In Delhi two years ago, I met a fantastically erudite guy. He was studying for an MBA, but there are so many MBAs in India that it isn’t the same marker of high education as it is in the West. A friend of mine living in Bangalore hired an MBA as a personal assistant and then found her literacy was very low. Anyway, this guy was very entertaining and quotable and taught me a lot about Indian attitudes towards technology. One thing he said stayed with me
IF YOUR FRIEND HAS AN IPHONE, YOU KNOW THEY HAVE A GOOD PHONE. THE PROBLEM WITH A NOKIA IS THAT YOU DON’T KNOW IF IT’S A GOOD PHONE OR NOT.
Well, maybe not anymore. Apple is widely expected to release a cheaper iPhone today, undermining this rock-solid brand-is-quality perception. The New York Times has a nice piece on the risks of a luxury brand moving mass-market.
FOR APPLE, THE DEVIL WILL BE IN THE DETAILS: JUST HOW MUCH LOWER THE PRICE OF THE CHEAPER IPHONE IS, AND JUST HOW MUCH CHEAPER IT LOOKS AND FEELS. IF THE IPHONE IS DEEMED CHEAP, IT COULD GET INTO THE HANDS OF SO MANY PEOPLE WORLDWIDE THAT IT LOSES POWER AS A STATUS SYMBOL AND TURNS APPLE INTO A MAKER OF COMMODITY PRODUCTS LIKE DELL, HEWLETT-PACKARD OR ASUS.
and appearing later
FIVE YEARS AGO, MR. JOBS DESCRIBED THE COMPANY’S STRATEGY TO INVESTORS WHO WERE ASKING HIM ABOUT WHETHER APPLE WOULD SHIP A NETBOOK: MINIATURE NOTEBOOKS THAT COULD BE BOUGHT FOR AS LITTLE AS $200. HIS ANSWER WAS, IN SHORT, NO. “THERE ARE SOME CUSTOMERS WHICH WE CHOSE NOT TO SERVE,” MR. JOBS SAID.
So now, years after that strategy was made public, Apple are choosing to serve middle-class emerging market consumers.
A challenge in ranging smartphones is that there is a gap between price and value. The price is largely set by the hardware choices, and so the most effective way to reduce price is to use cheaper and fewer components. But value to consumers is largely delivered by software features rather than hardware choices. Product managers can spend years of person hours arguing about whether to use a 3MP or 5MP camera to save a few dollars on build cost, while users spend all their time on Instagram and Facebook.
Of course there are subtle and important interplays between hardware enablers and software delighters, but pick up even the cheapest Android phone and you get a touch-screen, an app store and a browser. Cheap Androids are slow and they crash, but they are still smartphones.
This value-price gap presents the clearest danger to Apple from ranging a cheaper handset. If the iPhone 5C runs iOS, then how much value can be preserved for the premium model? Crippling the software makes little sense given that Android doesn’t do this and is already firmly established in emerging markets.In my view, restricting the release of new hardware features like fingerprint scanning, faster Bluetooth or NFC won’t be sufficient to create a differentiated experience. Samsung uses screen size as the most visible differentiator in their portfolio, but this would be very new ground for Apple. Looking at their existing product range the most effective differentiators would be slower data connection speeds and a non-Retina display (which has the added benefit of being clearly demonstrable at point of sale, reinforcing the link between value and price).
Of course even post-Jobs, Apple retains some power to surprise punditry like this post. And as the most successful technology brand we all have a lot to learn from their work. Apple consistently get consumers to part with hundreds of dollars more than their competitors do, earning them margins the rest of the industry only dreams about. How they manage this new product launch will be very illuminating.