updated 12:00 am EDT, Fri April 12, 2013
Samsung quickly copies plan in effort to counter Apple
Apple has taken second place in the large and growing smartphone market in India by using a clever workaround on its pricing. While offering its iPhones at roughly the same prices worldwide, in the India market the company is now employing a "trade-in" promotion with its reseller partners that has tripled sales in the space of a week. The lowest-priced model -- the iPhone 4 -- is now outselling the iPhone 5 as buyers trade in old smartphones for a discount of at least 7,000 Rupee ($129) off the $488 price of the iPhone 4.
As with other emerging markets, contracts are virtually non-existent, which means customers must pay the full up-front cost of the phone in addition to cell service -- a serious obstacle in countries like India, where income levels differ greatly and are lower overall than in the US and other developed markets. The exchange offer on the iPhone -- unveiled just last week -- along with an instalment-plan payment schedule and strong marketing has resulted in a surge of iPhone sales, putting Apple on par with Samsung in India for the first time, according to retailers quoted in the Times of India.
The traded-in phone is refurbished and sold in the country's active used-phone market, allowing resellers to make back much of the discount given to new iPhone 4 buyers. Customers with more recent or more valuable phones to trade in can get an even higher discount, easily bringing the price of a new iPhone 4 down to below 20,000 Rupee ($368) -- a key market price point for the 1.2 billion potential customers in the India market.
Samsung, true to form, quickly copied the plan right down to the details shortly after it was unveiled, and the Korean company's Galaxy Grand and Note II continue to be among the top three phones. India's smartphone market is considerably more diverse than North America's, with BlackBerry and Nokia Windows 8 phones also very popular alongside Android models. Until the last six months, Apple had had difficulty gaining a real foothold in the Indian market -- but has changed to a much more aggressive strategy in India that tripled sales in the holiday quarter and are expected to substantially improve the company's position in the calendar first quarter of 2013.
Apple is substantially better-positioned to win a price war with Samsung and other brands, as the margins on its iPhones are much higher than on Samsung products. The minimum $129 guarantee on traded-in smartphones means that many Indians can get more in credit towards an iPhone or Samsung device than they paid for the smartphone originally, or that the dealer can get for the refurbished trade-in on a resale -- a difference that is made up by the manufacturer. Samsung makes lower profits and has substantially higher promotional costs than Apple for its products, and this further competitiveness may end up costing the company in terms of overall profitability due to the sheer size of India's potential market.
The popularity of the iPhone 4 has surprised even Apple, as it has become a durable and popular entry-level model in markets around the world, including North America. Though it will undoubtedly by replaced by the 4S as the entry-level iPhone when the next iPhone model is introduced (currently thought to happen sometime in the late summer or early fall), the iPhone 4 continues to do well on its own merits -- and its popularity in developing markets may force Apple to keep it around as an ongoing options, just as it did with the 3GS far longer than initially expected.