Apple unveiled two new iPhone’s today in Cupertino, CA. The iPhone 5s is the successor to the popular iPhone line, however in a unprecedented move, Apple also released another phone, the 5C. The iPhone 5C is the new $100-$200 (16-32GB) option which Apple is using to target the lower income smartphone consumers. Many analysts and experts have commented that the “C” in 5C stands for China.
As we have talked about in class China is still very much a maturing economy and Apple is targeting the hundreds of millions of Chinese in the demographic looking for a cheaper smartphone. Apple developed the assumption that an urban working class family in China would be willing to pay up to half of its monthly income on a single smartphone. When this assumption is hashed out, it means Apple believes there are roughly 260 million Chinese urban citizens who could potentially buy the iPhone 5C. Apple’s current market in China is roughly 125 million. It is being reported that the iPhone 5C will sell for 3,000 yuan ($480) in China. The more affordable iPhone version possibly made for China may [still] be too expensive for one of its target markets. A Chinese phone salesmen said he believed that 70% of the population were more interested in a phone priced between 1,000 and 2,000 yuan.
It will be interesting to see if the iPhone 5c has a favorable reception in China and increases Apple’s overseas business. As for China, the iPhone 5C has interesting implications for the growth of its middle class. It appears to me that the situation will be mutually beneficial as the Chinese will receive better technology and Apple will increase its market.
Source: Mozur, Paul. “Cheap IPhone Might Not Be Cheap Enough in China.” China Real Time Report RSS. Wall Street Journal, 11 Sept. 2013. Web. 10 Sept. 2013.
We’ll soon find out whether Apple has priced the 5C appropriately – are such phones now a commodity, or are they a status symbol where brand matters? If the content of the story is accurate, doesn’t that imply Apple believes the latter to be the case? Now the prhasing is unclear – is 260 million the total market size, including the 125 million who already have an iPhone? Or is that the untapped market? If so, then if Apple gets only the top quarter, that’s still 65 million units.
I don’t follow Apple to know whether we should view that as a “stretch” goal or as unambitious. But if they can charge 2x what their rivals do (their manufacturing costs surely aren’t much different), then that would give them gross margins well in excess of 50%.
I really didn’t like the idea of a cheaper version of the iPhone, ever since it was announced. The concept goes against almost all the core principles of brand strategy we learn in the required Marketing class for the Business major. Adding a cheaper version to a luxury brand dilutes the brand meaning that has made Apple so successful thus far. It is a luxury item, and despite it’s immense prevalence in the United States, it’s appeal still derives greatly from its implication of status.
I feel that phones in China are still a commodity and are far from being status symbols. Understandably, having a phone is a status symbol, however, the brand should be irrelevant until China develops more.
To clear things up, the projected available market is an estimated 260 million Chinese citizens. The 125 million stated in the article is the market Apple already has in China. Regardless, Apple has a large opportunity to pull in more sales from China.
Another issue that I see with the iPhone 5C is that it is a bit of a lie. The $100-$200 price range only applies under steep contracts that make up the cost. Without contract, the iPhone 5C costs more in the line of $550-$650. This is not so different from the cheapest iPhone 5S available without contract at around $650 ($200-$400 with contract). Now, this is a bummer to an American cheapskate (and T-mobile customer which has recently unveiled their non-contract, but you pay full price for the phone in some way or another scheme) like myself, but makes it near impossible to own to the average customer in China with fewer options.
A quick look at the same iPhone 5C Apple webpage, but instead the Chinese one (http://store.apple.com/cn/buy-iphone/iphone5c), reveals (when accessed from my American computer) that there is no such contract plan available in China, at least from the Chinese Apple website. Purchasing an iPhone 5C compatible with either China’s Unicom or Telecom networks cost between 4488-5288 RMB which comes out to about $735-$865. I cannot imagine the predicted number of Chinese consumers shelling out so much for a cell phone. The only way I can figure it working, is to hope that there are better plans and terms within China from carriers partnering with Apple.
A google search brought up an article on this as well: http://blogs.wsj.com/chinarealtime/2013/09/11/the-limited-appeal-of-the-cheap-iphone-in-china/