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Only 5,000 iPhones sold in China … Why?

Even the best product will fail without localization

As I prepare for our next Retail U International course, I’m looking for case studies which illustrate how even the best will fail if they don’t localize to fit the market.  What better case study than the utter failure of Apple to launch iPhones in China!  The early sales suggest that Apple totally missed the critical success factors for international retail.

 

iPhones fall flat in China’s fast growing market!

While China’s overall retail market shows signs of the global recession, sales of luxury brands and premier technology still show very positive growth. In particular, the cell phone market is booming in China. Therefore, it is not surprising that Apple decided to officially take the iPhone to the Chinese market with its tremendous potential for growth.  

Initial projections from China Unicom (Apple’s carrier partner) were that over 5 million iPhones would be sold in the first few years.  So what happened? The best guess is that Apple has officially sold only 5,000 iPhones!  How can projections be so far off for this mythical “Jobian” device, which is so popular in other countries?  When I visited Australia this past year, people were standing in long lines just to have a chance to buy one.

One could argue that the price is too high in China.  An iPhone costs $750 US dollars or more in China.  While that is certainly much more than other countries, it hasn’t stopped the younger Chinese from bringing in “cracked iPhones” at a high price.  Current estimates indicate that there are 2 to 3 million “cracked” iPhones already in China.  So, the demand for the hardware is certainly there.  And, the Chinese youth are estimated to be replacing phones every 12 months.  So, why has Apple been so unsuccessful?

When in China, do as the Chinese do … or would prefer

The old adage about “when in Rome do as the Romans would do” is still the bottom line caveat for international retailing success.  Far too many companies from the west have taken what works in western retailing, and tried to replicate it abroad.  Case in point:  Walmart’s failures abroad in not adapting to local culture, especially in Germany.

Shaun Rein has written an excellent piece in Forbes entitled:  How Apple and iPhone Blew it in China.  Rein argues that to be successful in China, Apple will have to change strategy, and fast.  His observations very closely parallel the key learnings from my recent trips to China:

1.  Customize to local consumer preferences.

This caveat sounds pretty basic and it can be.  But, it is often the most overlooked!   Apple is used to launching iPhones with large carriers, who have monthly contracts and data plans.  But, the majority of the Chinese prefer “pay as you go” plans.  Monthly plans are a pain and paper work is a major hassle … and contracts don’t transfer easily in China.  In fact,, many Chinese text rather than call to save money.  Most people I met carry different “SIM” cards for different areas to cut down on roaming costs.  So, the first critical lesson for Apple is bundling phones with plans is not consistent with local culture and usage patterns.

 

2. Choose the right partner(s)

Again, this sounds basic, but it is critical to success in markets like China and India. Apple is used to choosing large national carriers with a lot of leverage.  In the US, the carrier partner AT&T benefited greatly by having an exclusive for iPhone, and vice versa for Apple launching it.  China Mobile is most the dominant carrier with about 70% share.  Apple’s partner China Unicom is perceived to have less quality in signal.  And, according to Rein’s article, the China Unicom customer base has less household income.  In short, the Chinese customer who prefers to just “top off their minutes” is not about to switch to what they perceive as an inferior carrier just to get hardware.  Hence, the growth of “cracked” iPhones in China continues to escalate, which can’t please Apple who desires fanatical control of its hardware, systems and Apps.

3. It’s about the “ecosystem”, not just hardware

Apple has been tremendously successful with “closed” consumer systems.  In music, it was iTunes.  With the iPhone it has been the 100,000 Apps.   But, the ecosystem has to match local preferences and culture.  The number of “cracked” iPhones clearly demonstrates a demand for the hardware device and interface.  Apple will not be successful unless it works with its partners to localize a value solution that fits the consumer’s lifestyle and preferences.  Even if there are the most fantastic iPhone Apps written in Chinese, they mean nothing if the consumer finds it impossible to deal with monthly contracts and restrictions that do not match how they use a device for mobile business and connections.

