Chinese Consumers Shrug at Apple; Chinese reaction to the new iPhones show that Apple could learn a thing or two from its competitors

September 18, 2013, 12:29 p.m. ET

Chinese Consumers Shrug at Apple

Chinese reaction to the new iPhones show that Apple could learn a thing or two from its competitors.

PAUL FRENCH

Apple‘s AAPL +2.06% China journey has been a rather rocky one. Sure, the tech giant has sold a lot of kit, but it has never been without problems in the background. Start with the 2011 n-hexane scandal, in which a manufacturer of iPhone screens poisoned workers. Apple incited widespread ire by responding slowly and ignoring journalists. This was followed by more employee rights and health and safety issues at the Foxconn assembly lines, as well as problems with the highly vocal China Consumers’ Association over warranties that appeared to disadvantage Chinese customers.But still China’s appetite for iPhones seemed insatiable. With every new product launch, official and unofficial Apple stores saw surging crowds standing in line with fistfuls of yuan. Around the world, Chinese students were recruited by savvy entrepreneurs back home to buy Apple products and ship them back to China for resale at a marked up price. Factory conditions, worker relations and warranties slipped into the background as consumers clamored for the brand.

But anyone who has worked with Chinese consumers knows two things about them—and those two things apply whether talking about automobiles or sodas. First, in an emergent marketplace like China, consumers are magpies, attracted to the next glittering gee-gaw that offers novelty, status and aspiration. Second, product cycles on the mainland are incredibly fast—today’s “must have” item is tomorrow’s “has been.” For longer-term success, Apple (like any brand) has to be about more than just good design this season.

What so many Chinese consumers want from their smartphones is to watch movies, play games or WeChat with their friends. These applications all happen to be better on a larger screen. Samsung’s Galaxy gives you a 5.3-inch display, HTC’s Sensation offers a 4.7-inch screen and Huawei’s Ascend a whopping 6.1 inches, and all plan larger screens in the future. By way of contrast, Apple’s iPhone 4s gave you only 3.5 inches, the iPhone 5 a measly 4 inches and the 5c the same paltry amount (but, hey, you do get a fingerprint-recognition thingy thrown in).

A less commented upon problem for Apple is that it has never been able to seriously enmesh Chinese customers into its wider ecosystem, the App Store. Chinese aren’t by and large downloading apps or games from the App Store, music, movies and TV from iTunes, or e-books from iBooks. They live in a world of pirated movies, bootlegged games and copied e-books, all of which can be accessed easily and for free. By not being locked into the Apple ecosystem, consumers can easily switch devices when a new gadget comes along.

Price still isn’t too much of an issue with a sizeable number of phone shoppers. But when it comes to watching a bootleg copy of Transformers 3, playing an illegally downloaded version of Age of Wulin, or WeChatting your girlfriend, a larger screen, even by an inch or two, can make all the difference.

Screen size and ecosystems weren’t initially seen as key attributes by analysts, who thought that consumers just went for brands that gave status. That’s why Samsung’s quick capture of so much market share from Apple was such a surprise. With the announcement of the iPhone 5c, the invariably fickle Chinese technocrati have poured onto social-networking sites like Weibo to show their disdain for the lower spec model that basically offers nothing more substantial than previously. Apple saw its China market share drop to 5% from 9% between the second quarter of 2012 and the second quarter of 2013. This was a far greater drop than anyone predicted and reflected the rise of Samsung, Huawei and HTC.

The lesson Apple can learn from the rise of Samsung and other brands is that bigger screens have been the choice of the clued-up urban young. But then Apple may not necessarily be thinking so much about those folk nowadays. There is a whole bunch of other pretty well-heeled provincial magpie-like consumers out there in the provincial tier two or three cities ready for an Apple at any price. To them, that fingerprint recognition thingy might be really cool.