How far should the Apple fall from the tree?

Former brand head at Airtel Bangladesh, the third largest telco in the world, Imran Aziz opines on why the iPhone maker should eschew calls to make a cheaper headset to compete with Samsung.

By Imran Aziz

With Samsung having overtaken Apple as the world’s most profitable handset maker in the first quarter of 2013, tech experts are recommending that the Cupertino company should diversify its portfolio by making a “lower-cost” iPhone with plastic body.

The business argument is that the lower cost model will make the iPhone accessible to more people and make it as competitive as Samsung in these segments. However, from the perspective of strategic branding, the likely consequences of this move are not as straightforward.

The very essence of why you create brands is so that the demand of your product is not just dependent on price. Otherwise, decreasing prices to increase sales would have been the only marketing strategy around.

Introducing a lower cost iPhone model will potentially cause a dent in the entire Apple brand universe. To use an extreme example, think of how current consumers of Louis Vuitton might be affected if the brand decides to introduce a lower cost line made of imitation leather. While Apple may not be a luxury brand, it is a high-end, experiential one – and the exclusivity of the brand seems to be an important factor among its consumers.

The handset market seems to be unlike any other market that brand marketers encountered in the past, purely in terms of how quickly it evolves.

Just a few years back, brands like Nokia and Blackberry were clear leaders in their domains of personal and business handsets. They featured regularly in the list of top 10 brands of the world. Conventionally, it would have been easy to predict such clear leaders would dominate their categories for years and years. However, not only have Nokia and Blackberry lost their leadership, they seem to have disappeared all together from the consideration set of most consumers when they go to buy a smartphone today, despite the fact that the size of the market is virtually everyone in this planet (currently 87% of the world’s population use mobile services).

That being said, it is also true that the workings of the handset market over the last few years have demonstrated and validated some of our conventional branding wisdom.

Firstly, like conventional brand wisdom advocates, Apple has become a leader by creating a new category in the handset market: the keyboard-less, high-end smartphone with its own ecosystem of apps.

Secondly, the “rule of opposites” has materialized in the form of Samsung, which has come up as a challenger product offered at a lower cost. Both brands have carved a distinct market positioning: Apple as the original high-end smartphone and Samsung as the competing option.

This fundamental positioning of the brands is the starting point from where we have to try and make the predictions of Apple’s prescribed move.

However, there are three interesting sub-plots that need to be considered before we move further.

First, traditionally Apple has always been the “counter-culture” brand – the brand that has always behaved differently in the market, taking on established leaders like IBM and Microsoft. A big part of the Apple experience is the delight many users get from the feeling of being different from the mainstream.

In the head of many customers, the iPhone is (or at least should be) positioned as the “original” smartphone – the leader that created the category itself.

Second, you also have to consider Apple’s closed-end system, where the hardware and software is of one brand. For an iPhone user, the answer to the question, “What handset do you use?” is always an iPhone.

However, in the case of non-iPhone users, it is often seen that the answer can be either “Samsung” (hardware) or “Android” (software).  This potentially means that Samsung as a device brand might have more room to maneuver than Apple, as many users seem to be more conscious of the software they are using rather than the device.

In the market, Apple’s core strategy has always been innovation – not value. It has created new product categories across computers, music, mobiles and tablets.

Now, how will the introduction of a low-cost iPhone purely positioned on value impact these existing equities?

  • It will be a move based on value, not on innovation, which is not the brand’s core strategy/positioning.
  • It makes the brand a follower, diminishing its position as the “original smartphone.”
  • Instead of pioneering a category, a purely price-based model will only move the iPhone to existing price sensitive segments where Samsung/other devices are already strong. Empirical evidence strongly suggests that when perceived high-end brands try to compete in lower-price segments with purely cheaper models, the results typically fall flat (for example, Jaguar with the X-Type model).
  • It diminishes the “exclusivity” of the brand (with its panache of being “unique”) among current users.

The power of high-end, experiential brands like Apple is that it exudes exclusivity. On some level, you use it because you think that only people like you are using it. When product lines get expanded purely on price and more people start using your brand, the less exclusive you feel.

Now this does not necessarily mean that every existing iPhone user will throw away his/her phone the day a low-cost model is introduced. But the corrosion of existing equity will start to happen on some level when price sensitive consumers start buying a lower version of the product. And eventually the results can be drastic – as happened to Nokia with its over-extended portfolio of devices ranging from $50 to $800.

So what move can Apple potentially take if it wants to fortify its market from Samsung (at the high-end)? The other recommendation which is prevailing in the market – that iPhone needs to introduce a bigger screen model – seems to be a better prescribed solution to combat Samsung.

However, simply increasing the screen size to compete with market standards would again seem like the move of a follower. Rather, the brand needs to innovate a new type of screen on some degree, and then position the bigger screen model as one which gives the user an enhanced experience due to the innovation, rather than just the size itself.

Are there any options at all for countering Samsung in the price sensitive segments? Stringent believers in classic brand management will advocate they do not need to enter these segments at all, as great brands are all about making sacrifices. Moreover, high-end brands are never meant to out-sell mid-range ones in the first place: BMW is the most successful luxury car brand in the world, but it doesn’t outsell the Volkswagen.

It is smart for Apple to stay away and they need to keep on doing what they do best – innovating and leading the way.

After all, there’s no need for the Apple to fall far from the tree.

Imran Aziz is a brand management professional with eight years of experience, who’s just moved back Toronto after a stint as brand head at Airtel Bangladesh, the third largest telcom brand in the world.