A couple of months ago in March 2016, the tech giant Apple launched a 4 inch low-cost iPhone SE in China, a price-sensitive market, expecting to boost their iPhone sales and its user base in the market. Apple’s new strategy with the iPhone has triggered a widely held discussion on whether the iPhone SE is a flop or a success in the Chinese market.

People think it is a poor strategy

iPhone SE

Many researchers and economists have joined the discussion regarding the iPhone SE, commenting that it did not successfully help Apple get a bigger market share for reasons like:

  • Apple’s total market share did not go up but dropped from 12% Q3 2015 to 10.8% Q3 2016.  
  • Compared to previous new iPhone launches, iPhone SE did not perform as well as other launches in drawing traffic to Apple

In responding to these questions, Tim Cook, CEO of Apple, explained this situation by breaking down the numbers as everyone looks at this Greater China segment (via a Reuters transcript):

…we are down 11% in mainland China, on a reported basis. On a constant currency basis, we are only down 7%, and the way that we really look at the health or underlying demand is to look at sell-through, and if you look there, we were down 5%.

Tim views this market loss as a normal issue as that would happen in any business industry. In fact, this happens to every smartphone company with a small portion of market share loss resulting in a year-on-year decline because smartphone’s reliability and shelf life is extended by technology. Apple’s new strategy might look risky as they cut the size of screen, use lower-end features, and offer a big discount price, but there are other reasons which prove that it is actually a success in terms of marketing and product variation.

A smart move by Apple

As we mentioned earlier, the comparison of the iPhone SE’s sales figures showed on report is not very accurate. Technically, unlike other Apples flagship products like the iPhone 6s/ 6s plus, iPhone SE’s value proposition in the market is very unique. It is the low-end product placed in a special market which should not be compared to other figures established by their leading flagship products. See more, Apple launched this strategy for the following purposes:

I: Apple wants the low end market share both in China and India

While competing with other smartphone companies in high end segments, Apple noticed early signs of low-end products indicating that this will continue to be popular in the markets of China and India. In China alone, pre-orders for iPhone SE are said to have exceeded 3.4 million according the local retailer’s data. In India, Apple saw a one-day traffic increase of 160% which is similar to the response for Apple’s two new phones (iPhone 6/ 6 plus)  that were hugely successful with 195% increases in traffic levels.

II: Apple wants to increase their user base

A more affordably priced iPhone SE has been released at a different time than from Apple’s other flagship products to avoid direct competition. To stay competitive in a mature ecosystem, Apple must continually release new products which increase its own user base widely while keeping its current user base freshly engaged. This iPhone SE appeals to customers with various expectation with lower costs and smaller screen size (more handy) whilst offering a powerful smartphone as the Apple brand always does. In the long run this is a clever move as their user base will broaden in mass market economies such as India and China where populations grow increasingly wealthy. They are instilling brand loyalty from an early, pivotal stage.

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