Down-scaled iPhone dilemma

So, Apple has down-scaled the soon-to-be outdated iPhone 5, dubbing the new product iPhone 5C, with the “C” standing for “color,” an apparent reference to the multitudes of color that the phone will come in. So, iPhone 5C is a cheaper alternative to Apple’s pricier high-end models, with the hope of attracting financially-lean, albeit infinitely […]

So, Apple has down-scaled the soon-to-be outdated iPhone 5, dubbing the new product iPhone 5C, with the “C” standing for “color,” an apparent reference to the multitudes of color that the phone will come in. So, iPhone 5C is a cheaper alternative to Apple’s pricier high-end models, with the hope of attracting financially-lean, albeit infinitely numerous, consumers in countries like China, India, and Brazil. The HBR article seems to have warned us against doing what Apple just did.
The gist of the HBR article is that there are only 3 rules for success in business! Pretty simple, isn’t it? The first rule: Compete on differentiation, not on price. That is, “better before cheaper,” which is to say, it’s better to have a superior product (that commands a premium price) than to be cheaper.  The second rule: It’s better to increase revenue than to cut cost, or “revenue before cost.” The third rule: There are no other rules for success in business than the two rules above!
It would seem that Apple has broken the first rule of business success as per the HBR article. As someone from outside Apple, I would have advised that Apple should stay on course, consistent with the apparent wish of the “founding father,” Steve Jobs, by thinking out-of-the-box, being more innovative, and coming up with great products that command premium prices. This is obviously a more difficult goal to achieve than watering down the attributes of a product with the hope of enlarging market share.
Apple is scheduled to roll out iPhone 5C (and another more advanced smartphone, iPhone 5S) across the globe on 20 September 2013.
On first thought, the idea of down-scaling the iPhone so Apple could increase its share of the smartphone market sounds reasonable. Much more so, if the move is considered a survival scheme. After all, the strategy seemed to have worked for iPad Mini. Digging a bit deeper may, on the other hand, suggest a not-so-great business strategy, even if it ends up bringing in more money for Apple! The company may simply lose its image as a purveyor of luxury brands.
There is another potential issue: Will China, India, and Brazil really beat path to Apple’s iPhone 5C door? The answer is: probably not, and the reason is that folks in those countries are pretty lean on cash and do not have access to the almighty carrier-issued “contracts” that the US consumers have come to accept and love. In the US, the iPhone 5C will cost $100 with a contract. The folks in China, India, and Brazil, will pay full price, which could be up to $500.
May be the 5C should have come in at a lower price point to have the desired effect of capturing the market in emerging economies. After all, as mentioned above, a similar strategy by Apple seemed to have worked, i.e., for the iPad Mini, which was a scaled-down version of the regular, pricier iPad. The device iPad Mini, selling at approximately $330 brought in handsome sales for Apple, finding customers in folks who are just satisfied with the lighter and smaller, albeit cheaper, Mini. Meanwhile, the classic iPad, with its bigger storage capacity, and much higher price point (at least $500), remained the stuff of richer and perhaps more sophisticated consumers.
Brian Chen talks in the 11 September 2013 issue of New York Times of the “aspirational customers” in China, India, and Russia, who are the actual targets for the 5C. These are “the top 10 to 20% percent who are slightly uncomfortable about spending more money on a fancy brand, but might be convinced at the right price.”
To be sure, Apple is presently not doing well in China, the world’s largest smartphone market, with less than 5% of the Chinese smartphone market. This is attributable to the flooding of the Chinese market with the very low-cost Android-based smartphones by Samsung and Chinese manufacturers (Huawei, Yulong, and ZTE). Local, low-end smartphone manufacturers (Micromax, Karbonn) in India are also reported to be giving Apple a run for its money in that country. Although Apple already partners with China Telecom for the sale of its phones, there are speculations that Apple is also trying to work with China Mobile, a Chinese-government-owned company that controls up to 700 million Chinese subscribers.
To its credit, Apple is hitherto much stronger in Japan, thanks to its partnership with the country’s largest mobile phone carrier, NTT Docomo. Local competitors of NTT exist in Japan, with SoftBank and KDDI (operating as “au”) being the stiffest in the Japanese smartphone business. With these 3 companies selling iPhone products, Apple controls a 40% share of the smartphone business in Japan.
The main idea of this article is that, with demand saturation for smartphones in the affluent countries, Apple is trying to get a foothold in the emerging markets of China, India, Brazil, and Russia. Because these are poor countries, Apple is down-scaling its premium quality soon-to-be-retired iPhone 5 into a mid-tier product, iPhone 5C, with the hope that these financially challenged countries would be able to afford the new phone. However, it seems the price is still too much for these countries. I ask why Apple can’t step up its innovation juice, to come up with a product that is in line with the company’s historical luxury branding. After all, that was the model that propelled the company to the top of the list of the world’s most-valued companies.