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