Daybreak - How Apple is building an army of 'faithfuls' in one of the world’s most price sensitive markets

Episode Date: May 28, 2023

For almost two decades, India was a stagnant market for one of the leading tech companies of the world. But in 2021, things changed and Apple's sales graph in India began to rise upwards.By 2022, Apple sole over 7 million iPhones in the country. And then in April, Apple CEO Tim Cook inaugurated India’s first Apple retail store in Mumbai. But compared to markets like the US and China, Apple's numbers in India are far from substantial. Yet, the company is looking to give Its Indian customers a premium experience, even if the sales don’t yet justify it. Tune in.Recommended reading: Indians’ love for the iPhone is stronger than ever. But Apple retailers are not happy Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform.Subscribe for more exclusive, deeply-reported, analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcast, you've probably heard me. My interruptions, my analogies and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret source stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. About a month ago, Apple CEO Tim Cook inaugurated India's first Apple retail store in Mumbai. So we're trying to bring our best to India. We brought the online store a few years ago. We brought now a retail store, we'll expand the retail presence on Thursday with a store in Delhi.

We have manufacturing here. We have an extraordinary developer community here. We have musicians. I'm sure you remember it was a big deal. This was the first time in seven years that Cook had come to India. And he spent most of his time at the launch waving to customers, meeting them, posing for self-finding. and he was also seen socializing with Indian celebrities, the most memorable of which was of course him having Wara Pao with Madhuri Dixit.

The architecture, interior design, the ambience of the first Apple store in India is all about local identity. The Mumbai store, for example, is inspired by the iconic Kali Pili's or the black and yellow taxis of the city. You know, sometime at the end of last year, a mobile store, phone retailer from Delhi had told against something that almost foretold how India was becoming an increasingly important market for Apple. iPhone shipments to India doubled to 6 million units in 2021 and were expected to cross 7 million in 2022. In fact, in the last quarter of 22 alone, Apple sold 2 million iPhones. But Apple sells more than 50 million units annually in markets like China and the U.S. Now compare that to the 6 or 7 million here and you realize that sale in India is not that much,

right? So why then is Apple making all this effort here? Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nidda Sharma, and I don't chase the news cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Monday, the 20th, 9th of May. Punks the thousands of Apple fans who had gathered in Mumbai for the launch of the Apple store last month was a 52-year-old man, Sajid Moinuddin. He waited for hours to meet Apple CEO Tim Cook. What made him stand out was what he was carrying in his hands, an 8-killed vintage Macintosh SE, which was launched way back in 1987. Finally, when Cook did meet him, his first reaction was, oh my God, you still have this? Moinoddin responded saying, I don't discard

Apple products. I preserve them like souvenirs. The story of Moinodun is what makes Apple Apple, the loyalty that it draws from its users. And it's nothing new. In fact, it is a huge part of our pop culture narrative now. I don't know if you've seen it, but it reminds me of this episode from Modern Family where the character Phil, a hardcore Apple fan, goes to all kinds of lengths to get the latest iPad. Even as long ago as 2007, fans would flock to Apple's exclusive stores in the US. The New York Times was already describing them with a term that is usually reserved for religion. It called them the faithful. People started queuing up at 2 a.m. in the morning for the store to open up. The piece called it a subterranean retailing mecca. At the time, some 200 stores across the world

contributed about 20% of Apple's revenue. This was in a huge contrast to most of its rivals who were still trying to figure out the right retailing formula. So what was it that Apple figured out and others did not? Apple was not just showcasing its own products. It was there to build trust. But converting this kind of hardcore fandom which it has seen in other countries like the US and China into a meaningful overall market. market share is not easy, especially in a price-sensitive market like India. Stay tuned for more. If you've been to any of the two new Apple stores in the country, you will be able to at least

partly understand what Apple does. It tells stories. Its founder and former CEO, Steve Jobs, had once very famously said, and I'm quoting, The most powerful person in the world is the storyteller. The storyteller sets the vision, values, and a agenda of an entire generation that is to come. So next time you happen to visit the Apple store in Mumbai known as BKC, notice the architecture, the interior design and the ambience.

All of it is inspired by local identity. The store is a massive 22,000 square foot space in an upscale shopping mall in the Bandra Kurala complex. The store's design, like I told you, is inspired by Mumbai's iconic Kalipili taxis. Not just that. It is also supposed to be one of Apple's most sustainable locations. It is spread over two levels along with a tree-lined ground level that features Apple's signature products. Once you notice these things, slowly you will start realizing how the company uses a storytelling playbook.

Like Ruhi Kandahari, a writer with the Ken said in her newsletter, the entire positioning screams, I am yours. The kind of connection that Apple wants to build with its Indian customers also shows in other things, like the way Tim Cook met fans hung out with celebs and ate local food. The company even hired more than 100 people who could speak in over 20 different languages. It also announced that the Mumbai store was one of the most energy-efficient locations in the world running on 100% renewable energy. But of course, this is actually.

This is Apple we are talking about. It is not going to depend entirely on the goodness of our hearts to do its business in the country, right? So it also made sure that it marked its territory by signing a lease agreement. The agreement prohibits nearly two dozen tech electronics and e-commerce brands from having any kind of presence near its store. Irrespective, though, this focus on building powerful stories is an integral part of Apple's identity. When the new store opened last month, an analyst at Wedbush Securities told CNBC that Apple's strategy in India with both a retail and manufacturing push is very similar to what it did in China 10 years ago. He said, and I'm quoting, Rome was not built overnight and neither will Apple's broader strategy in India.

However, we view this week as Apple diving into the deep end of the pool in India as this massive market slowly converts in India. into the Apple ecosystem over the coming years with iPhone market share gains front and center. End quote. So with its two new stores in Mumbai and in Delhi, Apple is basically saying that it now cares enough about its Indian customers and wants to give them a premium experience. And this is even if the sales don't justify it yet. And it is banking on these stores to pull more and more Indians into the Apple ecosystem. But despite its rising sales, Apple has a huge challenge in India.

How do you sell the world's most premium tech products in one of the most price-sensitive markets in the world? Coming up next. The opening of the new stores like we talked about earlier is of course a part of how Apple is planning to win India. But what is the other stuff that it has been doing? How is Apple, which after seeing almost 20 years of a stagnant market in India, seeing its sales rise here.

So we know how Apple faced a lot of disruption in its China production because of China's extreme COVID policies and also because of the tension between US and China. I'm sure you remember how workers had protested at Apple's supply of Foxcon's plant in China over COVID restrictions and also claims of an overdue pay. It was pretty bad. So Apple is gradually diversifying its production units outside of China. and one country that it has been working with, of course, is India.

With the government's make-in-India policy, Apple is working on making India one of its main manufacturing hubs. So in the next couple of years, the company is seriously looking at India and also Vietnam to push its supply chain. Right now, the percentage of iPhones being shipped from India is in single digits. but Apple wants to push it to 40 to 45%. J.P. Morgan says that every fourth iPhone will be made in India by 2025. India made up for 10 to 15% of iPhones' overall production capacity at the end of 2022. And Apple became the first smartphone player in India to have exported $1 billion worth of iPhones in the month of December last year.

So it looks like Apple's army of faithful. is only going to get bigger and stronger in the next coming years in India. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Sniq Dals Sharma, your host, and today's episode was edited by my colleague Rajiv Sien.