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Apple Inc. Brand Loyalty Is Paying Off Handsomely

By Daniel Sparks – Feb 5, 2015 at 9:05AM

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A not-so-popular prediction from 2013 that the Apple iPhone platform would soon best Android looks like it is coming true.

The well-documented smartphone battle between Apple(AAPL 2.44%) iOS and Google(GOOG -3.29%) (GOOGL -2.75%) Android took an interesting turn this week. For the first time since 2012, Apple iPhone sales outdid all Android device sales combined in the last quarter of 2014, according to a new report from Kantar Worldpanel ComTech. This news reinforces just how big of a hit the newest iPhone models have been with consumers, and it shows the strength of the portfolio of Apple smartphone offerings.

iPhone 6. Image source: Apple

Indeed, brand loyalty matters after all
The iPhone 6 and 6 Plus marked Apple's first foray into smartphones with displays larger than 4 inches -- a market already proven to be hot with many Android customers. As Apple competed with Samsung with similarly sized flagship devices, the tech giant proved it could not only attract new smartphone owners but also convince many Android users to make the switch.

With smartphone penetration in the U.S. at 59%, Kantar analyst Carolina Milanesi says platform loyalty is key.

As the opportunity to attract first-time smartphone buyers in developed economies diminishes, retaining loyal customers is becoming as important as winning them over from competing platforms. Apple's average customer loyalty of 87% across the US and Europe certainly looks promising.

Samsung, on the other hand, has a brand loyalty rate of 62%, according to Kantar, the strongest of all Android manufacturers in the U.S.

The idea that brand loyalty will matter more as market penetration increases is not new. Though when Apple stock was pulling back in 2013 and cheap Android devices were rapidly proliferating, the idea was not popular. Yankee Group's Carl Howe projected in April 2013 that the Apple smartphone platform would surpass Android market share in 2015. While we have yet to see market share data for this year, his estimates could turn out to be quite accurate.

No matter how close Howe's exact figures end up being to actual market share data by year-end, his underlying premise, outlined in 2013 when many wrote that Apple was doomed, has played out as he imagined.

Think of the Apple and Android ecosystems as two buckets of water. New smartphone buyers -- mostly upgrading feature phone owners -- fall like rain into the two big buckets about equally, with a smaller number falling into Windows Phone and BlackBerry buckets. However, the Android bucket leaks badly, losing about one in five of all the owners put into it. The Apple bucket leaks only about 7 percent of its contents, so it retains more of the customers that fall into it. The Apple bucket will fill up faster and higher than the Android one, regardless of the fact that the Apple bucket may have had fewer owners in it to begin with.

Apple's U.S. market share of smartphone sales for the fourth quarter was 47.7%, up from 43.9% in the year-ago quarter, according to Kantar. Android's share of smartphone sales fell to 47.6% from 50.7% during the same period.

Apple store in China. Source: Apple

A global trend
The record-setting quarter went beyond the U.S. In Europe and China, Android smartphones still outsold the iPhone, but iPhone market share gained meaningfully in both markets. In Europe, Android saw its share decline by 3.8 percentage points, while Apple enjoyed a rise of 6.2 percentage points, according to Kantar. In China, Apple's share jumped 2.5 percentage points while Android's share decreased 1.6 percentage points.

Going forward, Apple has guided for revenue in the first calendar quarter of 2015 to be about 17% higher than the year-ago period, suggesting that the company expects even more big numbers from its iPhone business in 2015.

Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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