Industry labels Apple's low-cost iPhone inevitable, but questions brand status

News of the first low-cost iPhone model aimed at a wider customer base is supported by branding agencies and industry commentators, but can the brand continue to lead smartphone innovation?

Industry pundits and branding agencies have labelled Apple’s launch of high-end and low-end iPhone devices as inevitable to broadening its customer appeal, but are less convinced on whether the company can retain its premium and innovative brand image.

Apple launched its two new iPhones with fanfare this week, offering distinctly different versions of the handset aimed at attracting consumers in different markets. The move is a marked departure for the company in terms of iPhone product design and is the first time high-end and low-end models have been available to users in the same series.

The iPhone 5C is a lower-cost version differentiated by a colourful case. It is targeted at consumers in developed and developing markets and will be priced at US$99-$199 on a two-year contract. Apple will also release a higher end iPhone 5S, based on its new A7 64-bit chip architecture and promising double the connectivity speed. Both will run off the new iOS7 operating system and go on sale in multiple countries including Australia from 20 September.

Independent brand consultant and author of ‘Branding to Differ’, Jean-Luc Ambrosi, saw the releases as a continuation of Apple’s strategy, and was less concerned about the fact that two, and not one device, had been released.

“It is similar to the strategy used for iPods with a wide offering of well differentiated products gathering for both end of the pricing spectrum,” he said.

“Apple moved to a wide product offering a long time ago, expanding its brand appeal beyond its original core market, and this is just a continuation of this strategy applied to iPhones. The reputation of the brand can remain intact as long as the company keep its products true to label when it comes to innovation, user friendliness, design and quality.”

The key to ensuring Apple’s continued brand premium is that lower end products are well differentiated, retain Apple’s fundamental characteristics, and critically, represent a cheaper alternative, “rather than a cheap one”, Ambrosi said.

CEO of US-based brand agency CultureRanch, Eli Portnoy, compared Apple’s decision to release a low-cost model to similar moves by Mercedes Benz with its cheaper A-Class models.

“Many companies that started catering to a more affluent market eventually [if well thought out] provide ‘entry’, or aspirational level products to those less well off,” he said. “Importantly, Apple needs to increase its dominance and desirability throughout the world, especially in emerging nations, and a less expensive phone is the way to go. Currently, these emerging nations get the used iPhones, which are in great demand.”

Director of newly-launched brand advocacy agency, The Influence Group, Sharyn Smith, pointed out Apple had been losing market share to Samsung and other brands because it hadn’t catered for a younger audience more likely to require entry-level smartphones.

“It's possible Apple’s launch of the iPhone 5C will help close the gap between its brand and younger technology influencers, especially in new and emerging markets, ensuring future brand growth,” she said.

"In the technology space, brands are impacted by influence, which operates on an upward curve, so younger generations influence the older generation. If the younger generations aren’t buying Apple iPhones because it is less affordable to them, it’s likely they therefore won’t influence others and in turn build brand advocacy for Apple.”

News of the two iPhones didn’t allay investor concerns around Apple, however, and the company’s shares slide 5.5 per cent to US$467.25 in trade on Wednesday.

Analysts also claim the new devices are unlikely to be a hit in emerging markets, and that Apple has failed to bring down prices enough to attract many new customers. While the new iPhone 5C is being offered to US customers at $US99 with a subsidised carrier contract, the unsubsidised price will be $US549 in the US, and more than $US700 in China.

“So much for the low end,” Credit Suisse analyst, Kulbinder Garcha in a research note. “We remain disappointed with Apple's decision to remain a premium priced smartphone vendor.”

Read more: Apple buys Beats Electronics for US$3bn

Garcha also claimed the iPhone 5S was “lacking real innovation” and that the lower-cost version may even hurt sales of the premium product. “The iPhone 5c is essentially a multi-coloured, plastic iPhone 5 and could cannibalise higher-end sales and account for over 50 per cent of unit mix over time bringing lower gross profit dollars,” he claimed.

Ovum principal analyst for devices and platforms and Telecoms at Ovum, Tony Cripps, saw the iPhone 5C as Apple’s nod to consumers in the smartphone mid-market wanting a device of their own, but agreed it wasn’t the cheap version expected.

“Anyone expecting Apple to come truly down market with the iPhone 5C was fooling themselves. The day that happens is the day the company signals it has run out of headroom for expansion,” Cripps said.

“This change hasn’t affected Apple too much to date but would have represented a threat if the company hadn’t addressed the problem now – its once a year refresh can sometimes work against it.”

Cripps also disagreed with Garcha on innovation, adding Apple’s move to 64-bit architecture was a much-needed new point of difference to market, and could help the company particularly with its lead in the mobile gaming sector.

Given the many judgements passed on Apple’s fall from grace, and the rise of Samsung Android-based devices as the dominant smartphone choice, the latest iPhone releases indicate a turning point in maturity for the organisation.

“The challenge for Apple is to keep its brand mojo, its core difference, as it becomes all things to all people,” Ambrosi said. “The lower end iPhones will expand the brand offering especially in price sensitive segments and markets. This is a common strategy for established brands who want to fend competition and keep growing their market share by expanding their product offering to different customer segments.

“Today’s market reaction is short term and we need to see if the new offering is exciting enough to retain existing customers against competitive products, with the iPhone 5S, and able to bring new customers to the iPhone [with the iPhone 5C].

“Strategically I see this move as congruent with Apple’s market strategy but as always the devil is in the detail.”

Portnoy said the consensus among fellow brand marketers is that while Apple is still revered, it has lost its lustre even with the most loyal of customers.

“Apple must start introducing real innovative products again to keep up with Samsung,” he added. “Otherwise, unfortunately, Apple may go the way of Sony, which was the original modern day superstar of product innovation and has virtually become a bit player.”

- with Martyn Williams and AAP.

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