While American corporations weren’t watching, it seems, the Chinese outgrew their beads-and-trinkets phase.
Meanwhile, I’ve found so far no straight answers as to why Apple’s deal with China Mobile has been delayed.
It’s well known that China Mobile’s proprietary TD-SCDMA network has never worked as well as its competitors’ 3G network, deployed by China Telecom and China Unicom. China Mobile’s TD-SCDMA network cannot offer a “good enough” iPhone user experience. This is likely one reason why Apple might have been reluctant to play by China Mobile’s rules and tried to play hardball with China’s largest cellular operator.
After Apple’s much anticipated global media event launching iPhone 5c and 5s, the immediate media reaction was more or less universal: The new iPhones will be too expensive in the Chinese market, where Apple needs to play.
According to Apple, iPhone 5c, the cheaper model, would start at 4,488 RMB, about $733, without subsides from mobile operators. The new iPhone 5s, on the other hand, will start at 5,288 RMB, or $864.
Right after Apple’s announcement, China Daily, quoting a survey conducted by Sina, the dominant news portal in China, reported Wednesday, September 11:
Only 2.6 percent of more than 35,000 respondents said they would consider buying an iPhone 5c and 89.4 percent or 31,000 respondents said it was “too expensive” as of 8 pm Eastern Standard Time.
I reached out to my trusted sources in China for responses. Indeed, they too think it’s too expensive.
But there’s also something you might not have considered.
Chinese consumers agree that this iPhone is too expensive, not because they can’t afford it. The sticking point is the device’s plastic shell, which is colorful and attractive, but… it’s just plastic. The widespread complaint: “For plastic shells, we need to pay this much?”
With its plastic shell, the iPhone 5c strikes some Chinese as too expensive.
Chinese consumers had also heard the hype about the upcoming “cheap 5c.” Relative to that expectation, consumers conditioned to expect a genuinely inexpensive iPhone — by Apple — felt the actual price came in disappointingly steep. Now, perceptions have yet to adjust.
Here’s another interesting observation. Many of us assumed iPhone 5c to be the perfect iPhone for Chinese consumers. It actually is relatively cheap compared with other iPhones, and cheaper (or, at least, cheaper) is what everyone knew Apple needs to become a player in China.
But it turns out that many Chinese people already interested in an iPhone prefer the iPhone 5s to the 5c. One Chinese industry source explained to me that it’s because the “iPhone 5s comes with 64-bit CPU, finger print, and camera.” Chinese consumers are just as savvy, curious, and intrigued by advanced features as consumers in the West.
Looking at Apple’s iPhone strategy in China, one Chinese mobile industry observer, who spoke on the condition of anonymity, believes Apple is smart not to reduce the price of 5c. She predicts that price cuts won’t advance Apple’s China strategy.
One reason is that the import tax in China is very high. Reducing the price only reduces Apple’s bottom line. Indeed, iPhones sold in China are subject to a 17 percent value-added tax.
Second, it also makes sense to price hardware relatively higher in China, compared to other regions, because Chinese people are less willing to spend money for apps.
Third, my Chinese industry observer noted, “Apple doesn’t need to compete with Samsung in the middle range of prices.” She pointed out that Samsung already has too many devices in that range.
Her advice to Apple? “Just stay in the high-end. Keep margin until they have innovative products.”
In nutshell, she described Chinese consumers as follows: “High-end customers don’t care about price. They care about brand.” Besides, “Apple’s software platform and quality deserves the price,” she added.
Bottom line: If those educated Chinese consumers and industry sources are right, Apple’s China strategy, after all, might not be so far off the mark.
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