It’s not just the western companies going to eastern countries or to “emerging” markets.  There are a number of Asian companies that have been less than spectacular in bringing products to the west!  Lenovo trying to sell computers in the US comes to mind.

The bottom line:  There is no universal product or approach that fits all markets, especially in technology.  The winners are those that take the time and effort to localize to fit culture and consumer preferences.  Case in point, McDonalds has become the master of fast food retailing by localizing both products and services.

What case studies or stories do you have regarding the need to localize for success in foreign markets?

Over the Road Gadget Overload …

Do you have any fingers left to drive your vehicle?

Technology can be a marvelous thing. You can be “live” from virtually anywhere anytime, including your car.  As gadgets go on the road in your car, the technology can be overwhelming … not to mention making a mess of your car.  If you are a live road warrior, it may be safer to fly!

Transformation of the “cigarette lighter”

Full disclosure upfront.  I have a 1983 Ford truck that I drive in my rural neck of the woods.  It has a radio, but not a “cassette tape” deck.  The other day, I managed to convince a youth that he would not die if he entered the beast to ride to town with me. He asked me what that “round stick” was in my “dash”, I replied that it was a “cigarette lighter”.  I knew that I was old when he had no idea what that was.

It is indeed a good health thing that the ubiquitous cigarette lighter of the 80s has been transformed into today’s mobility power source.  In fact, my more modern diesel truck doesn’t have any “lighters” … it has multiple “power outlets” front and rear for charging multiple portable gadgets.  And today, you just might need a truck to haul all of them with you.

 

Photo from: Reid Brown, The Plain Dealer

Mobile Gadget Explosion … what’s in your car today?

In ancient times when you took a “road trip”, you maybe took a folded paper map … or splurged on an “atlas”.  Today, there is a GPS navigation system, and maybe a GPS app on your phone.  You can probably add to the list of the potential mobile road warrior gadgets:

· Mobile phone … most definitely

· Phone headset … preferably blue tooth

· Portable music player … alright maybe it’s in your phone

· Portable computer

· GPS navigation

· Entertainment … portable gaming or movie player?

Now, add to that all of the chargers to keep it all running. There aren’t enough power outlets.  With all the charger wires strung across the car it looks like you have been snarled in bizarre black spider web.  

Thank goodness for convergence of some devices, but chances are you have at least three going as you drive your technomobile to the meeting.

So your hands are on the wheel … right?

So, as the phone rings you either have to answer that, and turn up the blue tooth headset so you can hear. At the same time, you need to turn down music so it doesn’t interfere with the call.  And, while doing all of that, you need to reach for the GPS touch screen to change the view so you don’t miss the next turn (can’t use the sexy voice on GPS because you are on the call).  And your computer, phone, or both are beeping with an urgent text alert.

So, about now you are steering with your elbows or knees as you get the message to bring up the PowerPoint for changes.  Let’s don’t even go near how to open the deck on your phone or computer during your call, while attempting to drive with no eyes anywhere near the road.

Many joke about women applying makeup while successfully driving to work, but there is nothing worse than a man trying to “multi-task” with gadgets while attempting to drive.

Morale of the story – “Live Management”

Of course, the preceding is intended as a hyperbole, but it is probably not stretching the truth by much.  All road warriors have probably committed two or more gadget sins while driving, jeopardizing everyone’s safety.  

There is a time and place to “be live … online”.  Despite what some may believe, the world still spins when you are not live 24/7.  Statistically, you will live longer if you do not attempt to be “plugged in” while driving.

There is something to be said about airplanes, which limit gadget time and use.  While WiFi is now invading some planes, there is nothing like quality time to think in the cocoon of an airline seat. Yes, there are plenty of airline hassles!  But, there is nothing quite like the pleasure of enjoying a fine whiskey or cabernet from the safety of your plane seat.

