Following up on iPhone 5s/5c’s success after my earlier post back in October, I ran into the not so glorious side of the story. Rosemary Westwood’s business blog on Maclean’s – “China’s Apple Clone” reveals that Apple’s market share in China is 4.8% and dropping, even less than its imitator, Xiaomi, a Chinese smart phone start-up. Two factors contribute to why Apple is performing so poorly in China. This first one has to do with the pricing (which is discussed extensively in Rosemary’s blog). The iPhone costs a hefty $757 when the average monthly income in Beijing is only $870 where as Xiaomi’s most high end handset is sold at $285.

Xiaomi Mi-2 smartphone

However price difference can’t explain why iPhone’s market share in China was as high as 9.1% in 2012. Here is where the second factor comes in – consumer attitude, which in my opinion is even more important than the price. Essentially, Apple’s Chinese customers place more value on prestige than functionality. The sole reason why they were willing to cough up their entire month’s income on the old iPhone 5 was because they enjoyed the attention they got when they flashed out this premium smartphone in public. But when the 5s looked almost exactly the same as the iPhone 5, there is no reason to upgrade. If Apple wants to remain competitive in China, they either have to change the the premium model aesthetically (differentiation strategy) or drastically cut down the functionality and price of its economic model (cost strategy).