updated 01:20 am EDT, Fri May 31, 2013
Apple using payment plans, trade-in programs to make iPhone affordable
According to a report from a Credit Suisse analyst, Apple is now selling nearly 400,000 iPhones per month in India -- a rise of 300 to 400 percent since the start of the year, and enough to garner second place in the smartphone race behind Samsung in the country. The key to the change, analyst Sunil Tirumalai said in a note to investors, was changing the iPhone's image in the country to seem more affordable -- mainly by introducing discounts, trade-in programs and equal monthly payment (EMI) plans that have spurred sales on both the older and latest iPhone models.
Tirumalai said that Credit Suisse believes Apple now commands some three percent of the entire handset market in India, a significant figure in a country where low-end feature phones still widely dominate. The company was selling only 70,000-80,000 units per month under its previous scheme, which relied on the two biggest telecom operators in India (Bharti Airtel and Aircel) as the main selling points, and offered limited price options. As with most other emerging nations, contracts in India are virtually unknown, meaning buyers must pay the full retail price of the device in addition to cell service.
Starting in February, Apple allowed its dealers to make EMIs an option for the iPhone 4 and 4S models, where buyers would place a small down payment and pay off the balance over the course of six to 12 months with no interest. The plan, coupled with an aggressive advertising campaign, became so successful that rivals such as Samsung were forced to respond, unsurprisingly choosing to copy Apple's offer. In the smartphone-only segment, Apple went from 3.9 percent to 15.6 percent share in the previous quarter, tripling its shipments as well. Ironically, due to the pricing the iPhone 4 is said to be outselling the latest model, the iPhone 5, in the country.
In response to the increased competition, Apple upped the 4-9 percent discount on the iPhone 4 to an effective 25 percent, essentially rebating the cost of the down payment. Samsung was obligated to follow suit, offering steep rebates on its Galaxy Note II and Galaxy S III models. Nokia and BlackBerry, which have traditionally done well in India, were also compelled to join in.
Ironically, the discounting of phones has led to increased data use in India, meaning the telecom operators are -- thus far -- the biggest beneficiaries outside of consumers, who are seeing once-premium smartphones become an affordable status symbol. Customers activating 3G plans in India are said to be up 23 percent, while overall the carriers are increasing their customer base by around seven percent per quarter.
The Credit Suisse findings match earlier reports from IDC that indicated that Apple had seen a quadrupling of sales in the region as a result of the aggressive pricing and increase of qualified dealers. Earlier this month, Apple upped the ante again -- offering trade-in rebates to students for certain iPhone models, resulting in a discount off the total cost of the iPhone of up to $134. The traded-in phones are refurbished and sold on the country's active used-phone market, allowing resellers to make back the profit lost on discounted iPhone sales. The cost of an iPhone 4 after trade in and other discounts can be as low as 20,000 Rupee ($368), a key price point in the country.
India has some 1.2 billion potential cell phone customers for Apple and its rivals to sell to, and while in the short term manufacturers that offer both "feature" phones and low-end "smartphones" will continue to have an advantage over Apple in pricing flexibility, the price war will also likely cause smaller makers -- who already see no profit in the worldwide smartphone market due to Samsung and Apple -- fall away and eventually get out of the business. Samsung is by far the market leader in India, but unlike the US, Nokia Windows 8 phones and BlackBerry's latest models also do well in the more-diverse market in India.