Will Apple’s trade-in ploy for iPhone 5S spell doom for Galaxy S4?

Apple Inc. (NASDAQ:AAPL) doesn’t like losing – and lately, it’s been losing both market share as well as market cap to Samsung Electronics’ (NASDAQ:SSNLF) Galaxy S4.

So while it should ideally do what it does best – bring out a killer version of the iPhone loaded with features to stand head-and-shoulders above competition – sadly, that might not nearly be enough to propel Apple back to the top echelon on the smartphones leader-board.

And that’s because not only has Apple lost some of its passion for innovation due to the unfortunate death of its co-founder Steve Jobs back in 2011, but also because the Cupertino-based company has been a victim of its own success.

The runaway popularity of its iPhone has spawned a global race for smartphone dominance, with a number of other big international mobile-makers not only catching up with it, but in some cases also leaving it behind with their features-loaded offerings and/or marketing prowess.

The past couple of years have seen a plethora of self-confessed ‘iPhone-killers’ being launched in the market by a number of global firms, all with the sole aim of wresting market share from the leader. Obviously this had to, someday, have an impact on the leader. It has now.

In fact, with Samsung deciding to take the smartphones battle to Apple’s home-turf by launching the Galaxy S4 in New York, it was only a matter of time before Samsung managed to break into Apple’s oldest and most lucrative market, the US.

Canaccord Genuity analyst Michael Walkley said in a report last week that Samsung sold more smartphones in America than Apple did, in the month of May.

This, he said, was the first time Samsung outsold Apple in the US since the iPhone 5 was launched at the end of September 2012. “In the US market, the Samsung Galaxy S4 was the top-selling smartphone at Verizon/Sprint/T-Mobile, and second best-selling smartphone at AT&T to the iPhone 5,” Walkley said.

A surge in sales of the Samsung Galaxy S4, combined with still-strong sales of the Samsung Galaxy S3 and the Samsung Galaxy Note II, gave the Korean major the top sales spot in the US.

And the Galaxy S4 isn’t even the best recommended smartphone, said Walkley. Samsung’s marketing is the reason behind it selling more smartphones than anyone else, he said. “We believe dominant sales of the S4 versus other Android smartphones was driven by Samsung’s extremely strong Galaxy consumer brand and well-executed marketing campaign, as our surveys indicated store representatives often recommended the HTC One ahead of the Galaxy S4.”

So it is increasingly becoming clear that just having the ‘best’ smartphone isn’t going to help Apple wrest back the No. 1 slot, not even in its home market. And while we still expect Apple to come out with a cool new iPhone 5S sometime soon, it is obviously taking no chances this time by depending just on the phone selling itself.

Apple is putting its marketing might behind the new iPhone 5S device by offering Apple’s old customers the option of trading-in their older iPhones to get a discount on the new offering. This, it believes, will help it retain its loyal customer base as well as grow it further by bringing down the initial cost of owning an iPhone for the customers.

Apple’s trade-in programme is, in fact, not new. It has been running the buyback programme since 2011, but the scheme has been limited to being an online-only offering. Now, however, Apple will be taking the programme across its physical retail stores, and that could well be a game-changer.

But what does Apple do with the older iPhones? Exactly what car manufacturers do with the older versions of the cars that we trade in for newer models. It pushes those in good condition to used-device markets or customers that are willing to buy an older version for a good discount. And strip others that are not in mint condition for parts that can be recycled/reused.

It is being reported that with this bigger trade-in programme, Apple plans to re-sell the older iPhones in emerging markets in a bid to shore up demand and user-experience for its iPhones in those markets.

While we have heard rumours about the launch of an iPhone mini as early as next month, the fact remains that customers in emerging markets see the iPhone as an aspirational brand (read: great but expensive). If Apple manages to flood such markets with the traded-in (and refurbished) iPhone 4 and 4S handsets, it will be doing itself a big favour.

It will be breeding a new customer base that will, once they’re hooked on to the iPhone, provide a much larger next wave of Apple consumers. More immediately and importantly, it will taking such customers away from its rivals’ lower-priced offerings, thus depriving them of the numbers that are so important for them to retain their profitability.

So will Apple’s trade-in ploy for the iPhone 5S spell doom for the current smartphone leader, Samsung Galaxy S4? It might impact sales numbers further for the Galaxy S4, but it is too soon to tell whether or not the trade-in factor alone can destabilise the well-entrenched Galaxy S4.

The iPhone 5S will necessarily have to have the killer features to counter the current crop of smartphones, including the Galaxy S4, the HTC One and the Sony Xperia Z if it is to regain the title of the world’s bestselling smartphone.


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