Apple made a big strategic mistake in China recently. It assumed that its iPhone is so popular among Chinese consumers that they are willing to pay higher prices for newer versions of the product—even in the midst of a US-China trade war.
That’s according to a recent IDC survey which shows that iPhone shipments dropped by 19.9% in the fourth quarter in China.
“There are multiple factors at play here which are making China a tough sell for Apple,” says Haris Anwar, Senior Analyst at global financial platform, Investing.com.“One of the most obvious is that consumers in China don’t see much value in paying higher prices for Apple’s new products which lack an awe factor.
Another factor, and one we don’t have much anecdotal evidence to support, is that Chinese consumers may be turning to local brands to show their nationalism over the ongoing political tension between their government and the U.S. over Huawei’s issue.
We clearly saw this trend when Chinese consumers targeted Canada Goose Holdings on social media to boycott the brand following Huawei CFO Meng Wanzhou’s arrest in Canada.”
Jeffrey Eglow, the Chief Investment Officer for Guardian Wealth Advisory, agrees. “The 20% drop in Apple’s 4th revenue from China is clearly a direct result of the phone costing too much given the average income levels in China.,” says Eglow . “Apple actually did even worse than the overall smartphone market. CEO Tim Cook admitted that they did not foresee this sharp drop. Plus the uncertainty surrounding the US-China trade negotiations will only make things worse.”
The solution? “They need to lower expectations for this market and reduce the price of the phones to kick start sales and to deal with currency fluctuations,” according to Eglow.
Apple’s strategic mistake in China is neither new nor unique. Too often, fast growing companies with a strong brand take consumers for granted; they assume that they will always be there to purchase their products.
Instead, consumers start to search elsewhere for value.
That’s what happened with McDonald’s back in the early 2000s. After a period of rapid growth, the company began paying too much attention to building new restaurants and too little attention to what a new generation of consumers wanted on the menu.
Big mistake. Growth and profitability declined, as consumers searched elsewhere for value.
Then there’s Research in Motion (now BlackBerry). For most of the 2000s, growth was soaring for Research In Motion. Each quarter the company delivered better than expected earnings results. BlackBerries took over the market niche occupied by conventional phones—outperforming even Apple.
But then the company failed to keep up with innovation and deliver value to customers with newer generation of its phones. Customers looked elsewhere for value, anddumped BlackBerry phones for iPhones.
While it’s unclear whether Apple’s strategic mistake in China will be repeated in other markets, one thing is clear: Apple shouldn’t take customers for granted.