The iPhone and its loss of market share

In mid-2007, Apple launched the first iPhone and changed the smartphone market forever. At that time, the market was dominated by Nokia with a 64% share of units sold. Four years later, the market had quadrupled, and one out of every five devices sold worldwide was an iPhone. However today, six years after its introduction, the iPhone has the same market share it had in 2009, while the new king of the global smartphone market—Samsung—continues to strengthen its position, doubling Apple’s share (32% vs. 15%). Why did the iPhone’s growth slow down? What has Samsung done to grow at twice the market’s pace over the last five years? The purpose of this article is not to analyze the smartphone industry, but to understand how the pricing strategies adopted by each company—Apple and Samsung—have determined their fate in the global market.

The power to choose
Today there are five iPhone models available (4, 4S, and 5) ranging from US$450 to US$850 when purchased without a contract. This means that anyone who doesn’t have at least US$450, or doesn’t have a good plan with a carrier to buy it subsidized, cannot access a new iPhone. This may not be a problem in the U.S. market, but in the rest of the world—especially in emerging economies—the majority of the population is excluded. Samsung, on the other hand, currently offers 17 different device models (Young, Ace, S3, S3 Mini, S4, S4 Mini, Note, Mega, among others) ranging from US$130 to US$700. This way, someone looking to buy a smartphone without a contract but with a limited budget—for example, US$250—can easily find an option within the brand’s broad portfolio.

It is no coincidence that during Nokia’s peak in 2007, the Finnish company launched more than 40 models per year worldwide, acknowledging that what a young person looks for in a phone differs from what an executive, a child, or an elderly person needs. It seems Samsung has not only embraced this idea but also recognized that not everyone can pay the same for a smartphone. Even the much-criticized Windows Phone operating system already enjoys market shares of up to 8% in some regions such as Europe and Latin America, thanks to Nokia’s launch of low-cost devices. Apple, meanwhile, has been characterized from the beginning by offering a limited range of options, focusing on markets with greater purchasing power and—consciously or unconsciously—excluding the rest of the world.

What to do?
Although Apple has not openly stated any intention to change its pricing strategy to make the iPhone more widespread in the rest of the world, it is clear that investors want them to do so. What should Apple do to improve its market share in emerging economies in Asia, Latin America, and Eastern Europe? From a pricing strategy standpoint, Apple should offer more affordable iPhone models, starting at no more than US$250. These models should not be attractive to North American users or those from developed countries, but they should definitely be functional enough to meet the needs of new consumers in emerging markets.

Unfortunately, there are no signs that this will happen in the near future. The unsubsidized price of the much-hyped “cheap iPhone” (5C) is not below the US$450 that has so far been the entry-level price of the line; instead, it replaces the iPhone 5 following the launch of the 5S. Apple’s decision not to offer low-cost devices is entirely respectable. However, they must be aware that as long as they don’t, it is very unlikely they will regain the market share they once achieved in 2011.