Why The iPhone SE May lose Out In India - Strategy With RS

On 21 March, Apple Inc. formally announced the launch of iPhone SE, iPhone’s smaller, cheaper version. It started taking pre-orders from 24 March. With this version, the company hopes to woo first-time smartphone users who are switching over from feature phones. My take is that it is likely to do well in China but not so much in India. I’ll explain why in a bit, but first the reason Apple felt compelled to launch a special edition for first-timers. The iPhone contributes handsomely to Apple’s profits, but in recent months, its sales have been slowing down, especially in China, one of the company’s most lucrative markets. Hence, Apple had to do “something magical” to kick-start iPhone sales, particularly in China and India, arguably two of the most lucrative markets for smartphones.   Why SE is likely to succeed in China The market seems to indicate that there is a big swath of Chinese customers who wish to graduate from mobile phones to smartphones. They desire three features in their smartphones: a 4-inch screen size, excellent computing power and low price. For Apple, the solution seemed simple: marry iPhone 5C’s 4-inch screen size with iPhone 6S’s awesome computing power and price it attractively at $399 (compared with 6S’s $650). The SE can easily qualify for the title of the world’s most powerful compact smartphone. It is in many ways a smaller 6S at an attractive price. It has all the features of 6S, except for: • No 3D Touch, because it would have made the phone fatter and look ungainly. • A 1.2-megapixel front facing camera compared with a 5-megapixel in 6S. So, selfies will not be as sharp. So, if Apple has understood correctly what its target buyers want, SE has all the ingredients for becoming a big hit in China.   In India, the price whammy In India, the chances of success appear slim. It essentially comes down to price: The 6S (16 GB) is available for Rs.42,999 (as on 3 April), due to the bloody price battle being fought among e-commerce companies. The iPhone 6 (16 GB) is available online for Rs.34,999. And the price of SE? Rs.39,000. Now $399 converts to Rs.26,000 ($1 = Rs.66), so how is the price of Rs.39,000 arrived at? In a word: duties. The Indian government is vigorously pushing its Make in India initiative. It wants multinational companies to manufacture locally. Else they have to pay import duty to get their products to India. Apple will incur a 47% additional cost made up of import duty, shipping and other miscellaneous costs. Given that Indian customers have calculators fitted in their minds, they will realize that it makes better sense to buy the iPhone 6 or pay a little more for the 6S. In China, Apple is spared similar import duty because it manufactures locally. Realizing the benefit of local manufacturing, Chinese firms like Xiaomi have already started manufacturing in India.   Local challengers Price is not the only battle SE has to fight in India. India, like China, has robust local competition in the form of Micromax, Intex, iBall, Lava International and Karbonn Mobiles, which have been offering smartphones at under Rs.10,000. They have succeeded in getting a large number of people to graduate from mobile handsets to smartphones. Of course, at under Rs.10,000, you would get a basic smartphone with limited features. But for first-time smartphone users, possessing a smartphone itself gives them an awesome feeling and experience.   Is Apple finally entering a price war? Many Apple critics have been predicting since long that the company will enter the price game to protect its eroding market share, which is being steadily eaten away by the likes of Samsung, LG, Xiaomi, One Plus, Lenovo, Huawei and others. Finally, they have ammunition to back their claim: $399 is the lowest starting price for an iPhone in the company’s history. Does their claim have legs to stand on? Maybe not. To explain that, let me point to the Apple way of thinking. As chief executive Tim Cook said in an interview to ‘Bloomberg Businessweek’, it is “To make the very best products in the world that really enrich people’s lives… It’s not to have the highest market cap, but that’s the result of doing the first one well. That’s what we are about. And hopefully you can see that in our products and more importantly, feel that in the experience you have using them. That’s what we are about.”   The bottom line Apple aspires to design products that will enrich people’s lives by delivering a memorable experience when they use them. It is not in Apple’s DNA to launch a lower price smartphone to fight competition. Then why has it launched iPhone SE at $399? Apple believes that it has designed a great product—and it has also figured out a way to do it at a lower cost. It is passing on the benefit to its customers, hoping that many more people will be able to afford an Apple phone and get a genuine Apple experience. By introducing iPhone SE at this attractive price point, Apple feels it will enrich many more lives.   (This article first appeared in the Mint) In this series, Rajesh Srivastava, Business Strategist and Visiting Faculty at IIM Indore gives you a regular dose of strategy case studies to help you think and keep you one step ahead as a professional as compared to your peers. Rajesh is an alumnus of IIM Bangalore and IIT Kanpur and has over 2 decades of experience in the FMCG industry. All previous Strategy with RS posts can be found here.