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Apple: Thinking Inside the Box

Apple removes chargers and earphones from the boxes

In a unique and courageous move, Apple has disrupted the legacy packaging of smartphones by removing chargers and earphones from the boxes for its new iPhone 12 series along with the iPhone XR, iPhone 11 and iPhone SE. Most of the other OEMs provide fast chargers as a standard offering inside the box.

Apple’s Reason for Removing In-Box Accessories

Apple says the above-mentioned decision has been taken to meet its environmental goals. The company wants to become carbon-neutral by 2030. Removing chargers and earphones would mean smaller and lighter packaging, allowing “70% more boxes to be shipped on a pallet. Taken altogether, these changes will cut over 2 million metric tons of carbon emissions annually, equivalent to removing nearly 450,000 cars from the road per year”,  according to Apple. This is great from logistics and environmental standpoint and probably makes sense for Apple users who are going to upgrade and already have older iPhone accessories that work well with the current models. However, there are a few other aspects to be considered here.

Cutting Corners to Maintain Reasonable Pricing

Apple has added 5G, mmWave and OLED screens across the iPhone 12 line-up. There are improved cameras as well. This is an added cost, which normally translates into an increase in price to maintain margins. However, any big increase in the latest iPhones’ prices would have negatively impacted the demand, especially in these COVID-19 times. By removing chargers and earphones, Apple was able to price the devices reasonably, increasing the price by just $100 for the iPhone 12 as compared to the iPhone 11 last year. It also launched the iPhone 12 mini at the iPhone 11 launch price. Stacking of 70% more boxes in a single pallet would likely also lead to a reduction in logistical costs, thus helping margins.  Reasonable pricing and a significant pent-up demand for 5G will help Apple’s October-December 2020 line-up sales exceed the iPhone 11 family’s September-December 2019 sales by 1% (Source: Counterpoint Market Outlook). Reducing the iPhone 11 price has also strategically placed Apple at another price point while maintaining some margins after the removal of accessories.

A Cost Burden on Users in the Emerging Markets

The removal of accessories makes more sense in regions like the US,UK where the installed base of Apple is high (Source: Counterpoint Installed Base Tracker) and over time these accessories have become redundant. However, this might not be the case in emerging economies like India and LATAM. Apple devices are already priced higher in a lot of countries outside the US due to complicated distribution and higher taxes. Removal of accessories will be an added cost for users, especially if they are switching from Android.

Another factor to consider here is the mode of the upgrade. The advanced economies are operator-driven with a mature refurb ecosystem in place. Users generally upgrade their devices by trading in their older ones. These trade-ins generally do not provide extra value for chargers or earphones, and a user ends up keeping them. However, in the emerging economies, according to Counterpoint Research Refurbished Handset Tracker, the “sold as is” is much higher than the trade-ins. Users generally sell their devices consumer-to-consumer. In the “sold as is” scenario, the buyers in some cases expect the accessories along with the device, especially if the buyer is coming from Android. In this case, one of the parties will have to bear the cost of accessories.

Encouraging More Users to Go Wireless?

If we delve into each of the accessories separately, in terms of earbuds, Airpods have been leading the TWS category, according to Counterpoint Global Hearables Tracker. Apple pioneered the segment and now it is gaining popularity, which, unlike the smartphone market, is likely to grow in 2020. The removal of the headphone jack by Apple was probably more of a decision to increase the development of the TWS and earbud ecosystem, which is led by Apple.

counterpoint apple airpods pro
Source: Apple

Removing Charger – A Step Closer to Increasing Adoption of Wireless Charging?

A charger is a more critical need for a smartphone user. Removal of the charger means these premium devices are now not capable of functioning out of the box. Apple is providing a USB C t0 lightning cable with the 12-series. Only the iPhone 11 Pro and Pro Max are the ones that have shipped with the supporting charger. For all other devices, the user’s charging brick will not support the cable. Removal of the charger could also be potentially a move of Apple to develop a wireless charging ecosystem of its own.

Counterpoint apple magsafe wireless charger
Source: Apple

How Soon Will Android OEMs Start Following Apple?

Now, another important question here, which is probably the most important one, is whether the other OEMs will follow Apple in removing the charger. We have seen this before when Apple removed the headphone jack and others followed. However, removing earphones and especially charger is a much trickier decision. While removal of the headphone jack was a modification of an existing product feature, with the functionality and earphones being retained, this is not the case with the removal of chargers and earphones. This is straight out taking away the accessories from consumers, which had become an industry standard.

Key growth markets such as India and the MEA are Android-dominated. There is also a large base of feature phone users who will eventually upgrade to smartphones. Removing the chargers across the portfolio will be an extra added cost which will impact the entry- and mid-level segments in particular. These markets are also very price sensitive. If OEMs decide to remove accessories, it will only make sense if they reduce the device cost, especially in the lower price bands. Price sensitive users would also probably start buying cheaper third-party chargers if the chargers are removed.

Then there is product differentiation. While the specs have become standardized across the industry, we have seen Android OEMs launching large marketing campaigns to promote various competing fast-charging standards to differentiate their products. Different models from different OEMs are packed with chargers having different charging speeds. Therefore, it will be harder for the Android ecosystem to remove the chargers. A charger from one OEM might not be optimized to perform well on a device from other OEM. On the other hand, everything is optimized in the Apple ecosystem.

Overall, it will be a more challenging task for Android OEMs to remove these accessories from the box even if there are cost reductions to be gained.

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Varun is a Senior Analyst at Counterpoint Research based out of Gurgaon. In Counterpoint, he closely tracks mobile devices and ecosystem with a focus on Emerging Markets. He also tracks Global Refurbished Smartphone market. He started his career as a Consultant with Infosys Limited where he was able to identify strategic avenues for business growth through deep research and analysis of markets and companies in various domains. He holds a Master of Business Administration in Marketing from Institute of Management Technology, Ghaziabad and a bachelors degree from Coventry University, UK.

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