Apple posted earnings last week which beat the Street’s expectations however sales guidance for the coming quarter was lower than estimates. On the face of it, the numbers showed that Apple had done a decent job of alleviating at least some of the key concerns of its investors. There was robust growth in its frontline devices, strained yet controlled margin pressure, strong international growth, a typical secretive yet confident innovation pipeline with anticipation around iWatch, Apple TV, a possible payments business coming into the market in the near future.
So why then did the stock take a beating?
A few believe that the big question mark for Apple is its big bet on China. The litmus test for Apple is to see the effects of the much awaited tie-up with China Mobile and whether Chinese consumers will bite now that there’s easier access to iPhone devices. It’s still early days but Apple’s market share in China stands at a dismal 5%. We all hear of how globalized the world has become but China is an entirely different beast and making real inroads there may be a lot tougher than expected. But then again, Apple’s sitting on a cash pile of 160 billion$ so why not China? Ofcourse, marketing (read execution) is key.
Apple’s been at the forefront of product innovation and marketing and that’s been the crux of its philosophy. So how will the marketing mix change for Apple in China, what are some of the big decisions they have to make?
Product Design Approach
Traditionally, Apple's leader Steve Jobs has been the 'sheppard' and as consumers, we’ve flocked to Apple's products. But that was at a time when smart devices were an entirely new category and there were no standards for consumers. Today, standards and expectations exist and for the most part, Apple has led the way in setting these standards. But the consumer too has become much more savvy and proactive and has certain expectations from his chosen products. In an interview on Bloomberg, Baidu’s Founder and CEO, Robin Lee said that as he doesn't use an Apple phone because he likes bigger screens. That’s what he’s grown up with. But his wife on the other hand has an Apple and she loves it. So depending on who Apple is going after, it will have to decide on its product design for China. The real question is: Is Apple willing to make that fundamental shift from creating products by being closed, secretive and dictating design to its customers or is it willing to open up and allow the voices of its customers into its design lab?
Distribution Approach
Apple has decided to expand its retail presence from 10 to 22 stores in 2014. The company also hired former Burberry CEO Angela Ahrendts who has been credited with making Burberry one of the most successful luxury retailers in China. The rationale behind this approach is perfectly clear. While its partnership with China Mobile will expand Apple's footprint in China, it won't do very much to sway customers towards the Apple brand over other lower priced competitors. Apple might offer a slightly higher channel margin but ultimately China Mobile is more concerned about selling phone plans rather than worrying about which device the consumer buys. At the end of the day, Apple is just another SKU in its extensive portfolio of devices.
Pricing Approach
How low can you go? Apple’s competition whether Huwaei, Xiaomi, ZTE are able to offer high quality smartphones within the 150 – 300$ price range while even the lower end iPhone 5C is over 700$. Whether consumers are willing to pay 3x higher for its superior product design remains to be seen? Apple CEO, Tim Cook has said ‘We'll make any product that is a great product. Our line in the sand is making a product that isn't fantastic.’ So perhaps there is scope for an even lower priced line extension but how does Apple do this without alienating its existing, super-loyal customers? Besides, it’s unclear as to whether Apple actually wants to do this. When the company first announced a lower end iPhone targeted at China, it signaled a substantial reduction in price. But the reduction was only around 17% from its premium 5S phone which is still unaffordable to most people.
That’s the challenge for Apple - finding that balance between pricing its products as aspirational and garnering a big enough chunk of that sumptuous yet elusive Chinese market, all while keeping its more indigenous competitors at bay. With growth having dried up in North America, China is obviously a crucial long term play for Apple and it will be interesting to see as time goes by what Apple does to woo the Chinese consumer.
So why then did the stock take a beating?
A few believe that the big question mark for Apple is its big bet on China. The litmus test for Apple is to see the effects of the much awaited tie-up with China Mobile and whether Chinese consumers will bite now that there’s easier access to iPhone devices. It’s still early days but Apple’s market share in China stands at a dismal 5%. We all hear of how globalized the world has become but China is an entirely different beast and making real inroads there may be a lot tougher than expected. But then again, Apple’s sitting on a cash pile of 160 billion$ so why not China? Ofcourse, marketing (read execution) is key.
Apple’s been at the forefront of product innovation and marketing and that’s been the crux of its philosophy. So how will the marketing mix change for Apple in China, what are some of the big decisions they have to make?
Product Design Approach
Traditionally, Apple's leader Steve Jobs has been the 'sheppard' and as consumers, we’ve flocked to Apple's products. But that was at a time when smart devices were an entirely new category and there were no standards for consumers. Today, standards and expectations exist and for the most part, Apple has led the way in setting these standards. But the consumer too has become much more savvy and proactive and has certain expectations from his chosen products. In an interview on Bloomberg, Baidu’s Founder and CEO, Robin Lee said that as he doesn't use an Apple phone because he likes bigger screens. That’s what he’s grown up with. But his wife on the other hand has an Apple and she loves it. So depending on who Apple is going after, it will have to decide on its product design for China. The real question is: Is Apple willing to make that fundamental shift from creating products by being closed, secretive and dictating design to its customers or is it willing to open up and allow the voices of its customers into its design lab?
Distribution Approach
Apple has decided to expand its retail presence from 10 to 22 stores in 2014. The company also hired former Burberry CEO Angela Ahrendts who has been credited with making Burberry one of the most successful luxury retailers in China. The rationale behind this approach is perfectly clear. While its partnership with China Mobile will expand Apple's footprint in China, it won't do very much to sway customers towards the Apple brand over other lower priced competitors. Apple might offer a slightly higher channel margin but ultimately China Mobile is more concerned about selling phone plans rather than worrying about which device the consumer buys. At the end of the day, Apple is just another SKU in its extensive portfolio of devices.
Pricing Approach
How low can you go? Apple’s competition whether Huwaei, Xiaomi, ZTE are able to offer high quality smartphones within the 150 – 300$ price range while even the lower end iPhone 5C is over 700$. Whether consumers are willing to pay 3x higher for its superior product design remains to be seen? Apple CEO, Tim Cook has said ‘We'll make any product that is a great product. Our line in the sand is making a product that isn't fantastic.’ So perhaps there is scope for an even lower priced line extension but how does Apple do this without alienating its existing, super-loyal customers? Besides, it’s unclear as to whether Apple actually wants to do this. When the company first announced a lower end iPhone targeted at China, it signaled a substantial reduction in price. But the reduction was only around 17% from its premium 5S phone which is still unaffordable to most people.
That’s the challenge for Apple - finding that balance between pricing its products as aspirational and garnering a big enough chunk of that sumptuous yet elusive Chinese market, all while keeping its more indigenous competitors at bay. With growth having dried up in North America, China is obviously a crucial long term play for Apple and it will be interesting to see as time goes by what Apple does to woo the Chinese consumer.