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Apple tweaks India strategy to kick-start growth

Written by Moulishree Srivastava Published on 

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Though India has a huge domestic opportunity, the premium smartphone market is pretty limited.

After going through a depressing year that saw Apple’s sales and revenues nosedive in India, the US-based tech giant has come up with a three-pronged-strategy that will shake up its status quo in how it handles retail, manufacturing, and pricing in the country.

One of the direct results of its strategy—although limited to the optics—was when Ravi Shakar Prasad, Minister of Communications, Electronics & IT, tweeted his picture with the latest iPhone XR, presented to him by Apple that has been assembling these handsets in a small Southern Indian town of Sriperumbudur.

“As promised, delighted to receive an iPhone XR, which reads ‘Designed by Apple in California and Assembled in India’. I expect further expansion of manufacturing in India by #Apple,” he posted last week on social media along with the picture.

Apple kicked off the production of its latest iPhone XR in India last quarter, prior to which it was assembling only older phones like iPhone SE and iPhone 6. The tech behemoth has also reportedly committed to investing USD 1 billion in India through its partners to increase its manufacturing capabilities, while its suppliers have already been showing their interest in India. For instance, its Finland based supplier Salcomp has agreed to invest USD 278.67 million in India to make mobile chargers and other smartphone components from March 2020.

The smartphone manufacturer is also going to fully utilize the recent relaxation of foreign direct investment norms by India for single-brand retail companies for opening stores in the country.

As Apple prepares for a new retail strategy, it’s also working on pricing its products to better suit the Indian buying power. Over the last couple of months, it has dramatically slashed prices of older yet popular models including iPhone7, 7 Plus, 8, 8 Plus, XS, and XR. Moreover, its flagship launch this year—iPhone 11 was priced starting at USD 895 (INR 64,000), which was about 16% lower than iPhone XR it launched last year. This year, it lowered the price of iPhone XR as well from USD 1,075 (INR 76,900) to USD 698 (INR 49,900).

Apple fell from the tree

Cutting down the prices of its flagship products is seen as a desperate move as its revenue tumbled down for the first time in India. According to the documents filed with the Registrar of Companies, Apple India’s revenue from operations went down by 19.2% to USD 1.46 billion (INR 10,538.25 crore) for the financial year ended March 31. The profits crashed by 70% to USD 36.6 million (INR 262.27 crore).

According to people in the industry, 50% of iPhones sold in India are the older and cheaper models and not the new ones. In fact, the company lowered the projected demand of its phones in India and shipped only 1.7 million units in 2018 compared to 3.2 million phones a year earlier, shrinking its market share to 1.2% in 2018 from 2.4% the previous year, according to data collated by Counterpoint Research.

“The biggest challenge for Apple in India has been selling its new phones,” Neil Shah, partner, and research director at Hong Kong-based Counterpoint Research told KrASIA.

When Apple rolled out its X series last year, XS and XS Max, they were priced above USD 1,383 (INR 99,000), while XR cost almost USD 1,076 (INR 76,900), which is why Apple did not do well, Shah explained.

“At the same time, Apple was shifting focus away from its older devices like iPhone6, 6s, and 7 by cutting down their supply as it was expensive for the company to produce devices with four-generation-old components,” Shah said. “And these phones were getting sold in India and other emerging markets, but not in high volumes. This resulted in Apple’s sale going down.”

The three-pronged strategy

According to Prabhu Ram, Head – Industry Intelligence Group at CyberMedia Research (CMR), Apple has embraced a “prudent pricing strategy” over the course of the past year that has helped it strike a chord with price-conscious buyers in India.

“Apple has had a fine rope to walk on, as it has to cater to price-conscious buyers, while ensuring it doesn’t dilute its premium brand imagery,” Ram told KrASIA.

In August 2019, Apple said it would invest USD 139.5 million (INR 1,000 crore) to open a retail chain and a dedicated online store.

