The iPhone’s GOLDEN Opportunity in China

on August 18, 2013

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We are at the point in time with relation to Apple’s September 10th event that we have to start taking many rumors very seriously. In that light, we have heard whispers of a gold colored iPhone option. I have to admit when I first heard this rumor I discounted it immediately. I even stated on Twitter that I was extremely confident there would be no iPhone. Then our friend at iMore, Rene Ritchie, wrote this on the gold iPhone. I talked with Rene a bit about this on Twitter and was forced to reconsider my position. Then today M.G Seigler wrote this article on TechCrunch. After much thought we must seriously consider this rumor. And even if it doesn’t happen, which is possible, then this will at least have been an interesting discussion and scenario analysis.

Very early on in discussions I have on this subject I added this caveat to my opinion. Although, I personally don’t like the idea of a gold iPhone I can see it being big in certain markets and namely China. In M.G’s original column he did not mention the idea that a gold iPhone may be big in China. In fact, many have missed this point. After M.G tweeted his column, myself and apparently many mentioned to him on Twitter that it may be a good strategy for China. He then proceeded to update. But this point about a gold iPhone being potentially large in China is worth analyzing.

I tend to gather a lot of data on China and usually it is only technology focused. However for the past few month’s I have intentionally begun collecting data on China’s luxury goods market. I’ve done this specifically because although most technology products and brands are not considered ‘luxury brands or items’ in China, Apple’s happen to be. So any peripheral data related to China’s luxury goods market became interesting.

The luxury goods market has seen some ups and downs in China last year and this year due to issues in China’s economy. ((China’s luxury market grew just 7 percent in 2012, compared to 30 percent in 2011.)) Yet all the research I have gathered suggests that China luxury goods market has not necessarily been slowing but it has been shifting. Consumers in China are maturing and gaining more affluence at a rapid rate and markets are maturing in near real time. From data I have read from many management consulting firms and marketing firms from the region recommend a change in tactics to capture this shift in China’s consumer market for luxury goods. One report specifically contained this point that I found interesting:

consumers are putting a lot more emphasis on quality & function, not just the label, with brands focusing increasingly on memorable customer service and exclusive products.

Another key point that stood out in a similar report on luxury goods in the region specified this about Chinese consumers:

“brands will have to bring luxury back to basics, which means providing a unique experience, backed up by high-end quality and service,”

All things that Apple does well.

Why gold? Of course every region values gold, but some certainly more than other. Gold sales have historically done very well in China and even in high parts of this year the sales of gold jewelry have jumped anywhere from 17%-35% year-over-year in certain regions. Gold in china symbolizes wealth and also happiness. One can also argue that gold is similar to yellow and thus could also symbolize the Earth element which is the storage money element (wealth) in Four Pillars of Destiny. However, that may be reading too much into the symbolism.

Now, another bit of interesting data is that it is clear that luxury brands in China are targeting millennials. Estimates are that the luxury goods sector in China is poised to grow 40% over the next 10 years, driven largely by China’s millennial generation. It is estimated that China has about 270 million people aged 18 to 30, according to the National Bureau of Statistics. Of those 270 million millennials 92% own smartphones.

When we take a step back and look at a global picture, we can see a stronger case for a gold iPhone. It could get even more interesting if this product was exclusive to China, but that is pure speculation as is most of this discussion at this point. This could get even more interesting if a gold iPhone is unique to China AND only available on China Mobile, who is yet to carry the iPhone and has over 700 million wireless customers.

Apple is and has always positioned itself as a lifestyle brand and many would even argue a lifestyle brand. I pointed out with the release of the iPhone 5 that this was the first time I thought a smartphone was as elegantly designed as a luxury watch. If this design trend continues, Apple may easily be able to position the iPhone in China as a luxury item even more than it is today.

Some other key stats relevant to China:

– Chinese represent 25% of the global luxury market. However, only 13% is consumed in Greater China (China, Hong Kong, Macao and Taiwan). The remaining 12% is purchased in Europe (representing at least half of average tourist spending), North America and the Middle East. The main driver of nondomestic consumption remains the price difference: Import tax and luxury tax inflate Chinese prices by about 30%.