Apple-Retail-India

After describing India as having less potential than China, Apple is increasing efforts to compete in the world’s second-largest cellphone market. The iPhone maker is now hoping installment payments, coupled with increased marketing can turn single-digit market penetration into a weapon against low-cost Androids.

In full-page ads in the Times of India, Apple calls its unsubsidized $840 iPhone 5 “your dream phone” available for a $93 first payment. Why the big push? The nation’s smartphone market is expected to grow five-fold by 2016, setting the stage for the next battle between Apple and Google’s free mobile software…

A unique confederation of Apple, distributors, stores and banks are bankrolling the marketing blitz with iPhone sales in India almost tripling between October and December.

Further motivating Apple is a desire to not again be caught flat-footed.

Reuters reports Monday:

The new-found interest in India suggests a subtle strategy shift for Apple, which has moved tentatively in emerging markets and has allowed rivals such as Samsung and BlackBerry to dominate with more affordable smartphones.

The report notes Apple expanded its India sales effort in the latter half of 2012 by adding two distributors versus just two premium resellers. As a result of the move, iPhone shipments to India between October and December 2012 nearly tripled to 250,000 units from 90,000 in the previous quarter.

Although smartphones in India currently account for only one-tenths of cellphone sales, IDC expects the market for the more expensive devices to grow to 108 million units in 2016, up from 19 million in 2012.

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Apple CEO Tim Cook commented on India during a conference call with analyst:

I love India, but I believe that Apple has some higher potential in the intermediate term in some other countries. The multi-layer distribution there really adds to the cost of getting products to market.

Android-powered smartphones now account for 40 percent of smartphone sales in India, its $110 handsets providing leverage over the iPhone, which could cost up to 2 month salary for Indian consumers.

Piper Jaffray (world average unlocked handset price)

With just five percent of the India smartphone market, a Gartner analyst told the news service Apple “still has a gap” when it comes to attracting the bulk of the nation’s consumers accustom to pre-paid accounts. As you can see in a Piper Jaffray table above, Apple’s mots affordable off-contract iPhone is the 30-month old $450 iPhone 4.

Unfortunately, due to local taxes customers in India end up paying significantly higher prices. Making matters worse, buyers outside the United States usually pay the full price for hardware as carriers preferably don’t subsidize expensive smartphones.

Budget phones vs iPhone

However, the new installment plans could help increase Apple’s visibility by making the iPhone more affordable and turning feature phone consumers into smartphone users.

Along with offering payment plans, introducing a lower-cost iPhone could help Apple compete with Samsung in India. A number of reports suggest a less-expensive iPhone could appear this year alongside an improved iPhone 5, the iPhone 5S.