For the half-year to 31 December 2014, the IPKat's regular team is supplemented by contributions from guest bloggers Rebecca Gulbul, Lucas Michels and Marie-Andrée Weiss.

Regular round-ups of the previous week's blogposts are kindly compiled by Alberto Bellan.

Sunday, 27 April 2014

Smartphone brands: cachet or commodity?

First a quiz—how many Kat readers can identify the following smartphone brands: Wiko, Micromax, Karbonn, Symphony, OPPO, Vivo and Walton? I suspect that few or any of you can do so unaided. Well, neither could this Kat, until he perused an article from the 5 April issue of The Economist. Entitled “The rise of the cheap smartphone”, here, the piece sought to describe the proliferation of smartphone brands being marketed and sold in jurisdictions ranging from France (Wiko) to Bangladesh (Symphony) and various countries in between. In a world where popular perception of the smartphone market begins with iPhone, ends with Samsung Galaxy, with perhaps LG, Nexus and HTC branded phones perhaps somewhere in between, the reality is far removed. While profits are elusive (“Apple and Samsung—the only vendors making much money”, the article states), smartphone manufacturers continue to offer an increasing number of alternatives at lower and lower price points.

As such, the question becomes—to what extent will brand cachet continue to be a material factor in how consumers make their smartphone purchasing decisions? By this I mean the extent to which a given smartphone brand enjoys a consumer premium not based solely and explicitly on the functionality, ease of use, design or price of the product, but rather on some more general and holistic aura that conveys prestige or distinction. The value of brand cachet is often translated into premium pricing power that transcends the objective factors of the device itself. The function of a trade mark is to create a badge of product identity for the consumer; the function of a cachet brand is to turn that product identity into a continuing and oversized commercial advantage. The greatest enemy of brand cachet is product commodification. When this happens, and the various product alternatives are differentiated only on the basis of price, the benefits conferred upon brand cachet disappear.

Against this background, is the smartphone market at the cusp of replicating the trajectory of the PC computer industry towards product commodification and away from brand cachet? Those with grey hair (if any hair at all) will recall that the early 1980s marked the high point of the PC brand. IBM leveraged its trade mark strength in the mainframe segment to turn a product assembled from off the shelf components to a brand that commanded a premium price. Even more dramatically, Apple offered the Mac alternative, promoting the brand almost from inception of the product on the basis of a unique brand image, here. But innovations in product fulfillment and distribution and price ultimately trumped the brand premium that most consumers were willing to pay for an IBM PC (the Mac never enjoyed a large market share). The upshot is that, except perhaps for die-hard Mac aficionados, the PC has become a commodity, with the leading trade marks in the PC world bereft of any cachet quality.

I think that it is fair to say that, for the moment, cachet brands in the smartphone world begin and end with the Apple iPhone (allowing for some debate over the Samsung Galaxy, here)— but no more. The profit margins enjoyed by Apple on its iPhone devices certainly reflect its status as a cachet brand. The threat to this commercially comfortable state of affairs was well-stated in the piece in The Economist, as follows:
In both rich countries and poor ones, cheaper smartphone brands are are making inroads. Demand for pricey phones, mainly in developed economies, is slowing but that for less expensive devices is booming. People buying their smartphone today, perhaps to replace a basic handset, care less about the brand and more about price than the richer, keener types of a few years ago.
We see an explosion of smartphones priced under $100, and even under $80 in many cases. Component costs are decreasing as the functional capabilities of these components continue to improve. On the one hand, this means that an increasing number of smartphones are available at a low price point undreamed of several years ago. On the other hand, these dynamics offer cachet brands and their pretenders the opportunity to create even a wider wedge between the costs to make, ship, market and sell the device and the ultimate premium price willingly paid by the consumer. Moreover, as this cost/price wedge increases, it becomes more attractive for other manufacturers to attempt to market and sell their own semi-premium smartphones at price points that lie between the price points of the low end devices and those at the premium brand level.

As The Economist reminds us, other high-flying smartphone brands have proved to be “brittle”— recall the fate of Ericsson, HTC, Motorola and Nokia. Pricing and the process of commodification proved too much for these erstwhile mobile phone champions. When put to the brand cachet test, none of these brands endured. I can already hear the push-back—“Come on Kat, the smartphone is different from the PC. People relate to their smartphone in a personal way quite unlike the impersonal manner that they relate their PC. At the high end, even at the popular consumer level, there is a status and aspirational element that will continue to be met by cachet brand smartphone products.”

Perhaps, but consider the following anecdote. This Kat recently purchased a smartphone for Mrs Kat. Cachet brands are not her style generally, and so I eschewed them in favour of a smartphone brand that seeks to fit itself between the high and low price points for the product. Her reaction was “thank you, but all I really want is a bit of an upgrade for my 5-year old Nokia.” Commodification, here we come?

2 comments:

Anonymous said...

A gray area that I think causes some of these no-name phones to be priced so low, is that of IP. Are any royalties paid? If you look at the Ericsson - Micromax legal wrangles in India, you will easily appreciate that such "manufacturers" use systemic loopholes in systems to import phones without the same costs that many brand name phones pay.

Of course we do have companies like Nokia who have billion dollar tax claims for alleged tax evasion practices as well...

Eric said...

There is also the smartphone environment to consider - for Apple, it's iTunes, the Appstore and the, well almost, seamless integration of phone and computer. Google seems to be taking a similar approach with Android, their appstore and the Google laptop, and Microsoft has just bought Nokia's phone business , presumably to complete what it needed for that integration. A smartphone embeded in an environment that allows almost automatic synchronising and updating of operating system, calendars, contacts etc across several devices will always be something different from a stand-alone phone that lacks these facilities.

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