It seems that Apple’s downturn in fortunes may be at least in part, due to taking their eyes off the Chinese consumer market. An article titled, “Apple’s China Problems Stem From Lack of Localization, Not News Bashing”. This article by Abe Sauer was posted on the “brand channel” website (
www.brandchannel.com
) on April 29, 2013. The article reports:
“The announcement from Xinhua, China’s state news agency, was almost gleefully: “Apple sees global profit decline as China sales lose momentum.” Despite CEO Tim Cook’s declaration that it was Apple’s “best quarter ever,” Xinhua’s report focused squarely on the slowed growth and the brand’s struggles. The unspoken theme of the China state coverage: “We did it, everyone!” Was the weeks of Apple criticism dished out by China’s news agencies what slowed sales? Apple better hope it was. The alternative is far, far harder to fix.
After a couple of weeks of being criticized for discriminatory repair policies,
Apple issued
a formal apology to China. The damage was done though, with the original criticisms branching off to include charges of
porn distribution
through iTunes to a general spanking as an ostentatious luxury item that college students were taking high-interest loans with rates up to 47 percent to buy “fancy electronic products.” But in
state media reports
on the phenomenon, the only brand name mentioned was Apple’s iPhone. A month after the licking put on Apple, China’s state media proclaimed victory, noting a survey—the results of which can certainly be called questionable—that found 59.9 percent of respondents said their opinions of Apple had “gone down.” But other results said otherwise.
An informal
survey by China Market Research Group
found that the state media’s attacks had “failed to change the perception of the country’s consumers.” Instead, iPhone’s rougher reception in China could have to do with the fact that Apple is failing to give China the iPhone it wants.
Buying an iPhone
in China
is almost purely about “keeping up with the
Joneses
Tangs” and far less about the user experience. As
brand channel
has argued
on numerous occasions, 40 percent of China’s iPhone owners use no apps and many more make no use of the iTunes store. This means Chinese iPhone users are not locked into Apple’s ecosystem the same way iPhone users in America are. This is why, even as iPhone market share slips and loses ground to Samsung, Apple’s iPad has never been more popular in China. Apple saw iPad sales increase last quarter by 138 percent, giving the iPad a 71 percent share of the nation’s tablet market. For most Chinese iPhone users, switching from an iPhone to a Galaxy 4 is as simple as buying a BMW instead of a new Mercedes.
It’s edifying to compare Apple’s recent sales growth to that of those luxury cars—the cars that are most likely to be purchased by iPhone users. BMW has
warned
of slowing car sales in China, saying its sales expectations will come down to lower double digits. Audi just
logged
a 14.2 percent sales increase. Jaguar Land Rover is
looking
at a 20 percent increase. Meanwhile, in the period ended March 31, luxury brand Hermes
saw
China sales growth surpass 20 percent. What are the customers who are buying Audi and Hermes buying if not iPhones?
On the streets of Shanghai, Samsung’s increasing popularity has been obvious. Just six months ago, the paneled Samsung Galaxy was a rare sight. Today, it’s common to see subway commuters watching TV shows and playing games on the giant, TV-like flat screen, two of the most common uses of smart phones in China. Youku—a video streaming site that is kind of half YouTube and half Netflix—just
reported
a 50 percent increase in viewership in just a few months, all largely thanks to increased tablet and smart phone use. The Galaxy could not be more ideally designed for Youku. This idea that the Galaxy better fits the use patterns of Chinese consumers cannot be overstated enough. Apple has made zero attempts to localize in a market where localization is an absolute necessity. Lay’s offers Sichuan flavored chips in China.
Mercedes
, Porsche and other automakers offer cars with longer wheelbases with stretched backseats to cater to China market desires. How does Apple’s iPhone specially service China consumers’ needs? It doesn’t.
If a recent Trandforce study is correct, iPhone’s China prospects against Samsung’s feature-loaded Galaxy S4, which just launched in China, is about to get worse. That survey
found
that 52.4 percent of China’s current iPhone owners said they were interested in switching to the Galaxy S4.
Then there are pesky Chinese brands
like Xiaomi.
Xiaomi plans to sell around 15 million of its smart phones in China in 2013. At just half the price, Xiaomi’s phones run an Android OS and come packed with features most Chinese are used to seeing only in the Galaxy and iPhone. (It’s worth noting that Xiaomi is as much, if not more, of a problem for Samsung as for Apple.)
Maybe the best summary of how off kilter Apple is becoming in China is its response to the recent earthquake in Sichuan. Both Apple and Samsung committed relief funds to the disaster. Apple gave 50 million RMB ($8 million) while Samsung earmarked 60 million ($9.6). Samsung made its announcement on Weibo, and became a trending topic as a result. Apple’s
announcement
came as a news release. But more importantly, Apple’s announcement came after Samsung’s, giving the impression that Apple cared exactly 10 million RMB less about China than Samsung.
It might be comforting for Apple to think it’s taking a beating in China thanks to a sustained crusade by the state media, a problem somewhat outside of its own control. But the truth is that it’s losing the aspiration battle in China as consumers are increasingly less willing to buy a phone designed for US consumers when all around them, brands are catering to Chinese needs. Apple’s China problems may be exacerbated by China’s media, but its core problems are largely of its own making.”
If you want to do business in China you have to know what you are getting into before you begin and then you must always, always pay attention to what you are doing after you get here. If a company can lose its focus over here, anyone can.
Hawkeye in China
Lex Smith