Loyalty Boosts Apple In iPhone 6 Debut
Nearly a month after their global launch, Apple’s (Nasdaq: AAPL) latest iPhones are now formally on sale here in China. We’ll no doubt get flooded with numbers about initial sales in the next few days, some of which may be correct but many of which will probably be just guesses. One larger question that’s on everyone’s mind is promotions by the nation’s 3 telcos, as China Mobile (HKEx: 941; NYSE: CHL), China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA), as all come under government pressure to cut back on their aggressive subsidies.
The early news looks relatively good for Apple on that front, with one media report saying the 3 telcos are mostly maintaining their aggressive iPhone subsidies from previous levels. We’ll examine that issue shortly, and whether it even matters much. But first let’s look at the bigger picture that had the iPhone 6 receive a relatively strong reception after it went on sale in China on Friday, 4 weeks after its global debut and 3 weeks after its Asia launch.
Probably the most reliable numbers come from a report that says up to 20 million people placed pre-orders for the new phones, and 10-15 percent of those are likely to translate to actual sales. (English article) That means pre-orders alone should account for up to 2-3 million sales, which looks like a relatively strong start for phones that start at 5,288 yuan ($863), quite a bit higher than the $649 starting price tag in the US. That difference is quite common for China due to factors like higher costs for distribution and import tariffs.
Reports over the weekend indicated that long lines formed outside most Apple stores on the first day of sales, though several noted that the numbers weren’t quite as high as for previous launches. That seems like an imprecise measure, and probably reflects a broader perception by many here that Apple has lost some of its shine for Chinese consumers due to recent negative publicity in the nation’s state-controlled media.
As someone living here in China, I can say that it does seem like Apple has lost a little of its shine among mainstream Chinese. But those consumers were never really Apple’s main customer base, which consist more of gadget fanatics who have an almost blind loyalty to the company. That fact was reflected in a survey over the summer, which showed that Apple commanded an envious 75 percent loyalty rate among its Chinese customers in the first 5 months of this year. (previous post) The next closest player was homegrown sensation Xiaomi, which came in a distant second with just 28 percent loyalty.
Next let’s look quickly at another report that says the 3 big telcos are largely leaving their iPhone packages unchanged despite pressure from the government to rein in their spending and boost profits. The report is relatively detailed, and says that China Telecom and Unicom are offering essentially the same packages with the iPhone 6 as they did with the last iPhones. (Chinese article) China Mobile has eliminated a stand-alone iPhone package that it previously offered, and is now only offering the phones as part of packages for its newly launched 4G service.
So what’s the bottom line in all this early information? The answer looks relatively good for Apple, which will be able to count on strong support from the Chinese telcos to promote the iPhone 6 despite its late arrival to China due to regulatory issues. The addition of a large-screen iPhone 6 model could also help Apple to steal some high-end business from Samsung (Seoul: 005930), which has started to struggle due to its lack of customer loyalty and strong competition from domestic smartphone makers.
Bottom line: The iPhone 6 should post strong early sales in China due to high levels of customer loyalty, strong support from the country’s 3 telcos, and the addition of a large-screen model.
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