In a bid to compete with its smartphone rivals in the largest mobile market in the world, Apple has started offering instalment plans for its products in China, the first OEM in the country to do so when selling its own products directly.
According to reports, the company has taken this step because it has been struggling to shift its products, which are typically more expensive than those of its competitors. Regardless of the near-term competitive environment Apple faces in China the instalment plans are a bold and innovative way for Apple to make the iPhone more attractive to consumers who are used to buying smartphones from local rivals such as ZTE for much less.
In fact, the iPhone is already available on instalments from third-party websites in China; the difference with Apple’s own scheme is that it is offering longer repayment terms (18 or 24 months along with the 3, 6 and 12-month terms available elsewhere.)
In addition, the interest rates it charges in China are lower than in other countries; customers opting for a repayment term of 18 months pay 6.5% in interest, and 8.5% for a 24-month term, compared with 14.9% in the UK. Until the end of January, the shorter plans charge no interest.
Financing plans have been growing more popular in mature markets over the past two years, but have typically been used by operators as a way around the subsidy model, which is growing increasingly expensive as more and more consumers shift from prepaid to postpaid.
Informa has noted, however, that device platform owners – such as Apple – can use financing to disrupt traditional device distribution models. If customers grow more accustomed to buying handsets from OEMs, operators will see their role – and bargaining power – erode as they are no longer the de facto one-stop shop for handsets as well as service contracts.
Given Apple’s record of innovation in hardware and software design, it’s perhaps not surprising that it should now turn to financing to try and take share in China in the mid-to-high end segments of the markets it operates in. While the size of the Chinese market represents huge opportunity for Apple – more than its rivals who have been in the market for longer – the unique and complex nature of the market will test its ability to tailor its products to a new and, for it, largely untapped market. In this context, the financing move means differentiation for Apple’s devices as well as increasing its competitive positioning.
That said, it is still too early to draw too many conclusions from Apple’s decision. Instalments are a response to the company’s unique situation in China, where Apple lies in sixth place among handset manufacturers, a ranking that will not trouble the vendor in terms of the overall market, but which it won’t want to maintain in the smartphone segment. The size of the potential customer base – even without an agreement with market leader China Mobile, which accounts for around 65% of subscribers – will make China Apple’s largest market, so it must find a way to remain competitive there.
However, any lessons learned from its experiences in the world’s most populous country will surely help Apple in promoting the model in more mature markets. While Apple’s market share is under threat from increasingly competitive rivals, this latest financing move could be an opportunity for it to boost sales of its devices not just in China, but globally.
Francesco Radicati is a research analyst for Europe at Informa Telecoms and Media. For more information, visit www.informatandm.com/