IPhone’s launch in India has been dubbed the biggest failure of a top-notch brand from a well regarded company in recent times. Two months after the dust over the launch and the subsequent wave of disappointment has settled, it’s time to take an objective look at what actually went wrong with iPhone in India, given that it has been a runaway success in most other markets it was launched in.
Photoimaging: Raajan / Mint
Unlike the initial argument that it was the steep price tag that queered the pitch for iPhone in India, many analysts, say there is more to the debacle than just the pricing. “Besides a very high price tag, one main reason behind iPhone’s failure in India is that there was a very weak link as far as consumer confidence was concerned,” says Anshul Gupta, senior research analyst, Gartner Inc., an information technology research and advisory firm.
Apple’s rivals in India, industry observers and analysts say that a flawed sales and distribution model and communication failure were the biggest reasons behind iPhone’s debacle. “A brand like Apple need not be told that an iconic product needs iconic advertising, a solid marketing push,” says Prathap Suthan, national creative director of advertising agency Cheil Communications India. “The company failed to strike a connect with Indian consumers. That, according to me, is their biggest failure and it may have repercussions for them in future as well. Whether they sold enough numbers or not is secondary.”
India not a priority market?
Selling huge numbers in India was not even Apple’s game plan, it seems. Around the time of its launch, the company had said it hoped to sell 10 million units
globally by December, whereas in India, it would ship 100,000 phones by December 2009. Clearly, Apple wasn’t expecting big sales from the market.
Not good enough: While Airtel ran commercials outsourced from Apple for four weeks on a few TV channels,Vodafone used the envelopes of the mobile phone bills sent to its customers to apprise them of iPhone’s launch in India.
Yet, what is surprising is that the company didn’t even manage to achieve this target. While Apple’s spokesperson in Singapore, Malini Mitra, refused to share any numbers, several people who track handset sales in the Indian market said the company had imported around 50,000 phones at the time of the launch but had only managed to sell around 11,000 units so far.
Analysts argue that by downplaying India, the world’s second largest and fastest growing telecom and handsets market, Apple may have missed not only a big opportunity to sell one of its blockbuster brands but also to lay the ground for its future products. “Around 120 million handsets are sold in India every year and, of these, almost 4% to 5% are smartphones. Nokia has around 60-70% share of this market,” says Gartner’s Gupta.
Clearly, Apple had a big opportunity to establish itself in this market and, if not break market leader Nokia India’s monopoly, then at least give it a tough fight. It’s an opportunity that is now being assiduously chased by rivals such as Samsung Electronics Co. Ltd and Research in Motion Ltd, or RIM, the makers of BlackBerry.
It’s not about price
IPhone’s comedown in India has been described as a pricing failure by most. But on the face of it, it doesn’t seem logical. Priced at Rs34,999, Nokia N96 costs around Rs4,000 more than iPhone’s 8GB handset and Rs1,000 less than its 16GB model. IPhone’s other rivals, such as Samsung’s Omnia and BlackBerry Bold, are priced even more steeply . “More than the price, it was the pricing communication that hurt iPhone in India,” says a top executive of a leading telecom company who did not wish to be named. The executive points out that before the launch of the phone, Apple CEO Steve Jobs had made a public announcement that iPhone would be priced at $199 globally (about Rs9,490).
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“This built a false hope in the minds of those consumers who wanted to buy it and turned away those who could have actually bought it,” says Cheil’s Suthan.
IPhone is being sold at $199 in the US and at similar rates in several other markets, yet Apple couldn’t have offered Indian consumers the same price because the market dynamics here are very different. The US is predominantly a post-paid market where consumers buy the handsets from service providers under different deals. Carriers such as AT&T Inc. can afford to sell the phone at $199 because they can recover the real cost by raising call charges or through some other options. And Apple doesn’t get hit in the process because carriers give it the actual price.
This, however, is not possible in India because it is mainly a pre-paid market. Here, most consumers change their handsets, and even service providers, quite frequently in favour of cheaper options. Also, handsets have never been traditionally sold by service providers.
Apple had to tag the product with its real price because its licence holders in India, Bharti Airtel Ltd and Vodafone Essar Ltd, couldn’t have subsidized the price. “The reason why the price of an iPhone seems so high (in India) is because it is not sold on a contract. This selling process has not yet caught on here,” says Apple’s Mitra.
The two service providers, however, are providing finance options for as low as Rs2,600 a month to make it easier for those who want the product. But this hasn’t helped much.