“Apple’s retail push provides it with a more cogent opportunity to reconnect with its intended target audience and re-build its identity in India as a premium smartphone brand,” Ram said.

He believes offline continues to be the key in India and that Apple’s retail stores are an important extension of the overall brand philosophy and act as a bridge for consumers to interact with the brand.

At the time when Indians are locked in Google’s Android ecosystem, Counterpoint’s Shah said, Apple’s retail strategy will not only promote its ecosystem of services and hardware within the existing users, but also create a pool of aspiring users, who may buy its products in the near future.

“It might not be a profit center, but it’s an experience and it’s indirect marketing for them. With the retail stores, Apple would be attracting users to its ecosystem of hardware and software and services,” he said. “While selling an iPhone to a user, it has more opportunity to sell MacBooks, iPad, ear pods, and services such as Apple TV and Apple Music.” Shah believes, on an average, Apple can sell close to USD 3000 to USD 4,000 worth of software and services and hardware to a particular user over a couple of years.

The experience stores, Shah says, is also important as they have the potential of turning India’s millions of college students into Apple customers once they start earning. “But they need to experience these products first hand.”

Though India has a huge domestic opportunity, the premium smartphone market is pretty limited. As per Counterpoint, premium smartphones priced beyond USD 420 (INR 30,000), make up just 4% of the overall smartphone market by units, while USD 489-plus (INR 35,000-plus) segment accounts for just 2%. It’s in this 2% of the market, where Apple has the lion’s share.

Still, the India market is small for Apple where it sells just a couple of millions of units per year, compared to China and the US, where the company sells about 40 million and 75 to 80 million units per year, respectively, said Shah. Amidst the ongoing US-China trade war, Apple’s grand plan is to make India an export hub so as to cater to the demand in Asian peninsula.

“All the Apple products, mobile phones being manufactured in India will be used for the domestic market, and will also be used for exports,” minister Prasad told media during the Apple photo session.

On the flip side

As the global realignment of manufacturing supply chains continues, India provides Apple with “an opportunity to not just mitigate the uncertainties associated with China, but to in fact grow,” Ram believes.

“For instance, Made in India iPhones would enable Apple to avoid the 20% import duty, and help it eventually in passing the benefits to consumers, by continuing with its aggressive device pricing strategies,” he said.

However, Faisal Kawoosa, founder and chief analyst at research firm Techarc, believes it would be too soon for Apple to slash its prices just because it avoided the import duty.

“While manufacturing, Apple would need to reach economies of scale and achieve increased efficiency in processes so as to be able to pass the benefit to consumers, which may not be possible in the short to medium run,” Kawoosa told KrASIA.

Kawoosa goes one step further to say Make In India initiative is not targeted towards end-consumers.

“It is targeted at macro-economic benefits, such as bringing in investments, jobs, and shifting the economy towards manufacturing,” he said. “With Make In India policy, the government has brought the country at par with other countries such as China which are providing different benefits to global manufacturers.”

According to Shah, being a part of Make In India initiative does earn Apple some brownie points from the government as well as gives it leverage to bargain for more benefits from counties like Vietnam, Brazil, and Mexico, which may want Apple to establish a base in their countries.

But even as India has become one of the most critical markets for Apple, its global strategy still largely remains US-centric.

“Everything is designed for US consumers in mind,” Shah said. “In India, it is a more forced strategy, rather than a natural strategy which would come in the US or China, or the UK or Japan—Apple’s top four markets.”

Shah believes, if not for Make in India policy or the US-China trade war, Apple wouldn’t have given India the importance it’s giving right now in terms of manufacturing and making it an export hub.

“Similarly, Apple invested in software and services by setting up R&D centers in Bangalore and Hyderabad to show it’s adding value in the country.”

To be sure, amidst the turn of events, Apple is slowly getting back on track in India.

“The wheels are definitely turning for Apple, due to a confluence of factors, including tweaked pricing strategies, policy shifts, and more warmer market reception,” CMR’s Ram said.

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