{"id":4594,"date":"2020-04-30T10:08:00","date_gmt":"2020-04-30T10:08:00","guid":{"rendered":"https:\/\/www.thirdeyesight.in\/?p=4594"},"modified":"2022-11-03T07:35:31","modified_gmt":"2022-11-03T07:35:31","slug":"the-smarter-the-better","status":"publish","type":"post","link":"https:\/\/myechoproject.com\/TES\/the-smarter-the-better\/","title":{"rendered":"The smarter the better"},"content":{"rendered":"\n

Written By ABHIK SEN<\/a> AND SHISHIR BEHERA,<\/a><\/p>\n\n\n

<\/div>\n

Despite the stress in the telecom space, call drops, and a sputtering economy, it\u2019s been mostly smooth sailing for the upper end of the smartphone industry in 2019.<\/p>\n\n

Delhi-based senior school teacher Jyotsna Varma, 46, has been using her iPhone 7 since Diwali 2018. Its all-in-one capabilities, friendly user interface, and robust performance continue to work for her so a handset upgrade is not imminent. But when it does happen, it will be to an iPhone 11, she says. Bengaluru-based Romit Dasgupta, 28, a senior analyst at an American bank, bought his OnePlus 7 Pro for its powerful hardware and call quality. Any replacement will be another premium handset, he says. He\u2019d rather delay buying a phone than pick up a cheaper alternative.<\/p><\/div><\/div>\n\n

It\u2019s too premature\u2014and a bit of a stretch\u2014to liken it to a lipstick economy but there is an interesting parallel in the continued consumer indulgence in smartphones. The ubiquitous gadget\u2014similar to the markets currently\u2014is defying economic realities in India. Despite the stress in the telecom space because of regulatory issues, call drops, and a sputtering economy, it\u2019s been largely a buoyant period for the upper end of the smartphone industry in 2019. Especially premium smartphones which are priced above \u20b930,000, but below \u20b950,000.<\/p>\n\n

According to data from analytics firm Counterpoint TechnologyMarket Research, the premium market grew at 29% in 2019, while the overall smartphone market grew at 7%. And though premium smartphones account for less than 5% of the overall market, Counterpoint says the segment has the potential to grow 3x-4x.<\/p>\n\n

To explain the Indian\u2019s predisposition towards premium smartphones instead of cheaper alternatives, let\u2019s rewind to 2014: There was a rush of first-time buyers (according to a report from market research firm IDC, smartphone users made up 35% of India\u2019soverall mobile phone market in the quarter ended December 2014, compared to 13% in the year-ago period), facilitated by the entry of some Chinese companies, like Xiaomi, and home-grown players such as Micromax, Karbonn, and Intex, who built smartphones toa price, encouraging people to trade up from their feature phones.<\/p>\n\n

Soon after, this was aided by the ease of4G and the advent of Reliance Jio with cheap data. People finally had access to high-speed Internet at a low cost. The focus shifted to data, and consumers became more inclined to spend on their smartphones, experts say. This led to a fall in the prices of smartphones. \u201cAs a result, today one can get a decent smartphone for as little as \u20b95,000-\u20b96,000, something one couldn’t think of five years ago,\u201d says Pinakiranjan Mishra, partner and leader, consumer products and retail, EY.<\/p>\n\n

This led to more phone-time, exploring and finding new use cases: streaming or OTT (over-the-top) apps like Hotstar, Netflix, and Amazon Prime had started coming into their own; the better Internet speeds gave a fillip to online gaming, such as PUBG and Fortnite, as well. This was in 2016-17, when people were already on to their second or third smartphone. Soon after, aided by an upsurge in apps such as TikTok, consumers started spending more and more time on their phones. People were giving as much as four-five hours daily to their phone, says Tarun Pathak, associate director at Counterpoint.<\/p>\n\n

