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Apple Surprisingly Strikes Gold in This Price-Sensitive Market

By Harsh Chauhan – Aug 13, 2020 at 9:07AM

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The iPhone maker's better understanding of consumer dynamics has given it an edge over rivals in India.

The Indian smartphone market felt the effect of the novel coronavirus pandemic in the second quarter of 2020, with shipments cut in half year over year, according to IDC's estimates. Just 18.2 million smartphones were shipped in India for the three months ending in June, compared to 36.8 million units in the prior-year period, as a strict lockdown brought economic activity to a halt.

Almost all major smartphone manufacturers saw huge dips in sales, but surprisingly, Apple (AAPL -1.76%) held its ground. According to a report by Indian financial daily newspaper Mint, Apple's second-quarter shipments in India increased 5% year over year during the quarter. Citing a source familiar with Apple's numbers, the Mint report pointed out that the recently launched iPhone SE, the iPhone XR, and the iPhone 11 drove the company's sales during the quarter.

Person using a smartphone.

Image source: Getty Images

Why is this a big deal?

Given that India is a price-sensitive market, this is a nice development for Apple, as its products are seen as luxury items in that country. So an increase in iPhone sales at a time when India's economy is not in great shape and unemployment is on the rise indicates that Apple is finally getting things right over there.

The company's fortunes started turning around in India after it gave the iPhone XR a big price cut of $250 last year. Then it established an aggressive price point for the iPhone 11 toward the end of 2019. The attractive pricing of these two devices helped Apple record 6% growth in shipments in India last year, following a 43% contraction in 2018.

The company has continued that momentum into 2020, with shipments growing a whopping 78% year over year in the first quarter, according to Counterpoint Research. Second-quarter shipment growth wasn't as great, but it is still quite impressive considering the state of the overall market.

What's working for Apple in India?

As pointed out earlier, attractive pricing has been a tailwind for Apple's shipments in India. The company has been learning from its mistakes -- and correcting them -- to woo customers in that market. For instance, the iPhone SE was launched at what seemed like an unrealistic price point for a mid-range device. But Apple changed course quickly and began selling the device for 36,999 Indian rupees (roughly $495) -- a discount of around 13% from its original launch price of 42,500 rupees.

The company has also reduced the price of the iPhone 11 of late. Originally priced at 68,300 rupees for the 64GB model, the device was on sale for 62,900 rupees during Amazon's recent sale event in India.

The good news for Apple investors is that the company can be expected to keep up its aggressive pricing strategy in the Indian market as it gears up to expand its production there. It recently started assembling the iPhone 11 in India -- which is a big deal, as Apple has traditionally made older-generation models in that country.

Three of the company's contract manufacturers have reportedly applied for the Indian government's production-linked incentive (PLI) plan, which offers benefits worth 41,000 crore Indian rupees (roughly $5.5 billion at the current exchange rate). If the likes of Foxconn, Wistron, and Pegatron manage to ramp up the production of iPhones locally, Apple may be able to price its upcoming smartphones in India at par with international prices, as it won't have to pay heavy import duties.

That could help Apple boost its market share in India's fast-growing smartphone space, which is about to get a shot in the arm thanks to the deployment of 5G technology.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Apple and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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