From crunch time to a bigger bite, Apple's India biz makes a turnaround

After turning around the local business, it is unfolding the new India strategy

When Apple unveiled the India price list for its iPhone 12 range in mid-October, many were surprised. Contrary to widespread industry rumours, Apple set the launch price for the base-level iPhone 12 model almost 17 per cent higher than the iPhone 11.

And yet, sales of iPhone 12, at Rs 80,000, surpassed any of its recent predecessors — shattering the common belief that the cheaper the iPhone, higher the sale. Pre-booking numbers for iPhone 12 and 12 Pro that went on sale end-October surged 25 per cent higher than the last year’s bookings for iPhone 11 (launch price: Rs 68,000), making it the most successful launch since iPhone 6 in 2014, retail industry sources say.

This unexpectedly robust performance, that too at a time when the pandemic has curtailed consumer demand, is a tale of meticulous planning and the emergence of an articulate, long-term India strategy after three years of subdued performance. 

The new blueprint looks markedly different from the one it had been betting on in the past decade. From a super-luxury brand positioning for the affluent class, Apple now targets mid-segment handset buyers among millennials and quality-conscious notebook users across buyer segments. Further, banking on the performance of smartphone cameras, a strength Apple enjoyed since its entry into the business in 2007, it is wooing professional videographers, vloggers and the Gen Z, which is entering the job market.

The strategy fits in with emerging trends. Industry experts say the mid (Rs 15,000-25,000) and sub-premium (Rs 25,000-40,000) segments are growing much faster than mass-market handsets (Rs 8,000-15,000), offering Apple a perfect window of opportunity. These two price segments, non-existent five years ago, now account for 15 per cent of India’s handset market. This means that not only has the gap between iPhones and the second-largest smartphone segment shrunk, the latter offers Apple a large pool of potential buyers.

With the greater adoption of smartphones, Apple’s market position has changed too. Not only are over 400 million Indian consumers are using smart devices, but Apple’s user base has also surged to over 13 million by 2020 from less than five million in 2016. “This invariably places any new iPhone model on a solid fan base of the already satisfied customers of Apple,” says Faisal Kawoosa, lead analyst at TechArc.

Apple’s new India strategy hinges on a multipronged approach. To maintain its margins and the brand’s aspirational quotient, it is pricing the new iPhones slightly higher than the closest competitor. For instance, it is about Rs 20,000 more than Samsung Galaxy Note 20. But the firm is betting also on the benefits it receives from growing localised production and the buzz around its retail expansions.

Even as it began rolling out the first India-made flagship iPhones last year, the company is working on adding newer models faster in its made-in-India portfolio. IPhone 12 will be the fastest to be manufactured in India — within eight months of its launch. The iPhone XR launched in October 2018 was first made in India in September/October  2019; the iPhone 11 launched in October 2019 was rolled out with local tag in June-July, 2020. For iPhone 12, the plan is to start making locally from April, 2021. “The plan is to produce locally and reduce the gap between launch date and the availability of the Made-in-India product,” says a person privy to the developments.

Like many US companies, Apple is in the process of reducing dependence on China, which accounts for over 70 per cent of its global smartphone production, and add new production lines in India. Three of its largest contract manufacturers — Foxconn, Wistron and Pegatron — have already secured approval for fresh capacity expansion in India under the Production-Linked Incentive scheme. While Foxconn and Wistron already have dedicated assembly lines for iPhone models, Pegatron’s entry is part of Apple’s global plan to move 40 per cent of its China operations to India, Vietnam and Mexico. Yesterday, telecom minister Ravi Shankar Prashad revealed that in 2020, nine out of Apple’s 11 component makers are shifting from China to India.

Local production not only lifts its brand status among Indian consumers but also helps it price handsets better. Since its launch last September, the price of iPhone 11, for example, has come down to less than Rs 50,000 — thanks to local assembly.

The import-dependent firm badly suffered in the past two years. With frequent increases in import duty on smartphones, between early-2018 and mid-2019, Apple had to raise prices three times — hurting sales and profits in 2018-19 (see chart). Moving towards localisation of a larger chunk of its portfolio has already begun to show results. In 2019-20, its business rebounded sharply, with a 253 per cent jump in net profit and 29 per cent growth in sales.

“Apple is finally paying attention to India,” says Rushabh Doshi, research director at Canalys. “It has opened a direct online store, giving it several new angles in its go-to-market strategy, such as utilising device trade-ins to provide purchase incentives, or bundling AirPods with iPhones to make them more appealing.”

The excitement of its India Online Store launch in September drove sales of iPhone 11 — making Apple the most sold premium brand even before its year’s flagship iPhone 12 was unveiled. In fact, the whopping 67 per cent jump in its shipments in July-September placed it at the seventh spot in the overall smartphone market, analyst firm CyberMedia Research said. “IPhone SE (2020) and iPhone 11 models together contributed 91 per cent of its shipments in the quarter. On the heels of the iPhone 12 launch, Apple is on track to have its best year yet,” it noted.

The next big move — opening Apple physical stores in 2021 — is expected to add momentum to its India journey. The firm is planning to open the first Apple Store in Mumbai in the first half, followed by stores in Bengaluru and Delhi.

“There is no real competition for the brand. Consumers who want to buy iPhones and can afford them will buy them,” says Navkendar Singh, research director, IDC, “India is the second-largest market by volume sales and is the only large market that is growing.” With its bet on India firmly placed, Apple is hoping to compensate for the de-growth it is registering in major markets across the globe.