Apple’s Real Strategy in China

Apple in China

The launch of a cheaper iPhone was heralded as the best approach Apple should take to grow their market share in the world largest populace.  However, the company launched a gold iPhone 5s with Touch ID and a polycarbonate iPhone 5c, which is anything but cheap.

However, Ben Thomspon’s piece for Stratēchery highlights that Apple is a company continues to Think Different, despite the lost of their charismatic leader and co-founder Steve Jobs.

Ben Thompson points out that two Percent of China’s public consumes one-third of the world’s luxury goods:

According to China’s official population clock, there are an estimated 1,359,025,970 people in China as of Sept. 26, with just 2% of that number — some 27,180,519 people — consuming one third of the world’s luxury items. The 2% are the backbone of the global luxury goods sales and the target of hundreds of international brand names, the Chinese-language Money Week magazine reports.

Although the huge majority of China’s population is unable to purchase luxury items, as the country’s economy grows so will its market, the magazine said. Research institutions have predicted that in the next three to five years, the role of the Asia-Pacific region in the global luxury markets will become even more transparent, especially in China.

This is clearly the market Apple is targeting and not the cheap low end market many analysts expected.

Tim Cook alluded to this in his interview with Bloomberg Business Week.

Tim Cook:

There’s always a large junk part of the market. We’re not in the junk business. There’s a segment of the market that really wants a product that does a lot for them, and I want to compete like crazy for those customers. I’m not going to lose sleep over that other market, because it’s just not who we are. Fortunately, both of these markets are so big, and there’s so many people that care and want a great experience from their phone or their tablet, that Apple can have a really good business.

We never had an objective to sell a low-cost phone. Our primary objective is to sell a great phone and provide a great experience, and we figured out a way to do it at a lower cost.

Ben Thompson suggests that the hiring the head of Burberry to manage retail certainly fits with the idea of Apple doubling down on the iPhone’s higher order differentiation.

According to Thompson:

This solidifies Apple’s hold on the Mercedes-Benz/BMW portion of the Asian market. Is it out-of-reach for the vast majority of consumers? Yep. But it will be aspirational, something you put on the table to show others you can afford it. And, to be clear, there are a lot of people that can afford it. Saying stupid things like “the iPhone 5C is equivalent to the average monthly salary in China” belies a fundamental misunderstanding of China, its inequality, and its sheer size specifically, and all of Asia broadly. Moreover, when you consider a Mercedes is tens of thousands of dollars more than a Toyota (and on down the line in luxury goods, for whom Asia is the largest market by far), $300 more isn’t that much.

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Posted by | Posted at October 16, 2013 08:44 | Tags: , , , , , ,
Storm is a technology enthusiast, who resides in the UK. He enjoys reading and writing about technology.

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