Apple given golden opportunity to crack India with relaxed rules

Apple has struggled to gain any sort of traction in the Indian markets to date, but new Government rules could perhaps open the door a crack.

India is a market which represents a significant opportunity for the major players in the digital economy. It has the second-largest population globally and a smartphone penetration rate of roughly 24%, but one of the few markets worldwide where smartphone shipments are increasing quickly. Thanks to certain market disruptions, India is currently under-going its own digital revolution, with the increasingly wealthy middle-class easing into the digital euphoria Western consumers have been accustomed to as the norm.

¹Statista ²World Bank Group

The evolution of India and the surge of the digital economy in the country is moving at a dramatic pace. The opportunity for profit is monstrous, but this is a tricky market to crack.

This is the conundrum which Apple is currently facing. It currently has less than 2% of market share across the country (which isn’t increasing), and premium prices are stifling any genuine ambition to increase this.

Indian consumers are gradually spending more on devices, though by the time Apple’s prices would be deemed palatable, other brands might have already developed a strong sense of loyalty; do not underestimate the power of the Android/iOS divide.

Figures curtesy of Counterpoint Research – Q2 2019 shipments

However, there is a glimmer of hope. The Indian Government has this week announced it will relax rules which dictate how foreign companies can operate in the country. Fortunately for Apple, the easement will allow it to sell directly to customers through its eCommerce channels.

In by-gone years, a foreign company had to source 30% of its production locally to create a retail presence in India. This presence includes online channels. With such reliance on China for the manufacturing elements of the supply chain, Apple has always struggled to meet these requirements. As a result, Apple’s devices have been sold through local partners, who add a premium to an already premium product; it has struggled to gain a foothold in the market.

Another element tied to this is the brand story. The Apple Store is a presence in 25 countries around the world, not only presenting a direct-selling opportunity, but a chance to offer an experience to current and potential customers. This is a fundamental building block in the Apple strategy, which is all about creating a brand and an identity to cultivate customers into the loyal iLifers you see around the world today.

Thanks to new elements being considered by the Indian Government, Apple now meets the requirements and will allegedly begin selling products through its own eCommerce channels in the coming months. These new considerations take into account more iPhones will be manufactured in India, not only for Indian consumers, but for export to Europe as well. This is massive win for Apple.

In short, there are two massive benefits for Apple. Firstly, it can own the purchasing relationship with the customer, dictating the messaging and reducing the price while maintaining profit margins. Secondly, it can begin to create the Apple experience for customers to nurture the sense of loyalty which is so critical to the Apple success over the years.

Apple is an incredibly successful smartphone manufacturer because it creates excellent devices, but the work which has been done to build loyalty with its customer base should never be underestimated.

Think back to the 90s and 00s when you saw Apple adverts on TV. None of these adverts ever really discussed products in the way you would expect but talked about the Apple experience. A huge proportion of advertising today is designed around story-telling and brand experience, but Apple was arguably one of the first to do it and remains one of the best at building this experience.

The result of these campaign was an ‘us’ and ‘them’ mentality which persists today. Whether it pins iOS versus Android, or Mac versus PC, the split is very apparent, and crossover is very rare. Not only does this segmented approach maintain loyalty for the individual products, it presents significant cross-selling opportunities. How many iPhone users have an iWatch, an iPad or a Mac also? We suspect a high percentage.

Shifting people into, and keeping them in, the Apple universe can partly be attributed back to the brand marketing campaigns, the closed ecosystem and ownership of sales channels and brand experience. And now, it presents another massive opportunity moving forward; software and services revenues.

Figures taken from Apple financial reports – USD ($) in millions

Apple CEO Tim Cook has made a big deal about software and services, and he is very right. It attracts recurring revenues without the R&D and manufacturing price tag. There will of course still be R&D, but smartphones are very expensive products to produce at the level Apple customers demand.

Generating revenues through AppleCare, iTunes, Apple Music, iCloud, Apple Pay, Apple Books, Siri, maps, search or TV subscription services becomes substantially more profitable once people are bought into the ecosystem. And as you can see from the table above, it is becoming an increasingly important facet of the financial spreadsheets.

With many users persisting with the OS they have become accustomed to, if Apple wants to make India a profitable market, it will have to start embedding itself in the minds and lives of Indian consumers today.

The Indian market is one which offers great prospects and profits for those who play their hands wisely. Up to now, Apple would have been written off by many industry commentators, but will changes to the rules, the door is slightly ajar. But that is all it is right now.

Apple will have to convince smartphone users it is a better alternative than the Android ecosystem, while also justifying the premium it traditionally charges for products. This will be a very difficult battle, but Apple is in a better position today than it was yesterday.