Apple Inc. (AAPL)’s Chinese Dilemma – Quality Or Price?

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At last year’s WWDC event, Apple Inc. (NASDAQ:AAPL) announced that the installed base for its Mac machines had grown to 72 million machines – meaning it had grown 100% over the last five years. The same article makes a very valid point – “The 100% growth of Mac for Apple Inc. (NASDAQ:AAPL) is a key metric, as during the same period, the larger PC market only grew by 18%. Therefore, Apple Inc. (NASDAQ:AAPL) grew at more than 5 times the rate of the PC market, over the last five years; that’s an impressive rate of growth inside of a largely mature industry.”

Forget a mature industry, PCs had become a commodity, the most price-sensitive beast there is. And here was the Mac reporting industry-beating sales. That should resoundingly settle the quality versus price debate.

Will China take to Apple’s quality?

David Morgensten comments in his article ‘Can Apple teach China about quality?’ that networks will always see more value in Apple Inc. (NASDAQ:AAPL) customers because “they have always done more with their computing devices, such as creating or editing content, not just reading or viewing. They purchase more software and use that software. This was so back in the days and it’s true nowadays.”

He also makes the point that a price-conscious customer may be forced to buy a low-end phone or tablet, but in the ultimate analysis would usually end up envying somebody owning the Apple product.

Apple’s marketing strategy

Morgensten also points to Apple’s ‘slow-but-steady, surround-from-below approach’ that usually means Apple Inc. (NASDAQ:AAPL) establishes its business terms in a new market with a smaller telecom operator, and seduces away customers from the larger players. The latter have to, ultimately, deal with Apple on its terms to stem the loss of their subscriber base. This game is now playing out in China.

Ultimately, both the customer, and the network, has to succumb to Apple’s quality.

iPhone losing share in urban China

That said there is only so much more a traditionally thrifty Chinese customer will pay for the iPhone’s quality and snob appeal. Q3 2013 stats from Kantar for smartphone sales in urban China show that Android smartphones were able to secure 80% of the market, possibly taking advantage of the high price of the iPhone 5C.

Innovation the road?

With Apple Inc. (NASDAQ:AAPL) having sealed iPhone marketing deals with most of the major telecom companies globally, it may now need to offer more, much more, in its phones to get customers to pony up their high sticker prices.

So, more innovation – but that is something Apple’s decent at.

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