As the world awaits Apple’s new iPhone introductions next week, the company is quietly executing a separate strategic plan designed for a lesser-known area of the US smartphone market, prepaid. Apple is renowned for its premium positioning with its range of popular flagship devices, but the last two rounds of the company’s quarterly financials show that it has struggled to show growth over its already strong establishment. With recent research showing an overall global slowdown for the maturing smartphone market, and Apple tasked with generating growth for its handset business, what will the leader do to ensure forward progress? Expand its addressable market by reaching into a segment previously neglected, the less-glamorous prepaid US smartphone market.
The US smartphone market is divided into three distinct areas categorized as unlocked, postpaid, and prepaid. Apple has historically focused its iPhone efforts on the carrier-driven postpaid channel (think Verizon, AT&T, etc.), as well as offered open market appeal with unlocked handsets (freedom to add a SIM/plan). Pay-as-you-go prepaid segment smartphones have been previously offered by Apple (only pay for minutes/data used), but not to any noteworthy effect. Last year, carriers including Consumer Cellular and Walmart’s exclusive Straight Talk Wireless offered iPhone devices. However, these felt more like “look we have iPhones too” offerings than strong sales leaders, with the aging iPhone 6, iPhone 6 Plus, and iPhone 5c representing prepaid buyers’ only Apple options at the time.
However, this past season has brought a noticeable change to Apple’s strategy surrounding prepaid, sending Apple’s shelf placement count skyrocketing 400% on-year (20 vs. 4 placements). Noting the company’s minimal involvement within the space last August, every unit sold this time around will represent growth because they were simply not there a year ago.
An influx of prepaid iPhones is currently being tracked across the retail channel, including some of Apple’s most current models like its iPhone 6s, iPhone 6s Plus, iPhone SE, and iPhone 5s. The latter iPhone model is responsible for the majority of Apple’s recent strategic prepaid moves, as the former 5s flagship has gained eight new placements this summer as an aggressively-priced sub-$200 model ($140 – $199). Apple’s retail expansion comes from AT&T, Best Buy, and Verizon accounts, which each added prepaid iPhones to stores, while mass merchants Target and Walmart have more than tripled their available pay-as-you-go iPhones.
Expansion is also seen within the variety of prepaid carriers that Apple’s iPhones can now be found on. A collection of seven unique carriers offer iPhones within their current portfolios, a noticeable increase from the previous year’s two (Consumer Cellular, Straight Talk Wireless). Prepaid Apple iPhone models are now additionally showcased by AT&T, Boost Mobile, Total Wireless, Tracfone, and Verizon, giving the vendor a presence through 54% of the US prepaid carriers tracked by gap intelligence, compared to having smartphones on only 15% of them (7 vs. 2 of 13).
We are used to viewing Apple as one of the US smartphone market’s leaders, but in the prepaid realm, the brand represents a minority with its modest 7% share. Apple’s recent boost in prepaid placements gives a notable improvement over the 2% share that it held in August 2015, but its 20 smartphone SKUs are not nearly enough to shine within the crowded batch of 300 models available from 12 other competing handset vendors in retail today. Samsung and LG own this area with over 70 unique models each, followed by the strong footholds of brands such as Alcatel, ZTE, and HTC, which are the definition of underdogs when viewed from a total market perspective.
This abundance of both carrier and brand choices creates an extremely crowded environment for shoppers to navigate, and presents a challenge for Apple to differentiate itself from the crowded prepaid pack. Apple’s strategy? Bring its strength in premium positioning into the segment.
The prepaid smartphone segment is home to intense competition in order to attract highly price-sensitive shoppers, who in many cases do not have an option for postpaid devices (high monthly bills, credit checks, etc.). Prices start below $10 for prepaid smartphones, and the vast majority of vendors operate with solely sub-$200 portfolios (11 of 13). Even with its widely-placed $199 iPhone 5s, Apple carries the highest pricing within the segment, and the vendor meets a familiar rival at the top end in the form of Samsung. Samsung’s mix of flagship and entry-level smartphones give it a wider coverage of the prepaid market while countering Apple’s appeal in the eyes of more premium-minded prepaid shoppers.
Offering low-end devices does allow Samsung to cover more ground in prepaid, but Apple has its special reputation to uphold. Its aim is not to simply lower itself into the crowded arena to chase sales, but to “create a new opportunity for those who have never had the privilege of being an iPhone user.” This very Apple answer sums up the company’s intent nicely, showing its goal to turn every under-served style-seeking prepaid consumer into a unit of growth for its US smartphone business.