According to analysts, Apple’s biggest failure lay not in pricing the product steeply but in not having communicated the reasons for the difference in pricing in India and other markets. “Most consumers thought they were being short-changed and they also hoped the prices will crash and come down to (the) $199 level eventually,” says Suthan.
Some market observers argue that Apple’s distribution and sales strategy in India was flawed from the word go. “To begin with, the company licensed the iPhone to two service providers (Airtel and Vodafone) who didn’t have any experience in the retail selling of handsets, which is a complex business in India involving different strategies for different income groups. Second, these service providers decided to sell the handset only at their outlets, thereby limiting its availability. Also, they antagonized the big organized retailers in the process (the Top 10 organized retailers are estimated to have a 50% share in total sales). Third, selling not being their core area of expertise, these companies couldn’t pitch it to the potential consumers aggressively,” says the executive from the rival firm who did not wish to be named.
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Nupur Singh Andley, senior research analyst—connectivity at Springboard Research, an IT market research firm, agrees: “IPhone’s availability only through the retail outlets of specific operators has been a main inhibitor to its adoption as India continues to be a predominantly retail-driven market.”
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She points out that the service providers’ strategy to sell it with a lock-in clause may not have gone down well with consumers. “This meant iPhone buyers cannot retain their handset should they wish to switch operators despite having paid the cost of the handset upfront.” This condition was a big dampener, especially because from next year, Indian consumers will have the freedom to change service providers without having to change their number or handset.
The other most evident flaw, and according to advertising experts, a critical reason for iPhone’s failure in India, was its inability to strike a connect with consumers. Unlike in the US, where a month-long marketing and advertising blitz preceded the debut of the iPhone, Apple didn’t run any of its own campaigns in India. All the marketing communication was left to the two licence holders. What consumers saw was a round of print advertisements on the launch date that announced the arrival of iPhone and a few billboards in key cities. While Airtel ran commercials outsourced from Apple for four weeks on a few TV channels, Vodafone used the envelopes of the mobile phone bills sent to customers to tell them about iPhone’s entry into India.
“All we saw were a few TV ads and some hoardings taken out by service providers. Even if you’re selling a niche product, the communication needs to be there on what’s on offer and to get (make) people curious. Otherwise buyers won’t be enthused,” says Tejaswini Aparanji, assistant vice-president, branded entertainment, P9 Integrated Pvt. Ltd, the entertainment marketing arm of Mumbai-based Percept Holdings.
“People who buy high-end products buy them either for their technological advantage or to enhance their status. So, marketers promoting a high-end product must bring out the technology and exclusivity factors in a vibrant manner,” says Devashish Das Gupta, chairman, marketing department, Indian Institute of Management, Lucknow.
Some advertisers say iPhone’s positioning in the market was ambiguous. “IPhone was positioned as a lifestyle product but in India, the company or its licence holders did nothing to make it seem aspirational,” says Suthan. “On the contrary, Nokia did a smart thing by positioning N96 as a convergence product. It immediately struck a connect with its target consumer for the communication was focused on its attributes.”
A media buyer working with a leading media buying agency, who did not wish to be named, says: “Airtel spent only around Rs3-4 crore on iPhone’s advertising. On average, they spend around Rs14-15 crore on their new launches.” The licence holders, however, argue that they were discreet in advertising for strategic reasons.
“IPhone is not a mass market product, so we did not want to waste our marketing efforts on television and other media. Our existing subscriber base was enough to push the product,” says Harit Nagpal, marketing director of Vodafone. Airtel’s chief marketing officer Sanjay Gupta says: “Apple’s strategy was not to sell a million phones in India. It only wanted to establish a presence in the country. Customers who were interested in buying iPhone were already aware about iPhone’s launch in India.”
To be sure, some of iPhone’s rivals also went for a low-key entry into the market at the time of their launch but now, with the market heating up, they are pulling up their socks. “When we launched in India in 2004, we also didn’t use mass media because that’s not where our target customers were but now we are ramping up our communication and launching mainstream campaigns,” says Satchit Gayakwad, India spokesperson for RIM.
Its own failure notwithstanding, iPhone managed to stir the smartphone market in India quite successfully. To pre-empt its success, Nokia launched its N96 series, Samsung came out with its own version of the iPhone, and RIM is set to launch its BlackBerry Storm model soon. Google Inc. has also come out with its Android mobile phone software that can help Apple’s competitors better many of the iPhone features.
Apple refused to share its future strategy for India. Analysts, however, say the company will have to plug many gaps in its distribution and marketing and most importantly, open a direct communication channel with consumers, if it wants a meaningful presence in India.