by Elisabeth Razoumova '16

A study just released by Upstream showed that although most people living in emerging markets could not afford Apple’s iPhone, they preferred it over the smartphones of Apple’s main competitor, Samsung. While Samsung saw a decline of 3% in consumer brand preference, Apple’s popularity grew dramatically from 21% to 32%. The spike mainly resulted from an increased desire for high-end smartphones in emerging markets, not necessarily Apple’s release of the lower cost iPhone 5c.

The results, though indicators of Apple’s potential growth in emerging markets, are also misleading. The study showed that buyers in Brazil, China, Nigeria, and Vietnam desired the iPhone, but actual sales of iPhones in those markets told another story. Samsung was powering 296,493 active smartphones in those regions while Apple only powered 90,184. The disparity was due to cost difference between the company’s products. Samsung employs a low cost highly differentiated product strategy that appeals to many markets while Apple is stuck producing technology only middle and upper class consumers can afford. There is a strong correlation between brand preference and income, which explains why Apple outcompetes Samsung in higher GDP countries such as the United States and the United Kingdom.

Today, most of the growth in the Smartphone market is coming from developing nations such as China, Brazil, and India. Residents want to replace their old phones with high quality smartphones, but a large portion of the population cannot afford top of the line products. Right now Apple’s strategy is to target the growing middle class in these emerging markets that is willing to pay the high price for the iPhone. Yet this strategy alone is not sustainable and if Apple wants to outcompete Samsung it needs to work on its low-cost strategy.

Apple was not able to successfully enter the low-cost smartphone arena with its iPhone 5c last year. The company did not lower the price enough to address the lower end of the market in developing nations and was unable to successfully appeal to loyal Apple consumers either. Most customers ended up paying the extra $100 for the higher value iPhone 5S. As a result Apple cut back its iPhone 5c orders by 35% due to lack of demand. Apple chose not to employ the strategy of its low-cost competitors by failing to reduce hardware costs, and therefore was not as successful in entering emerging markets as Samsung.

Apple’s declining market share in relation to Samsung highlights a larger problem for Apple. The company has not released any breakthrough products under CEO Tim Cook, which is causing people to question his ability to continue growing the company. With the ever-changing smartphone marketplace where competitors are constantly creating innovative products, updated versions of the iPhone with only marginal improvements are starting to fall behind other smartphones.

Apple needs to decide it’s strategy in the smartphone arena: either maintain its focus on high income consumers or invest more heavily in creating a line of iPhones that is truly low-cost to target the growth in emerging markets.

Sources:http://www.bloomberg.com/news/2014-03-13/apple-beats-samsung-as-favorite-brand-in-emerging-markets-even-though-they-can-t-afford-it.htmlhttp://appleinsider.com/articles/14/03/14/apples-iphone-is-most-desired-smartphone-in-emerging-markets-passing-samsunghttp://tech.fortune.cnn.com/2014/03/07/apple-samsung-china-loyalty/http://www.businessinsider.com/samsung-corporate-strategy-2013-3http://www.technewsworld.com/story/79885.htmlhttp://finance.yahoo.com/news/poor-apple-iphone-5c-sales-122048565.html