In Love with iPhone: What Are Chinese Consumers Hungry for?

Dai, Xianchi（戴先熾）

Apple successfully whetted the appetite of consumers by delaying the launch of its latest iPhone 6 series in China. What are the marketing tactics and consumer psychology behind the hype?

By Canice Kwan, PhD Candidate, Department of Marketing

Sweeping the globe with a record-breaking sales of 10 million units of the iPhone 6 series in the first week, Apple has posed an unprecedented threat to its major competitors. Its early success, however, gives no guarantee of Apple’s ultimate victory because the fiercest battle has yet begun. China, a key nation with insatiable demand, mysteriously disappeared from the list of the initial launch countries. While the company announced the new series would go on sale in mid-October, many Apple fans in China could not wait to grab one from the smugglers. Does it indicate the presence of a huge demand or just an impulsive desire?

Is Bigger Necessarily Better?

First, let’s take a look at some of the factors that make Chinese consumers lust after the latest iPhone.

Although Apple has great confidence over its secret weapon, the bigger-screen model iPhone 6 Plus, some controversies have sparked over whether this new model can truly cater for the needs of the Chinese consumers. Given so many large-screen options in the market, why would they still fancy owning an iPhone?

We know that the key to successful sales of smartphones in China lies in the screen size. Based on a survey by Accenture, 66% of consumers in China indicated a preference for a screen size between 5” and 7”. Analysts from IDC even forecast more than 80% of smartphones in China would have screen sizes larger than 4.5” by 2017. Interestingly, statistics from Counterpoint Technology Market Research revealed that Chinese consumers prefer the small iPhone 4s over the large iPhone 5s for its cheaper price. Apparently, Apple fans in China are appealed by characteristics other than the screen size. Probing into the psychology of Chinese consumers, it is not wrong to say “the bigger the better,” but what makes them tick is not necessarily the bigger size of the screen.

In a highly collective society like China, “face”— or social status — plays an important role in social relations. This is a critical reason why Chinese people fall in love with the iPhone. Positioned as a high-end luxury product, the iPhone provides a sense of prestige and exclusiveness, which would satisfy Chinese consumers’ desire to be envied by friends and family (gaining “face”).

Besides the brand itself, some explicit features also allow Chinese consumers to maximize the feeling of uniqueness, which further serves to enhance their social status. For example, Chinese consumers have a strong preference for flashy colors such as gold. Now, with the biggest size ever, iPhone 6 Plus is likely to catch maximum attention as there is more surface area to show off the flashy color. At the end of the day, it is the love for unique products that drives sales in China.

Of course, we cannot totally rule out the importance of a larger screen. A group of researchers at CUHK Business School is studying whether a larger screen is more conducive to more social networking activities on the phone—and preliminary results seem to confirm the hypothesis. As mentioned, the Chinese society is a collective one and guanxi (in-group relationships) is well treasured. Even before the advent of the smartphone, Chinese people already relied heavily on SMS for communication. This hinted at a strong demand for devices that would do a better job than simple texting. Today, with so many choices of large-screen smartphones in the market, there is no reason why a large-screen model shouldn’t be introduced.

However, amid all the large-screen competitors, how can Apple stand out? Rather than merely counting on the new features mentioned above, marketers working for Apple seem to have understood one important thing that would differentiate the brand from others: The longer the consumers need to wait for the product launch, the hungrier they would get.

Beyond the Big Screen

Apple selectively launched its iPhone 6 series in the Hong Kong market to whet the appetite of consumers in mainland China.

The delay in launching the iPhone 6 series in China, though out of the blue for consumers, turned out to have achieved a significant effect: to strengthen the brand. On the surface, Apple blamed the Chinese authorities for not issuing the regulatory approval on time. But what goes on behind the scene may be a sophisticated marketing tactic. It is possible that the company wanted to create unfulfilled desire and more impulsive buying among Chinese consumers.

In fact, ample evidence has shown that desire can be manipulated — the grass is always greener on the other side, such as earlier research shown by Prof. Dai Xianchi from CUHK Business School. Building on Chinese consumers’ hunger for exclusivity, Apple has taken advantage of the delay to amplify their hunger for its latest product. Dai and Hsee, however, added that the hunger effect is contingent on perceived ownership, i.e., the extent to which individuals can imagine owning and using the products. If they perceive the chance as slim, they may instead believe that “the grapes” are sour. So what did Apple do to avoid generating the “sour grape effect” and induce hunger instead?

Shrewdly, Apple managed to induce hunger by creating a sense of virtual ownership. It did not apply the delays in the product launch to the whole of China. Instead, it included Hong Kong, a special administrative region, on the list of the initial launch. Before the phone came out, rumors had been widely spread that wealthy mainland Chinese were willing to pay double the retail price for iPhone 6. This so-called “gray market” has led smugglers to stockpile iPhone 6’s through suppliers over the world, including New York, Singapore, Australia and, particularly, Hong Kong. As long as one is willing to pay more than the retail price, it would be a piece of cake for mainland Chinese to get ahold of iPhone 6 before its official launch. As reflected from the sales in the frantic gray market, the time lapse between the product launches in different regions created a continuous hunger. From this perspective, delays may actually help rather than hurt overall sales.

In addition to the delays, Apple also played an old trick to tantalize consumers’ appetite — setting up quotas for pre-orders. With reference to the success of Xiaomi sales, this tactic has so far proven useful in China. As a rising star in the smartphone market, Xiaomi has grabbed significant market shares by offering good bargains for those who cannot afford more expensive models. Apart from its positioning, it is worth noting that Xiaomi limits its supply in every launch. This creates an illusion of excessive demand and turns Xiaomi into a hot potato among Chinese consumers. Similarly, Apple sets quotas for its pre-orders. On one hand, pre-orders provide a sense of ownership that intensifies hunger. On the other hand, quotas or cancellations of pre-orders make the products more exclusive and prolong the hunger. All these show that Apple knows what makes Chinese consumers tick besides the functional need for a larger screen.

Will Apple Win?

Apple, smugglers and opportunists have all been optimistic about Chinese consumers’ hunger for iPhone6. Apparently, Apple has orchestrated the product launch delays to manipulate desire. Underneath all the hype, however, it is critical to gauge consumers’ true desires. To do so, more attention should be paid to the gray market—not only for its potential threats to Apple’s profits, but also for how it reflects consumer needs. Note that the gray market price was slashed just a few days after the initial launch in Hong Kong. Perhaps, as technology experts have warned, most ordinary Chinese people just want some extra cash.

If this is true, then Apple investors need to think twice about how far the company can go beyond the desire it has created. Only time will tell.