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At midnight on August 22, Apple rolled out its iPhone in India and
some 20 new countries. It didn't roll too far. Some retail outlets of the
two service providers Apple has linked up with -- Vodafone and Bharti
Airtel -- discovered that they did not have the necessary permissions to
stay open at that late hour. Others attracted a small number of curious
consumers. But missing were the lines and fanfare that accompanied
the iPhone's launch in the U.S. and some other parts of the world.
"Only a few buyers turned up at midnight launches done by both Airtel
and Vodafone across eight cities in India," The Economic Times
reported. "At a Vodafone store in Connaught Place, Central Delhi,
journalists outnumbered customers by a huge margin."
Rival phone makers in India are eager to claim victory in the first
round, and say they are planning to build on that. However, despite the
lack of buzz surrounding the iPhone and other potential hang-ups,
some Wharton faculty see a clever strategy at work where Apple is This is a single/personal use copy of
"testing the waters" and getting prospective customers acquainted with Knowledge@Wharton. For multiple
its device before a full-scale marketing assault. copies, custom reprints, e-prints,
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of any marketing. Newspapers reported the coming launch based on
statements from Vodafone and Airtel: Apple was nowhere to be seen.
The local Apple office in Bangalore -- merely a sales and distribution set up -- was "not authorized" to
make any statements. And Apple's Singapore operation, where press inquiries were directed, was not
particularly forthcoming. "We're a product-focused company," says Malini Mitra, a Singapore-based
Apple spokesperson. "We don't comment on pricing strategy, market outlook, country strategy, etc....
We work closely with our partners Bharti Airtel and Vodafone on the marketing campaigns across
India."
Vodafone and Airtel themselves are rivals. According to the Telecom Regulatory Authority of India
(TRAI), in June 2008, Airtel was number one in the wireless telephone market with 69.38 million
subscribers and a market share of 24.50%. Vodafone was number three with 49.19 million and 17.2%.
(In the number-two spot was Reliance Communications with 50.78 million and 17.7%.) Cooperation
between the two companies to promote the iPhone is not a likely scenario, and the advertising campaign
announcing its arrival has been bland and basic.
"The build-up for the iPhone launch in India has been poor, if not pathetic," says Harish Bijoor, brand
specialist and CEO of Harish Bijoor Consults. "One of two things has happened. Either Apple believes
the game has been lost in India even before it has begun, or it feels that the service providers will do
magic with their mega-reach in India. There is a near abdication of ownership of the brand in the Indian
market. The model at play seems to be outsourced marketing, outsourced branding and outsourced
selling."
Skimming the Market
Wharton marketing professor Peter Fader is inclined to believe that Apple may have a smarter strategy
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for its Indian iPhone launch than is immediately apparent. "If you compare [the iPhone's] U.S. launch to
the India launch, it is a beautiful example of the distinction between a 'penetration strategy' and a 'skim
strategy,'" he says. "Here in the U.S., Apple basically wanted to bust the market open all at once. So,
they had all these people lined up all around the block, and when they flipped the switch -- boom! -- the
market existed. In India, it's almost like they are doing a test market."
In Fader's view, Apple's India strategy allows for much more flexibility. "It lets [the company] learn
about the market in a much cheaper, lower-risk way." Apple could use that extra cushion to understand
how its early users react to the product and its features, evaluate its distribution strategy and even
reassess which service providers it should work with.
"A skim strategy is a great way of testing the waters so that you can change course, whereas with a
penetration launch, whatever tactics you committed to, you're stuck with -- you can't change them," he
says. "This way, they can change the price, change the messaging and broaden out to the larger market in
a few years." Several risks are associated with a product like the iPhone that is "radically different" from
others in the market, he adds. "There is social risk [with people wondering] 'What kind of phone is that?'
as well as functional risk."
Apple doesn't have a large installed base of Macintosh users in India, and that may also have persuaded
it against a penetration launch for the iPhone, Fader notes. "If you don't [have a significantly large base],
you must go with a skim strategy, because you can't create that market overnight."
Another albatross around the iPhone's neck is its price. The 8GB version costs Rs. 31,000 ($710) while
the 16GB iPhone is priced at Rs. 36,100 ($825). The corresponding prices in the U.S. are $199 and
$299. "India is a price-sensitive market," says Bijoor. "These levels are ridiculous."
Bijoor believes that the iPhone will become a popular gadget, but that India's tech consumers will likely
"crack the [price] code" by purchasing it abroad at much cheaper rates and bringing it back to India. "If
the iPhone is to increase its sales in India [beyond] sales for [officially imported or smuggled phones], it
needs a price correction." His prescription is drastic: Bring the price down to Rs. 12,000 ($275). Sunil
Dutt, India country head for Samsung's mobile division, thinks that will happen. "As for any new
technology introduction, volumes are small in the initial phase. Once volumes grow, prices come down.
I expect a similar trend."
Subsidized Handsets
Why does the iPhone cost so much in India? The simple reason is that, unlike in the U.S. and other
countries, the service providers are not subsidizing the handset. In the U.S., AT&T recovers the subsidy
amount from subscribers during a contract "lock-in" period. The ARPU (average revenue per user) for
AT&T is $50 plus. In India, Airtel has an ARPU of Rs. 357 ($8.16) and Vodafone's is Rs. 350 ($7.99).
These numbers don't allow the luxury of subsidies. "The Indian cellular industry could never afford deep
phone subsidies," says Ravi Bapna of the Hyderabad-based Indian School of Business (ISB).
Wharton professor of operations and information management Kartik Hosanagar says U.S. carriers are
able to subsidize the cost of a mobile phone device not just because of contractual lock in periods but also
because "the phone [itself] is locked so you can only use it with a specific carrier." These practices allow
U.S. carriers to recover their relatively high subscriber acquisition costs over the period of the contract,
says Hosanagar. "But in India, the majority of consumers use prepaid cards and can easily switch
carriers. The economics are not conducive to subsidizing the phone."
Bapna believes that it's not just the low ARPUs which work against possible cross-subsidization. "India's
open network/open application cell phone industry is [incompatible with] Apple's strategy in the U.S.,
where it offers exclusivity to AT&T," he says. "Lock-in is anathema for Indian consumers and,
consequently, the purchase of the phone has never been linked to the purchase of the service."
The one reason why customers tend to stick with their service provider is that there is, as yet, no number
portability in India; if you change carriers, you will have to change your mobile number, too. In August,
the government approved number portability, though it will take some time to implement. When
portability arrives, observers expect large-scale migration by disenchanted users; some estimate that it
will be as high as 20%. Locking in customers through other routes -- such as Apple's strategy in the U.S.
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Fader says Apple "hasn't had a thorough disaster in a long time," except for initial problems with its
MobileMe email program that it launched three months ago. "That was very, very bad, and it got a lot of
people very upset," he says. "But eventually they fixed it pretty well. Rarely do they do something so
bad that it brings down the product as a whole."
All things considered, Apple appears to be trying for "moderate success, at least in the short run," with its
Indian iPhone launch, according to Fader. "There's every reason to believe they will achieve those goals
and then bigger, better things later on," he says. "It's hard for me or any analyst to know what they have
up their sleeve. So I am going to give them the benefit of the doubt."
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