So how about you, do you use OOF messages to detach, or are your fingers occupied with being live while you drive?

Even though I’m now classified as “old”, I’ve decided that I want to live another day.  You will start seeing OOF messages from me about driving my ‘83 Ford … where I can’t possibly take calls, because the cigarette lighter no longer works to charge my phone.

Case studies of international retail … and beer

There is no substitute for first-hand experience

In preparing for a new Retail University course on international retailing, I have been “Binging” and “Googling” as many sources as possible.  Photos are still worth a thousand words, and we are continuing to post new photos from recent shops of Asian and Australian retailers (see photo galleries left side).  But, in the words of Paul Harvey, “the rest of the story” lies in the context of experience on the retail floor, online … and in the bar.

Hanoi – Case study for “trickle down” of best practices

My recent Asian retail tour took me to Hanoi for retail meetings and workshops.  On the surface, Vietnam appears to be like many emerging markets.  In fact, many of the participants in my retail workshops described retailing in Vietnam as “barely emerging”, and quite limited in consumer electronics.  Even in Hanoi, most of the consumer electronics shops are quite small, specialized, and have limited assortments.

 

Hanoi – Typical small computer shop with limited space & assortment

As can be seen in the photos, the typical shop space is cramped with precious little room for signage.  The laptop computers are typically merchandised in glass cases, or locked down to prevent theft.   In the larger, more organized retail shops, there is more space for merchandising and branding messages.  However, computers are shrink wrapped in clear plastic wrap to prevent consumer use … the retailers cannot afford to discount any demos due to damage.  

 

Hanoi – Bigger store with POS merchandising, but PCs wrapped to prevent experience

As the saying goes, it is dangerous to make assumptions.  If you only see the small specialty shops of the Old Quarter of Hanoi, CE retailing appears “limited”.  Even in the larger organized shops, consumer experience is limited to one demo machine at the desk with staff.  While I don’t speak Vietnamese, the overall strategy of these shops is very similar to IT Malls, which “force” interaction with the commissioned sales staff who “customize” a system for you based on your “haggling ability”.

 

Hanoi – Typical small computer shop with one demo machine for staff

The danger of being a tourist is that you can inform an impression by virtue of where you shop.  If I had only seen the stores in the photos above, I would have drawn a similar conclusion about the emerging status and challenges of CE retail in Vietnam.  Which is why you need a local guide who knows the culture and retailing in the local market!

Critical shopping question – Who is the best retailer everyone learns from?  When you ask this question, there always seems to be one or two retailers who clearly standout and differentiate.  Contrast the photo of the TRAN ANH COMPANY Hanoi store below with the photos above.  This multi-level store serves both consumers and businesses.  

 

Hanoi – CE Retailing Best Practices

There are reasons why this store sells 10,000 computers a month … and why other retailers and businesses go here to look at best practices:

·         Bright lighting, open format and shelving

·         Laptops accessible to touch, no shrink wrap

·         Multiple units with power and demo capability

·         Emphasis on brands and “genuine”

·         Knowledgeable sales staff capable of customized demos

·         Tech bench for service and customization

To understand the future of retail in any country, you need to go find the best of breed … they set the benchmarks and standards that trickle down to raise consumer expectations, which in turn drive retailer execution.

Australia – Unique environment for retailing and … beer

Australia is certainly unique.  It is the only place that is simultaneously a continent, island and country.  With the land mass comparable to the continental US, Australia only has about 22 million people.  On the surface it would be easy to make the same dangerous assumption that I made à  internet retailing must be huge in Australia.  Not!   

To more fully review the status of internet retailing with my Australian hosts, we went to the most popular of Australian retail establishments – the local bars.  There I learned that is really no equivalent of Amazon in Australia.  In the words of my hosts:  “Aussies are just not passionate about shopping online … it just hasn’t caught on here … we have too many local retailers like Harvey Norman interested in preserving stores and traffic”.

