Apple in China: When lucky number 8 doesn't guarantee prosperity

Following the launch of the iPhone 8 and iPhone X, we asked three China observers for their thoughts on the country's smartphone space. This Q&A has been compiled from separate conversations with the participants, whose comments have been edited for clarity:

• Gareth Ellen, regional planning director and COO of China at Geometry Global
• Horris Tse, director of strategy and consultancy, RollAngle
• Michael Mak, specialist in marketing communications and creative solutions, RollAngle

Will the iPhone 8 / iPhone X launch have any impact on Apple's market share in China?

Ellen: From the retail perspective, the short answer is no; the impact would be minimal. It’s not the device, but the services that make a difference, especially in China. Besides that, Huawei and Xiaomi are increasingly dominating the market.

Tse: Chinese competitors are all upping their game: Huawei has gained much clout by collaborating with Leica, and Xiaomi, which usually targets entry to mid-level consumers, has a flagship model designed by Philippe Starck.

Mak: Positioning the iPhone X at the top of the Apple range over iPhone 8 and 8 Plus is a good start, but this supposed killer product is not any more innovative than its rival products, Samsung’s S8 and S8+. In fact, Samsung pioneered the edgeless screen and biometric authentication at a much earlier stage [six months ago this March]. Apple’s salvation will lie in its ability to tell a better story out of virtually the same hardware. The Apple brand will need to reinvent itself as a way of life once again for the people of China.

Ellen: iPhone X’s facial recognition is interesting though—it would introduce a payment module with increased security. However, everybody is already using WeChat Pay and Alipay. On the other hand, the bezel-less screen of the new iPhones is going to bring new opportunities for mobile commerce. However, other brands are adopting bigger screens also, so hard to say it is iPhone’s contribution if it eventually happens.

Why does Apple struggle in China? 

Tse: Apple in general has inevitably become a lot more attainable in China than it once was. Its offline stores, on the other hand, are located strictly in top-tier cities such as Beijing, Shanghai, Chengdu and Hong Kong, closer to its well-off target customers. This is as much an operational decision as a branding one—after all, a luxury shop isn’t something that you’ll see on every block.

Mak: The success of Oppo and Vivo can be attributed to their strong retail network in third- or even fourth-tier cities in China. The former, which topped China’s smartphone market with 16.8 percent share in 2016, has over 200,000 physical outlets in the country. Such an extensive retail presence provides huge exposure for the brand.

What could Apple do to improve its chances?

Tse: Well, if Apple wants to go upmarket with its most expensive-ever model, what Apple lacks in retail distribution should be made up with greater dedication to the luxury market. Special-edition products that are limited to China may be worth exploring. Apple can learn from German automobile manufacturers like Mercedes Benz and BMW, both of which have enjoyed great sales in China with the long-wheelbase versions of their cars that are exclusive to the region. Other examples include Chinese influencer Becky Li’s collaboration with Mini Cooper, resulting in an limited-edition vehicle in turquoise, which sold out quickly.