Over five years, people have started seeing a smartphone as beyond just a phone\u2014they use it for entertainment, social media, payments, and features like the camera, says EY\u2019s Mishra.\u201cThen the value perception of a higher-priced phone is very different. So, what I am getting out of a phone is far, far more than what I was getting out earlier.\u201d That\u2019s why many consumers don\u2019t think twice before putting down money for a high-end phone.<\/p>\n\n

\"Vikas<\/div>\n\n

Vikas Agarwal, general manager, OnePlus India.<\/p>\n\n

Smartphone makers have noted this trend and have tied up with financial institutions to offer premium phones on equated monthly installments (EMIs), making it easier for people to purchase high-end phones. Pathak says that nine of 10 phones in India are bought on EMI, and other schemes such as trade-ins, buybacks, and online discounts have made it attractive for users to shift to premium smartphones. This, in turn, is raising the average selling price of smartphones in India.<\/p><\/div><\/div>\n\n

But the ease and use aren\u2019t the only reasons for buying a premium smartphone. \u201cSmartphones are not just a utility item, but a very visible status symbol as well. This is especially so for consumers who cannot easily or immediately afford a more expensive publicly visible products such as a vehicle,\u201d says Devangshu Dutta, chief executive of retail consultancy Third Eyesight. Counterpoint\u2019s research says that the 18-24 age group is most aggressively upgrading to premium smartphones (they generally upgrade every 20-21 months), points out Pathak. But if they buy a $400 handset instead of a $100-$150 one, they may use it for longer, he says. Indians, on an average, upgrade smartphones every 24 months, compared to 32 months in developed markets, Pathak adds.<\/p>\n\n

According to IDC, phones priced between $200 and $500 accounted for 19.3% of India\u2019s overall smartphone market in 2019. That said, premium smartphones make for just a tiny part of all mobile phones in India (smartphones comprise 60% of the market). However, if the trend is towards a more western pattern of adoption, the growing interest of companies in the premium smartphone space is better understood. \u201cGlobally, the premium segment accounts for almost half of the overall market and it is also the fastest growing segment across all emerging markets,\u201d says OnePlus India general manager Vikas Agarwal, 39. The capital-intensive industry operates on wafer-thin margins, with frequent technology disruption, making it \u201cunsustainable\u201d to focus on just the entry-level segment.\u201cIn contrast, premium users are discerning with higher brand loyalty which allows brands to reinvest in developing innovative technologies.\u201d<\/p>\n\n

That translates into higher margins as well. And competition is less intense in this segment, with a limited number of players, say experts. Therefore, once a company gets its features and price combination right, it\u2019s a large enough market when one considers the different price points. Most players in this segment in India have one or, at most, two models.<\/p>\n\n

realme, a relatively new Chinese brand, entered the segment last November with its X2 Pro. Madhav Sheth, realme vice president and realme India CEO, says his customers wanted \u201cpremium specs and top-notch look at a competitive price.\u201d<\/p>\n\n

\"<\/div>\n\n

Nipun Marya, head of marketing strategy, Vivo Mobile India<\/p>\n\n

Sheth, 39, adds that \u201cthere has been an increase in the number of people wanting to own more premium phones even though the demand is still niche\u201d. Nipun Marya, director-brand strategy, vivo India, says that the \u20b930,000- \u20b940,000 segment will form around 57% of the premium segment. \u201cAlthough still niche and growing from a small base, aspirational Indian smartphone buyers are on a high,\u201d adds Sanmeet Kochhar, vice president\u2013India, Middle East and North Africa, HMDGlobal, which sells smartphones such as the Nokia 9 PureView.<\/p><\/div><\/div>\n\n

