Old phones in Apple’s new strategy

By: | Updated: April 5, 2016 10:24 AM

The Apple headquarters at 1, Infinite Loop in California’s Cupertino, is a bit like an Apple store. It is minimalist and there is not much to see. It’s also a bit like Apple itself.

apple-reu-LThe refurbishment market is slowly picking up in India, primarily due to the resale value of old Apple and Samsung flagships. Now, Apple wants to enter the market on its own. (Reuters)

The Apple headquarters at 1, Infinite Loop in California’s Cupertino, is a bit like an Apple store. It is minimalist and there is not much to see. It’s also a bit like Apple itself. You know there is a great company here, but it is tough to look inside and find anything, especially for journalists. That is why we, in our infinite wisdom, go about making guesses—often uninformed guesses—before every big launch from Apple.

This time the guess was that Apple’s new smaller iPhone SE would have a price that will make it more than relevant for markets like India. For a a few hours this held true, but Apple soon corrected and came out with a very Apple-like price for the new offering.

But that does not mean Apple does not have a price play in India. In fact, over the past fortnight, at least a couple of my colleagues have purchased new iPhones for under R20,000—both iPhone 5s. Since both are moving from BlackBerry phones, they don’t really care if the iPhone 5s is nearly three years old.

This strategy of pricing older models at much below their original prices has gained Apple a considerable share of the upper-end smartphone market in India. In fact, research firm IDC says that Apple now has the “top position in the above $300 smartphone market—42.1% share—with the launch of iPhone 6s and iPhone 6s Plus, in addition to the price correction for iPhone 5s, 6 and 6 Plus.” The latter part of the statement is quite important, especially if you consider that online stores offer a year-old iPhone 6 at a price lower than the new “affordable” iPhone SE. The so-called hero effect—where a buyer aspires for a flagship phone and ends up buying a cheaper device—is being captured by the older Apple phones across price points. This is what is making Apple relevant at any price point above R20,000, where the competition is now limited to Samsung and a few others.

But Apple devices are available for cheaper too, if you are willing to make a compromise. The refurbishment market is slowly picking up in India, primarily due to the resale value of old Apple and Samsung flagships. Now, Apple wants to enter the market on its own. In an application dated December 7, 2015, Apple has sought the government’s approval “to import and sell its certified pre-owned iPhones in India; and manufacture and sell its certified pre-owned iPhones in India.” But certified pre-owned is not the same as refurbished phones. Certified pre-owned are new phones, with new IMEI (International Mobile Equipment Identity) numbers, manufactured using certain components from older iPhones. Refurbished devices are usually second-hand phones that have been repaired for new buyers by third-party companies. Apple’s certified pre-owned iPhones have to pass through the same tests and processes as a new phone, and will need to get all the mandatory government certificates and will come with the same one-year warranty as new iPhones.

So far, these phones are not sold in India, while they are quite popular in markets like the US where even carriers sell them. For instance, the Verizon online store for the US sells certified pre-owned from brands like Samsung and LG along with iPhones. In the US, Samsung sells its certified pre-owned directly too as well as through other partners like Walmart.

A recent Bloomberg report quotes a 2015 study from the UK-based Green Alliance, which puts the 2013 figure at 53 million handsets, expected to grow to 257 million by 2018. The report states that, in 2014, Sprint refurbished more than 80% of the 3 million phones it bought back from consumers.

Old or new, Apple needs to sell more phones in India now. After all, Gartner predicts that India will be the only market where smartphones are expected to have a two-digit growth for at least a couple of years, even as global smartphone sales growth is expected to slow to 7% in 2016. “The double-digit growth era for the global smartphone market has come to an end,” says Ranjit Atwal, research director at Gartner. “Historically, worsening economic conditions had negligible impact on smartphone sales and spend, but this is no longer the case. China and North America smartphone sales are on pace to be flat in 2016, exhibiting a 0.7% and 0.4% growth, respectively.” India, meanwhile, is on pace to reach 29% in 2016.

nandagopal.rajan@expressindia.com

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