Again, I learned that it is extremely dangerous to make assumptions about culture … and things as important as beer.  You truly do need to go to the local retailing establishments to fully understand:

·         Australians are passionate about beer and genuine local brews

·         Foster’s is a “marketing scam” designed to dupe US consumers

·         Foster’s is brewed in Canada and imported for duped Americans

·         If you order a Foster’s in an Aussie bar, you will be thrown out

The status of Australian beer culture is best summarized by a passionate Aussie blogger:  Foster's is NOT "Australian for Beer". It's not true blue or fair dinkum. It's a big fat marketing lie. If you are a patriotic Australian steer clear of Foster's. It's a scam!

In conclusion, the Professor’s International Travel Research Tips:

·         Ask who is the best retailer everyone learns from

·         Always have a local guide who understands culture & market

·         When in Rome, do as the Romans do … When in Australia order Tooheys, Hahn, Boags … but never a Foster’s if you expect beer

Learning is Reciprocal…

Nothing like an adventure abroad to broaden horizons

My standard close in US Retail U classes is that you’ve got to get out of your corporate hometown in order to understand retail.  That punch line is even truer today, as retail continues to rapidly evolve.  But, “getting out of town” is even more crucial in understanding international retailing … as I learned again on my last Asian tour.

You don't see many Retail U class photos like this one from

Hanoi, Vietnam

 

Retail workshops in Vietnam, China, Thailand and Australia

I am more preoccupied with retail than most.  In preparation for building an International Retail U course, I also read a significant amount of trade publications and press on international retailing.  But, there is just no substitute for going and experiencing retailing first hand.  I recently had the fortunate opportunity to do a “retail tour of duty” in Asia and Australia.  

As an interesting sidebar, no one ever quite knows to what to do with Australia, and too often it gets lumped in with the rest of Asia.  While Asia may be the closest area to Australia, the flights are still very long from Asia to the “land down under”.  Retailing in Australia seems to be similar to Western Europe. Harvey Norman, the dominate CE retailer in Australia, most closely resembles the decentralized store model of Media Markt.

 

Fortunately they let the old professor teach in English

 

International Impressions

One of the most interesting opportunities was to conduct a “workshop” with distributors and retailers from across Southeast Asia.  In this case, the learning was definitely two way – with the “professor” doing more learning than the participants.

Here are some the “professor’s” key take aways and impressions:

·         Two step distribution through distributors is not optional, it is a requirement to reach and stock the small retail shops

·         As CE margins erode, distributors are under tremendous pressure to turn their inventory to be profitable

·         Inventory turns, GMROII and market basket metrics are just as valid in Asia as in the US and EMEA

·         While organized retail and global retailers are growing in presence, most of the volume (80%+) in Asia goes through small shops and IT Malls

·         Some of the “local” retailers in competitive markets are achieving much higher turns and GMROII than US retailers

·         “Haggling” or negotiation is integral part of the shopping process

·         Corp Headquarters can never truly understand “localization” requirements – they need to rely on their great people in the market

No substitute for Sampling Culture

If you know anything about me at all, I firmly subscribe to an “eat about it” mentality.  There is no better approach to understanding culture than to sample local food and customs.  Somehow eating about it usually leads to “drinking about it”, and that is where the true insights usually develop.

Rest assured, I have travelled enough to know that you take your life in your hands if you sample from the street vendors.  However, I had a number of great opportunities to sample local food and customs at the retail workshop lunches.  Trust me, I have never seen anything on a plate at a US workshop lunch that even closely resembles the lunch at the Qingdao retail workshop.

 

Qingdao - Not your typical Retail U lunch

A sincere note of appreciation and thanks!

I am always amazed and overwhelmed by the hospitality of the wonderful hosts at international retail workshops.  Not only are they gracious and competent hosts in organizing the workshops, they also give unselfishly of their time to enable this old man of retail to visit local retail shops.  I will post a number of retail store photos next week from the local shops.

