Apple’s struggle to conquer the Indian smartphone market

In the West, Apple is viewed as an all-conquering business behemoth. First, it revolutionised music, then it took control of the smartphone market. It has made successful inroads into televisions and wearable technology, and has even set its sights on developing its own electric car. By market capitalisation, and by general public opinion, it is undoubtedly one of the world’s most valuable companies.

But Apple doesn’t have everything its own way – certainly not the world over. In India, the company lags far behind market leaders like Xiaomi and Samsung in terms of smartphone sales, with a study by Counterpoint indicating that the company’s devices represented just three percent of those sold in the country in Q4 2019.

For Apple, this is a problem that needs addressing soon: although the company has huge cash reserves, CEO Tim Cook remains well aware that market saturation in developed nations is approaching. As the world’s second-largest smartphone market, India offers great potential for brands like Apple, but the Silicon Valley giant currently has a long way to go in terms of improving the popularity of its devices in the country.

Apple could afford to drop the price tag of the iPhone in order to make progress in the Indian market, but doing so could damage its overall brand

The price is not right
With Apple having achieved mass popularity in the West – it has been the market leader in the US for years – it is easy to forget that its devices are significantly more expensive than many others produced by its competitors. The most recent iPhone release, the iPhone 11 Pro, was available at launch in its cheapest iteration for $999. In India, although the country has recently made progress in improving the wellbeing of many of its citizens, as much as one fifth of the population still lives below the poverty line, according to the most recent World Bank statistics.

“The answer to why Apple has struggled in the Indian smartphone market thus far lies in the fact that it is structured very differently to western markets, or even similar markets (in terms of size) like China,” Navkendar Singh, Research Director of Client Devices and IPDS at IDC India, told The New Economy. “It is a very value-conscious market, with almost zero interest in selling devices as a contract or bundle in the telecommunications space.”

A closer look at domestic sales data suggests Singh is correct: while Apple continues to perform poorly in terms of overall sales in India, the iPhone took the top spot in premium smartphone sales, capturing 75.6 percent of the Indian market in Q4 2019.

“More than 90 percent of the Indian market lies below the $300 price bracket, and Apple has absolutely no play in these price bands with its high-priced new, and even last-gen, models,” Singh continued. “Apple is seen as a super-premium brand; everyone would love to own an iPhone, but not everyone can afford one. The high price of iPhone models makes them out of reach for most consumers, making them almost like a niche purchase. Hence, Apple has traditionally seen a low-volume market share in India.”

Of course, the answer to Apple’s India problem is not as simple as just lowering prices. The high price of the iPhone is one of the reasons why it remains such a desirable item, and likely why it continues to perform so well within the premium market. Apple could afford to drop the price tag of the iPhone (by some estimates, the company’s profit margin on each device is around 40 percent) but doing so could damage its overall brand.

Retail therapy
Because of local regulations, Apple has not been able to adopt its usual retail strategy in India. In most markets, Apple has a number of physical stores to bolster its online activities, providing a trusted outlet where customers can purchase items and receive customer support. In India, this is not the case.

Since 2018, Indian law has stipulated that foreign firms cannot open single-brand stores in the country, but must partner with a local business. At the time, Apple CEO Tim Cook rejected the chance to team up with another organisation, telling investors that his company likes “to do things our way”. As a result, Apple devices are only distributed through third parties.

But in February, Cook changed tack, announcing that he had received special approval from the Indian Government to open a store without requiring a domestic partner. As such, it was confirmed that Apple would be opening an online outlet later in the year, with a physical store to follow in 2021.

“Although Apple has retail presence via third parties in India, a company-owned store gives a different dimension to the seriousness and commitment of a brand,” Singh said. “Additionally, Apple’s stores are a landmark in most cities, known for their retail experience. Apple would love to leverage this and build on this to further make inroads in such an important market over the next few years.”

Apple stores, with their slick glass displays, are an important part of the company’s overall brand, even if the majority of Apple’s revenue comes from other channels. The coronavirus pandemic may delay the opening of the Indian store, but Apple will be keen for it to go ahead as soon as possible even so. India will remain a vital market for the smartphone industry in the coming decade, with the World Economic Forum predicting that 80 percent of households will fall into the middle-class bracket by 2030. A brick-and-mortar store will help bring these individuals into the Apple family.

Making up for lost time
No number of shiny new shops will solve all of Apple’s problems, however. Although Cook secured a breakthrough with regard to retail store regulations, Apple remains subject to Indian law in terms of its manufacturing supply chain. As part of the Make in India policy, Apple must source at least 30 percent of its components from within the Indian market. This is already proving to be a challenge, with the country’s manufacturing sector still largely underdeveloped. One local supplier that Apple was using in 2018, Superpacks, had to be dropped due to poor factory conditions and missed deadlines.

With Apple’s market share in India currently so disappointing, the company is facing an uphill struggle. Many consumers will now have their own favourite smartphone brand – likely one that uses the rival Android operating system – and convincing them to switch to an iPhone won’t be easy. Still, there are several things Apple can do in an attempt to boost its market share.

“A mid-premium-priced model for the Indian market would be very fruitful for Apple, considering the price structure of the market,” Singh said. “Even in 2019, Apple saw sales volumes increase in the $500 to $700 segment following a price correction of the iPhone XR model. Additionally, retail footprint and affordability offers, like equated monthly instalments and cashback schemes (which are already being employed), make a difference in bringing down the upfront cost to the consumer for such an aspirational and expensive product.”

While the coronavirus pandemic will undoubtedly have affected Apple’s plans for India (and, indeed, elsewhere), when some semblance of normality has returned, the company should refocus its efforts on improving its market share in the country. A new, flagship retail store can be the focal point for increasing sales figures, but making improvements to its local supply chain and adopting more flexible pricing policies will also prove crucial.