
  3. Median income levels are a fraction of what they are in the West, while pride of ownership / status symbol importance might be 2x or 3x of that in the West.
I don’t truly understand the Chinese market, so I will focus my attention on India. There is a subtle fourth consideration that every successful company in India has embraced: The Indian consumer is not loyal to a brand; they are loyal to price and status appeal. This fourth consideration is a key to understanding why stickiness through Cloud-based services is hard to establish in India (WhatsApp is the sole exception to this rule). These numbers haven’t been tabulated but I can say with some certainty that revenue from Apple’s “Other” services in India is minuscule.

Translation: Apple cannot count on current owners of Apple device(s) being repeat customers (this stat has been calculated for China [1], it is low, but I couldn’t find an equivalent one for India).

On my recent long travels to India, I often fielded questions on why I chose the iPhone. The question invariably leads to a longer conversation on aesthetics, applications, services, design and personal preferences. When I turned the question back on my contemporaries, cousins and their Millennial friends, their answers to why they choose Samsung or OnePlus (or any other Chinese phone maker’s latest device) were eye-opening. While affordability was the number #1 reason, I heard one refrain over and over:
    This phone is just good enough…
Apple doesn’t necessarily believe in “just good enough”. It wants to be “the best”, not just in perception but in reality. Every benchmark that compares phones has the current stable of iPhones in the top-5. But Indians want good enough at a great price! So what’s Apple to do? How can a company that is renowned for being the “best there can be” cross this chasm? How does Apple balance the competing needs of affordability, style/status and performance to win over the fickle Indian market?

Let’s start with what it shouldn’t do: It should not release older models in India and expect success. Folks are extremely Internet savvy these days (thanks to > 50% smartphone adoption), and Apple’s PR and Marketing departments, along with the technology press, do a fanciful job of extolling the design characteristics of the latest devices. If there is a way to visually distinguish the iPhone model I have from the ones that others have, it will reinforce the class system and associated discrimination. This is against Apple’s ethos and really isn’t the way to profits in India.

So, don’t release older models even at more palatable price points - got it. But, the newer models aren’t selling because they are too expensive. We are at an impasse!

From my vantage point, the answer lies somewhere between these opposite ends of the spectrum. Pundits have commented, post Apple’s declining sales in China, that the fact that iPhone 6, 6S and 7 look almost the same is a reason for why folks are foregoing Apple devices altogether. This is where I think that Chinese and Indian consumers diverge: in India, iPhones that look similar but have different features is exactly the way to go. This means phones cannot be visually distinguished from one another, but enable the creation of pricing tiers that Apple can leverage to accelerate sales. In essence, the tagline for the strategy I am proposing is:
    Similar in Looks; Different in Function.
To the keen eye following Apple’s moves in India, it would appear that this is indeed the overarching plan. Unfortunately, it just needs to pick a play and execute better. Yes, in Tim Cook’s Apple, this is one of the rare instances in which I can say that better execution is needed. The knobs that the team can turn (with low end -> high end in parentheses) are:
  • CPU (previous generation -> latest)
  • Camera (single -> dual)
  • Display (720p -> OLED)
  • External materials (plastic -> aluminum (ALU) -> glass)
  • Storage (16GB -> 128GB)
  • Size (Regular -> Phablet)
Tim’s team can use this as a starting point for their thinking on SKUs:

Four for India
Specifically, for the entry level, “India only iPhone”®, the newest iteration of this device should be released in line with the flagship device every year (guaranteeing Freshness). What I am proposing is similar to the worldwide Apple Watch strategy (similar innards; different shells — Aluminum, Steel and Ceramic). Additionally, this iPhone can remove components and features that aren’t accretive to the Indian market (“Hey Siri” comes to mind) so as to reduce the overall BOM.

It remains to be seen what Apple will do to win in this space. One thing is for sure, the current strategy is doomed to fail.

1. http://www.businessinsider.com/iphone-users-abandon-loyalty-to-apple-2016-11