So a sincere thank you to all my hosts in Asia and Australia that made these workshops memorable learning experiences for the participants …  and professor!

Could you keep up with the flower ladies?

The brutal one day life cycle of the Hanoi flower market

On my current trip to Asia, I just had an opportunity to shop the amazing Hanoi flower market.  The wholesalers start arriving with bulk flowers at 3am.  The “flower ladies,” who distribute flowers by bike, start arriving at first light. By midmorning, there are some retail sales, but end of life occurs by noon.  A complete retail life cycle in less than a day!

Retailing from the back of a bike …

One of the first things that struck me on the morning cab ride from the airport was all the bikes with flowers piled on the back.  While there were some motor bikes, most were bicycles.  Almost all were driven by women, who miraculously navigated Hanoi’s incredible traffic while balancing a load of flowers beyond belief.  By noon, they disappeared.

 

Flower Lady Navigating Hanoi Traffic

No one explained why there is such a demand for fresh flowers in Hanoi, but why not?  The variety and colors of flowers are simply amazing in this tropical climate. But, the heat also quickly saps fresh cut flowers, which is why this market operates in the cool of the early morning.  The reason for the bikes …  they are the most efficient means of getting the product to small shops on very small streets clogged with traffic.

All the elements of a retail cycle in less than 24 hours

I was told that bulk cut flowers start arriving in the market by 3am.  I didn’t get up to verify that one, but the market was definitely overflowing by 6am. When I arrived, the flower wholesale stalls were busy merchandising their remaining stock.  They carefully preened and sorted the stock into smaller bundles already packaged for consumers at retail.

 

Preening and Packaging Retail Bundles

Each wholesale stall tended to specialize in a few varieties. As with any supplier-reseller relationship, it was clear that there was a great deal of “haggling” by the resellers purchasing their assortment from the distributors.  The “flower ladies” carefully selected a wide variety retail flower bundles that they could sell to their regular customers and shops … and they were very choosey!   They kept purchasing until they literally could not strap more on the back of their bikes.  It is amazing what strips of rubber inner tube will hold down!

 

Haggling in the Hanoi Flower Market

By 10am the heat became unbearable for this big Nordic schlepping a camera and lenses.  The best resellers were doing what they could to “sprits” their flowers to keep them fresh.  Clearly, they were in the mood to end-of-life their products to remaining customers, especially any consumers that came whizzing through the market to pick up their own bargains personally.  By 11am, they were already sweeping up the streets to get ready for the next cycle.

10am Final Markdowns and Close Outs

End of Life at Flower Market

Why Women?

There were some guys involved in the flower market, mostly doing menial tasks.  There were even a few guys with flowers piled on their bikes, but the market was clearly dominated by women.  Why?  It could be due to women’s sense of colors and style.  They also seem to be the better flower arrangers and merchandisers.  However, a female Hanoi business colleague pointed out the logical answer: only the women are tough enough, and smart enough to thrive in this retail cycle.

Snapshots of International Retailing

What we can learn from the “eye of the consumer”

As promised, I was able to take literally hundreds of photos inside retailers visited during my last International Retail U workshops.  What makes these photos unique is that I literally hung the camera from my neck and snapped photos as a consumer would see a store.  The composite of retailer photos across countries provides insights vendors can use to improve marketing, merchandising and execution.

New Retail Photo Galleries – A click away on your left

We are in the process of reorganizing the retailer photo galleries found in the navigation bar to the immediate left.  We will be grouping retailer photos within major regions.  For example, North America now contains both the US and Canada. India and China are listed as separate markets, due to the number of recent photos, and their importance as emerging markets.

Within each major region, each photo is tagged with a caption noting the specific retailer and location of where the photo was taken.  In the interest of space, we have limited the photos to representative examples of consumer electronics.  If you are looking for something specific and can’t find it, please contact us, and we would be happy to research our growing photo library to see what we have on file.

