Thursday, December 5, 2013

Chinese iPhone Buyers are Not "Average"

Can Apple succeed in the China market with its strategy of selling primarily in the "premium" segment of the handset market?

Though some doubt it, others think the strategy will work.

Doubters tend to point to low "average" income.

Mean (arithmetic average) and median (half of instances higher, half of instances lower) metrics do suggest something about the amount of income earned by residents in a country, but are not as helpful in illustrating the range of income earned either by individuals or households.

That is significant for sellers of luxury goods, of course, and are key to Apple’s hopes in China, where the Apple iPhone will be a pricey option. Some argue that most consumers will not be able to easily afford an iPhone, since Apple has not released a “low cost” iPhone.

That is not the point, others might say. Apple is pinning its hopes on a segment of the market that can afford the device, and will count on the income of potential buyers in the upper deciles of income distribution in China.

In China, income distribution, if not magnitude, is rather well correlated with income distribution in the United States, for example.

In one measure of income data, looking at the number of individuals whose incomes fall within a specified range of the average gross income of all individuals aged 15+ in that country or region, China and the United States are similar.

In China, 36 percent of people had incomes 200 percent above average, compared to 40 percent in the United States, for example.

Most significantly, the middle class in China, as elsewhere in the developing world, continues to expand in absolute terms.

Amit Daryanani of RBC Capital Markets estimates Apple will see an additional $9 billion to $10 billion in annual revenue added from a deal with China Mobile, for example.

By some measures, an iPhone could cost 10 percent of annual income in China. But that's the point: Chinese iPhone buyers will not have "average" income.

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