A recent Counterpoint report indicates these smartphone firms are on the right track. In 2019, the ultra-premium segment (phones priced above \u20b945,000) grew at 63% year-on-year, the report says. It helps that in a country of 1.3 billion, less than 500 million people use smartphones, so the market is largely under-penetrated. But Pathak says it\u2019s not just about launching a product, but also about the image of the brand\u2014something which can take years to build. In fact, sometimes, doing well in one particular segment could actually work against the company. Upasana Joshi, associate research manager, client devices, at IDC India, says that companies which are heavy on low-end products, face challenges to scale up the brand value. For example, a brand known in the budget segment (like Xiaomi) might find it difficult to make headway in the premium segment.<\/p>\n\n

\u201cA brand must build an identity that a customer can relate with. Today, a customer buys a premium phone not just for its features but the overall value it delivers. And this value comes from the harder aspect of the product and the softer aspect of brand personality. Hence, the need for a strong brand and customer affinity,\u201d explains vivo\u2019s Marya.<\/p>\n\n

The other challenge is that people buying premium smartphones tend to hold on to them for longer, say up to three years. Therefore, companies need to constantly innovate to give customers \u201ccompelling reasons to upgrade\u201d, Marya says. This also means that, as HMD\u2019s Kochhar points out, since consumers hold on to their phones for longer, they need an experience that does not deteriorate over time. \u201cThis means the need for regular software upgrades for at least a couple of years.\u201d<\/p>\n\n

Customers\u2019 expectations in this segment tend to be higher, which is where brick-and-mortar stores and\/or experience zones play a key role. At these locations, people can experience the look and feel of the device before buying it. After-sales support, too, is an important consideration for such expensive devices.<\/p>\n\n

Another concern is the global slowdown in smartphone sales. Can India keep the party going? realme\u2019s Sheth admits that growth in the smartphone market is expected to be \u201cin single digits in 2020, about 5%-6%\u201d, yet he is upbeat about opportunities even in the slow market. As is vivo\u2019s Marya, who explains that India’s premium segment is still at a nascent stage, contributing about 12.5% by value, and as such \u201cit offers immense opportunities\u201d.<\/p>\n\n

A compelling reason for the brands\u2019 optimism in the premium smartphone space is the ushering in of the age of 5G. While telecom companies have been slow off the blocks, experts believe that those in the age bracket of 18-24 years wouldn’t hesitate to buy a 5G smartphone, even if there\u2019s no 5G network available.<\/p>\n\n

\u201cWith 5G coming in, the power of the smartphone is expected to go up manifold, in terms of speed and ease of usage,\u201d says Raja Lahiri, partner at Grant Thornton India. \u201c5G will become a driver, provided it comes at the right price,\u201d adds EY\u2019s Mishra. Most companies Fortune India reached out to agree that 5G would be the next growth driver.<\/p>\n\n

OnePlus founder and CEO Pete Lau believes the evolution of 5G could change the way a human interacts with technology. \u201cThe next phase of growth in smartphones will be artificial intelligence and augmented reality user experience and we look forward to driving this change,\u201dadds realme\u2019s Sheth. It will give users an incentive to upgrade, as also attract many first-time buyers of premium phones.<\/p>\n\n

Agarwal from OnePlus adds that over the long term, 5G has the potential to revolutionise industries in India, especially across healthcare through real-time patient monitoring and medical data management, more efficient transportation, and better public safety measures to name a few. \u201cAs a major agrarian economy, 5G can also offer promising smart agriculture solutions through easier remote data collection, aiding automated processes,\u201d he says.<\/p>\n\n

As for the recent challenges in the telecom space, experts and industry sources say most consumers aren\u2019t even aware of the regulatory issues, and many ignore the call drops, especially if they carry two connections. And if customers are dissatisfied, they can always port their number to another service provider, experts say.<\/p>\n\n

While big hikes in data prices could be a threat, Indians who have formed a significant consumption habit won\u2019t most likely be deterred by potentially higher data prices, Third Eye-sight\u2019s Dutta explains, keeping India\u2019s connection with the smartphone going for the conceivable future.<\/p>\n\n

(This story was originally published in the March 2020 issue of the magazine.)<\/p>\n\n

Source: fortuneindia<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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