Initial Consumer Insights through the Lens

Time and space do not permit an exhaustive analysis of all the retail photos and highlights.  We will be covering more details in our International Retail U course and through future postings here.  Suffice it to note that many vendor headquarters are “country-centric”.  The new retail photos clearly demonstrate the need for localization.  It is also readily apparent that one size does not fit all or even most retailers – there is a pressing need for more flexible execution of merchandising in retail formats that don’t have the space, or the same shelving as traditional big box retailers found in the US and Europe. 

1.     Apple is amazingly consistent

Apple is the one retailer that is the most consistent across all stores in all markets.  As you can see from the photos of the Apple store in Munich, all of the branding, fixtures and merchandising is nearly identical to other Apple stores.  What is not immediately evident in the photo below is how consistent the quality of consumer experience is across Apple stores.

First Floor Apple Store; Munich, Germany

2.     More top retailers going global – driving organized retail option

Many of the major retailers are “going global” and building their stores in major markets across the globe.   The international stores for Best Buy or Carrefour are more “vertical” (multiple floors), but contain many of the core brand and fixture elements.   

While the retailers like Best Buy localize some aspects, they are bringing organization to categories with some logical adjacencies that help sell market basket and services.  Notice the classic “serpentine” fixtures in the Best Buy store photos from Shanghai.

Notebooks on serpentine fixture in Best Buy, Shanghai

3.     IT Malls still Rule … and Dominate Sales

Consumers still prefer to shop IT Malls in Asia Pacific, India and China.  The majority of the consumer electronics volume still goes through these multi-level malls of “let’s make a deal” shops.  As a “westerner” used to the more laid back approach of Best Buy or Saturn, there is no way to appropriately illustrate via a photo the aggressive salesmanship of the booth people.   

What can be illustrated in the photos is the radical difference of first floor IT Mall booths dominated and merchandised by vendor brands, versus the upper floors’ unorganized stalls, bins and dumps of parts and gadgets.    

To begin to “crack the code” on IT Malls will clearly require a different approach of how to deal with the different nature and sophistication of retailers on each floor.   The photos below highlight the difference between the first floor organized booths, versus those inhabiting the lower rent, lower traffic upper floors.

Branded Shops on First Floor, IT Mall China

Unorganized Booth on Fourth Floor, IT Mall China

4.     Learning from “local anomalies” and successes

One of the retailer successes that personally intrigued me was Harvey Norman, which is classified as more of a “department store” selling electronics.  The latest unofficial stat from Australia is they command something like 38% market share. As you can see from the photo, the merchandising may not be spectacular, but they know their customers and how to run promotions!

Promotional Driven Harvey Norman Store, Singapore

One of the most successful retailers in Singapore is “Best”.   What a name … wonder where they got that from.   They not only had one of the largest TV and home theater selections that would exceed most Best Buy stores, they exhibited some of the best consumer-centric merchandising - logical side by side choices, which enable the consumer to quickly compare screen size, technology, etc.

Side by side TV comparison in Best, Singapore

5.     Category Management may still be a Foreign Concept

Category management in CE generally lags far behind that of the packaged goods industry.  While the global and local big box retailers are beginning category merchandising in focus categories like gaming, true category management is highly dependent upon data, analyses and focus on building category sales over moving commodities at a price.

One aspect of category management is “SKU rationalization”.  Less facings, organized in logical ways for consumer decisions can increase sales and reduce inventory risks.

The photo below shows the plethora of SKUs and literally hundreds of facings of mice and keyboards in retailers such as Challenger in Singapore.   As bigger formats emerge, there is an opportunity for the fundamentals of category management execution on the part of both vendors and retailers.

A wide array of selection at Challenger, Singapore

While retail may not be as “healthy” in these financial times, the traffic in the IT Malls and retailers indicate that shopping is still the national past time in most countries.