With the cheaper phone, Apple will no doubt gain sales and market share. But it will still fail to reach the majority of city dwellers, according to a projection from the Wall Street Journal based on income distribution data from research firm CEIC Data.My guess? Apple will sell iPhone 5c's as fast as it can make them, rendering moot the idea that it would sell more at a lower price. You can only sell your product as fast as you can make it. The new design is visually striking, and I think that's about more than just giving people a variety of colors to choose from. I think Apple designed the 5c with the goal of letting its customers in nations like China telegraph to their peers, "I can afford an iPhone." Given how status-conscious and luxury brand-focused Chinese consumers are reported to be, that's no small consideration.
The projection, developed in consultation with analysts, assumes that a working, urban family would be willing to spend, at most, half of its total monthly income on a single smartphone. Working on that assumption, around 260 million Chinese urban residents could potentially be willing to buy the iPhone 5c. That means cheaper iPhone effectively doubles Apple’s addressable market from the 125 million who would be willing to shell out for the more expensive handset.
It also means that an Apple phone is still too pricey to appeal to roughly 430 million people, or 62% of the country’s urban population.So... only 263 million prospective customers, who happen to be the more affluent members of Chinese society. Apple sold 31.2 million iPhones last quarter, worldwide.
I appreciate the article's assertion that most Chinese consumers are looking for a phone that costs less than half of the price of a new iPhone, with many wanting to pay less than a quarter. But that's not a market that Apple is presently willing to serve, nor would it make sense for Apple to abandon its traditional business model and to start producing iPhones that could be sold at that price level. Will that give Android an advantage among bargain hunters? Yes, as will the array of larger-screened Android phones. But you don't make profits by selling low-quality merchandise at razor-thin margins, which is why Apple and Samsung are the only mobile phone manufacturers who are presently earning a significant profit from phone sales.
Smartphones will eventually become commoditized, a process that is accelerating with the release of attractive Android phones from several of Samsung's competitors. Apple won't be able to sustain its margins forever, although it is positioned to be the last man standing. The trick then becomes, how to leverage your platform into continued, significant profits. Apple has a number of advantages in that respect, including the fact that it has been careful to maintain backward compatibility in its devices. With most iPhones running the latest version of iOS, and with every iPhone built to Apple's standards, third party manufacturers can develop products and services that connect with the iPhone much more easily than they can with Android devices. It can only help Apple if, while Android remains the operating system of choice for bargain hunters, it holds its position as a phone of choice for affluent consumers around the world.
Even as the WSJ article suggests that Apple needs to make cheaper phones, it acknowledges the problem with that position:
Ma Tao, who owns a shop on the second-story of the electronics mall, echoed concerns that have already been voiced by some analysts: that the new phone would lead to a short-term spike in sales, but that it would erode Apple’s reputation as a maker of luxury high-end phones in the long run.Meanwhile, the phone vendor they interviewed suggests that Samsung sales in China will suffer as customers opt instead for a considerably cheaper, Chinese "equivalent". It may turn out that Chinese consumers opt for the flagship iPhone, in silver, graphite or
I think that the article glosses over one of Apple's significant problems in the Chinese market - the size of its displays. The concept of a phone that you can operate with one hand is great, and Apple should continue to offer the standard sized iPhone. But if you've ever squinted at a small screen, consider what it would by like to read Chinese or Thai characters on an iPhone screen, or to enter text in an Asian script. Then consider the population that wants a bigger screen because it's better for videos and games. Or because they only want one device, and are attracted to the phablet.
If I were Apple... and I admit an uncanny knack for being incorrect in my Apple-related predictions... I would be thinking about releasing a larger-format iPhone no later than a year from now, and ideally in the spring.