Iphone 5, a Veblen good in India
No matter the design, features, or price, the latest Apple iPhone has always been "the new phone" to watch out for. Latest analyses have judged the iPhone 5's launch in India to be a success with "great response", despite the fact that it has been less than a week since it was introduced.
Perhaps it's just part of the magic that surrounds Apple, but it is difficult to immediately believe that the latest iPhone would outshine its predecessor in the Indian market.
Even Apple's greatest supporters agree that the new model has only incremental improvements when compared to the 4S. Its biggest lure, LTE (the faster version of mobile Internet) can hold no attraction for prospective buyers here, for the simple reason that LTE networks hardly exist in India. Bharti Airtel, one of the biggest champions of the iPhone, has only just launched its 4G LTE services in certain parts of the country.
Similarly, a majority of the spe- cial features offered in Apple's latest mobile operating system are out-ofbounds for Indian users- most of these being related to personal assistant Siri and Apple Maps. If that being the case, can the iPhone 5, priced at Rs. 45,000 for the basic model, be expected to sell? Especially when Indians can get a better bang-for-thebuck for its iPhone 4S or 4 model (now priced at Rs. 36,500 and 26,500 respectively)? Perhaps Apple too understands this, and is a possible reason for its change in distribution model this time around. The sale of iPhones, since the 3G model, has been done through telecom providers such as Airtel and Aircel and other retailers, limiting distribution to mainly large towns.
This model, combined with a high price tag, hasn't done wonders for Apple's market share in India. In the April-June quar- ter of this year, Apple's share of smartphone sales in India was only 1 .2
per cent, half the level a year earlier, according to the latest report put out by research firm IDC. (For the iPhone 5, Apple has partnered with Redington Ltd. to reach a wider consumer audience, breaking the nearexclusivity that telecom companies enjoyed earlier.) Why then is the iPhone, with its premium price tag, so popular? It is not because it was the first smartphone to hit the mass market, nor do its vast cumulative sales give it credibility in the eyes of the potential buyer. It's because the iPhone 5 in the Indian market represents what is classically known as a 'Veblen good'. Peoples' preference for owning such a device increases as its price goes up, because the higher price confers a greater status on having it. This is especially true for Indian buyers, as much of the iPhone 5's advantages don't hold water here. A Veblen good, however, does not pave the way for the large sales. What has limited the iPhone line-up's dominance in India, perhaps, is the refusal of telecom companies to subsidise the cost of the phone the way it is done in the U.S.
A typical American customer would be able to purchase a $650 iPhone for a subsidised cost of $200, provided he signs a three-year contract. Telecom companies usually recover the money by having customers tap into their data plans. This provides a win-win situation, and widens the scope and accessibility of smartphones, in general, to consumers.
According to Vikas Singh, CEO Airtel, Karnataka and Tamil Nadu, this isn't likely in the near future too.
"One of the major reasons why it can't work in India is because legal recourse is difficult. In the U.S, if a customer breaks the 2-year contract they take on when they buy a subsidised phone, there is a heavy fine. In India, tracking down every customer who broke a contract and finding a method of recourse would be tough," said Mr. Singh.