Well aware that its products carry a hefty price tag, Apple (AAPL 0.64%) has been making efforts to reduce the sticker shock many emerging-market customers experience when encountering an iDevice for the first time. Debuted first in China and now in India, Apple has begun offering the flexibility to buy an iPhone via an installment plan, which in theory should allow the iPhone to appeal to a larger customer base. In practice, these efforts appear to be off to a great start.
Two months' pay
Before Apple aggressively enters a new growth market, it often studies the dynamics of its consumer behavior to tailor its marketing and sales approach. Considering the iPhone costs the equivalent of almost two months' pay in India for an entry-level software engineer, Apple practically had no choice but to embrace an installment plan if it wanted to become a player in the world's second largest mobile phone market. For an approximately $93 initial payment, an $840 iPhone 5 can become "your dream phone," according to an advertisement found in The Times of India.
The MobileStore, which sells about 15% of all iPhones sold in the country, has seen sales triple since introducing the measure last month. MobileStore CEO Himanshu Chakrawarti believes "most people in India can't afford a dollar-priced phone when the salaries in India are rupee salaries. But the desire is the same."
Just in time
India may be the second-largest mobile subscriber market in the world, but in terms of smartphone subscribers, the market is largely untapped, with only 10% of the market saturated. In the coming years, as lower-priced smartphones continue to be made available to emerging market economies, IDC expects India's smartphone shipments will grow from 19 million headsets in 2012 to 108 million by 2016.
A halo on a budget
Naturally, the larger Apple can grow its installed base of users, the more opportunities it will create for subsequent purchases in the future. This "halo" effect has created tremendous success for Apple's products in the developed world and with the help of installment plans, it's likely that Apple can replicate some of this success within emerging markets. Overall, this effort is part of Apple's larger plan to improve the value versus affordability preposition many cash-strapped emerging-market customers consider. Investors should expect to see more payment plans popping up in countries where an iPhone costs the equivalent of a few months' pay.
