Although I have very little knowledge of the cell phone market in developing countries, it seems quite evident that Apple’s strategy is not to sell cheap phones, but to sell the best phones that you can buy at cheap prices.
Here are two articles that describe the situation;
- iPhone 5s, iPhone 5c free in India on a two-year contract with RCom: Report
- Cost of Cool in India? An iPhone
From the first article;
Under the subsidy scheme, the 16GB version of the iPhone 5s and iPhone 5c would be available at zero upfront cost, with a monthly fee of Rs. 2,500 for the iPhone 5c and Rs. 2,800 for the iPhone 5s, in lieu of which consumers will get unlimited voice calls, SMS and 3G data. It’s not clear if a fair usage policy would be applicable. Consumers would be locked-in into a 24 month long contract and would not be able to switch their telecom operator before that, according to the report. The non-contract costs for the 16GB iPhone 5s and iPhone 5c are Rs. 53,500 and Rs. 41,900 respectively.
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RCom will reportedly offer the subsidy scheme to credit card users and has tied up with banks, including ICICI Bank and HDFC Bank for the same to ensure that consumers don’t dishonour the contract.
A major reason for the success of Apple’s iPhone in first world markets is the operator subsidy model that allows customers to pay a small (or no) upfront cost for the phone and pay a fixed monthly amount in exchange for services, under a contract that ties them up with the operator for a fixed period. Operators have always been hesitant to offer subsidy schemes as India is majorly a pre-paid subscriber market and it’s hard to ensure that people will honour contracts due to a lack of a centralised credit check system.
Judging from this article, it seems that what was holding the subsidy scheme back was the lack of a credit check system. Apparently, if a good credit check system is in place, then even developing countries can move to the subsidy model.
A subsidy model will enable Apple to sell iPhones at high prices, but still make them affordable to consumers. Effectively, the carriers will pay for the iPhone.
From the second article;
Making the phones cheaper, without appearing to be cheap, is enticing a new category of young, brand-conscious Indians, like Chaithra Nayak, to switch to the more expensive iPhones.
The tactics described in the second article are financing, trading-in of the customers older phone and subsidies.
This is a good example of Apple “Thinking Different”. While everybody else thinks Apple is doomed for not offering a cheap iPhone, Apple seems to be taking a totally different direction. Apple’s strategy is to either use financing or to get the carriers to subsidize the price, and Apple seems confident that even developing countries will eventually move in this direction.
It’s taking time, but I think it’s working.
Naofumi Kagami 