A curious spectre has started to haunt India and other emerging markets. A spectre of uncertainty that keeps the top executives of leading smartphone makers awake at night, tossing and turning as they try to predict the future of the Indian market.
The unsettling truth that companies such as Apple, Samsung, and Micromax are starting to wake up to is that nobody quite knows whether India and other emerging countries will reject the carrier-subsidy model that set off the smartphone revolution in western markets.
An apple a day..
A combination of crumbling infrastructure, slow Internet speeds, and a propensity for dual-SIM phones have kept away the subsidy model so far. Many executives may pooh-pooh the idea that this may change. But after looking at recent events such as the growing popularity of data bundling and the so-called RCom iPhone subsidy offer, they will at least do it less noisily.
Whether the winds of change will really start blowing, however, does not change the fact that a Maginot Line has been drawn right in the middle of the Indian smartphone industry, with Apple leading the charge, on one end, and Google and Micromax, on the other. The intricate dance of pricing and advertising that both parties are engaging in will settle, once and for all, how smartphones are sold in India.
Take Apple for instance — the jokes about the India pricing for the iPhone 5S have been relentless and unending. With a price tag of Rs. 71,000 for a top-of-the-line iPhone 5S, all pre-conceived notions regarding emerging market pricing have been thrown out the window; a process that Apple first started when it broke the sacrosanct barrier of Rs. 30,000 close to four years ago.
Monkey see, monkey do
Before the introduction of the iPhone 4S, companies such as Samsung and Nokia had a tacit understanding: do what you want, but don’t break the Rs. 30,000 price-tag barrier. No matter what product the companies came out with, it would not break that barrier. The following years saw this understanding crumble swiftly, with Apple moving the new barrier to Rs. 40,000, and then to Rs. 50,000 before finally settling at Rs. 70,000.
And this is not just Apple being Apple, a maker and seller of premium products. The folks at research advisory firm Mobile Unlocked have come out with an iPhone 5S Price Index, which points out how affordable iPhones are relative to peoples’ incomes.
While the most expensive place in the world to buy an iPhone is Jordan, where a single iPhone goes for $940 before taxes, the least affordable place to buy an iPhone 5S is in India and not China. In India, an iPhone retails for $759 before taxes, accounting for more than 22 per cent of our per-capita GDP.
In the United States, by comparison, a basic iPhone 5S costs $649 before taxes and accounts for just 1.37 per cent of the country's per-capita GDP. Discounting exchange rates, the prices of iPhones in India are higher than those sold in Hong Kong, Vietnam and Malaysia.
In fact, the current conspiracy theory is that the prices of the iPhone 5S were inflated in order to accommodate the much-hyped Reliance scheme, where the phone is given away at “no upfront cost” and customers are charged a monthly fee in exchange for unlimited voice and data.
The steep prices don’t deter Indian consumers, or at least not Apple’s target audience, as it gives the products a status-symbol like halo. On the other hand, the lure of status can’t sell smartphones in large numbers.
This is where the heavy discounting enters the picture. The only diktat is that Apple can’t make it seem like discounting. The new buzzwords of the smartphone market are, therefore, “buyback offers”, “zero-interest EMI”, and various other mechanisms that camouflage the discounts.
What is most surprising, however, is that companies such as Nokia, Samsung, Sony, Lenovo and HTC have fallen in line with Apple’s strategy. All of these companies stepped across the Rs. 30,000 barrier, and have products in the Rs. 50,000 – Rs. 65,000 range. In fact, it is almost passé to have a flagship product that costs less than Rs. 50,000. The new modus operandi for these companies is to announce a flagship product at a sky-high price-tag.
This price will then come down over the next few months, be given a ‘festival’ discount and then sold as a zero-interest EMI option. It is, in essence, a type of shock therapy where companies prepare their customers for high prices, but spread the wallet-pinching pain across a neat six-to-twelve months. It is also a time-wasting tactic, as they wait for however long it will take for the American carrier-subsidy model to kick in.
The subsidy god
Enter Micromax and Google, who are on the other side of the boundary. For them, it is Europe that they look to for salvation. Telecom carriers are dumping handset subsidies across France, Italy and the U.K, claiming that it distorts the market. The slogan in the E.U is one that cries for the death of the two-year contract model.
Google and Micromax’s strategy is simple: maintain the Rs. 30,000-Rs. 40,000 barrier, but still offer a cutting-edge device with top-of-the-line features and hardware. Micromax’s latest flagship models are sold for a little under Rs. 30,000, come with decent specifications, and have Hollywood actor Hugh Jackman endorsing them. Google’s Nexus flagship line, too, is priced under Rs. 30,000—but has suffered historically from a lack of advertising, marketing and distribution.
This is now set to change with its latest model, the Nexus 5. The Maginot Line is thus set to be breached as both sides try to exorcise the spectre of uncertainty; a battle that is being replicated across emerging markets where domestic competitors such as Micromax, Gionee and Xiaomi are fighting their multinational counterparts. A victory from either side will change the way we perceive and buy smartphones.
This article has been corrected for an editing issue.