Iphone 5, a Ve­blen good in In­dia

The Pak Banker - - Front Page -


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.

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