In India, Apple Shifts iPhone Strategy
Apple doesn’t run branded stores in India because local regulations make that difficult. Until now, Apple has sold the iPhone through Indian telecom providers, who bundle the phones with data services. As Indian telecom companies don’t subsidize the cost of iPhones, as in the U.S., these sales have been limited. Some independent mobile phone retailers, which buy from the providers, also sell iPhones. But distribution has been limited mainly to large towns.
This distribution model, coupled with the iPhone’s high cost, has left Apple’s market share in India in the doldrums. According to research firm IDC Inc., in the April-June quarter of this year, Apple’s share of handset sales in India was only 1.2%, half the level a year earlier. During this period, South Korea’s Samsung Electronics Co. Ltd., the market leader, more than doubled its market share to 51%, IDC says.
Now, Apple is looking to change the way it distributes the phone. A person who has knowledge of the plans says Apple will begin selling the iPhone through specialized distribution companies in an attempt to reach a wider audience, especially Indians who live in thousands of smaller towns.
The Cupertino, Calif. company has recently tied up the local operations of Ingram Micro Inc., a large U.S.-based distributor of technology, and Redington (India) Ltd., a local distributor with 12,000 smaller partners across the country, the person said. Redington confirmed that it has added iPhones to the list of Apple products it is selling in India. A spokeswoman for Ingram Micro wasn’t immediately available for a comment. Apple declined to comment.
Apple has used both these distributors in the past for products like the iPad, but did not do so for the iPhone as it was concerned that paying third-party distributors would eat into its profit margins on a key product.
Apple’s Chief Executive Tim Cook said earlier this year that the company saw higher potential in countries other than India, largely because of the high cost of distributing products here.
“We have a business there, that business is growing, but the sort of the multilayer distribution there really adds to the cost of getting products to market,” Mr. Cook told analysts in July.
The company’s decision to go through distributors perhaps shows the company is willing to see its margins decrease for now in an attempt to get a bigger toe-hold in India for the iPhone, said G. Rajeev, a senior market analyst with research firm IDC Inc. Samsung already sells its phones through a nationwide network of distributors.
Analysts say the move could help make the iPhone more available but will have an uncertain impact on sales because the main deterent to Indian consumers is the high price of the device.
“This may not push up Apple’s sales of phones in India dramatically,” says Anshul Gupta, principal analyst at research firm Gartner Inc. “They will be able to take some more sales, but don’t expect them to sell a million phones in a quarter.”
According to Mr. Gupta, about 70% of the 220 million handsets predicted to be sold in India this year are in the sub-$100 price category. He says the market for $800-plus devices, which is predominantly where Apple belongs, “is very small.”
The distribution changes come as Apple is gearing up to launch the iPhone 5 in India. The phone is expected to be sold at a price anywhere between 45,000 rupees ($854) and 50,000 rupees. Analysts are now saying the latest iPhone should be launched in India some time at the end of this month.
The iPhone 5 launch will then coincide with India’s upcoming festival season — which will run from mid-October through December this year — when many Hindus tend to purchase luxury products like smartphones, cars and jewelry. Apple has declined to give details.
The iPhone 5 will be coming to India much later than its launch in other markets. Ahead of the launch, the company has cut the prices of its older versions of the iPhone.
The 8-gigabyte model of the iPhone 4 is now available in the market for 26,500 rupees versus 28,300 rupees earlier. The 16GB model of iPhone 4S has now been priced at 38,500 rupees compared with 41,500 rupees previously. In addition, it has also made minor price adjustments to the 32GB and 64GB models of the iPhone 4S. It is phasing out the 3GS variant of the iPhone from the Indian market, leaving the 8GB model of the iPhone 4 as the entry-level smartphone from the company’s portfolio in India.
“The latest move is very much in sync with their earlier pricing moves wherein we have witnessed them cutting down the prices of previous models as new devices and upgrades come into the market,” said Mr. Rajeev of IDC. “It’s more of a strategy to retain consumer interest in existing devices.”
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