Why is premium smartphone segment witnessing growth in Indian market

As the Indian smartphone market witnesses an overall volume crunch due to declining shipments in the mass segment, analysts expect premium device sales to largely drive growth going forward, as the market shifts from being volume-driven to value-driven.

The Indian smartphone market exited 2022 with 144 million shipments – the lowest since 2019 – declining 10 per cent year-on-year (YoY), according to data from the International Data Corporation (IDC), a market intelligence platform. This primarily came on the back of a 54 per cent YoY decline in the entry-level segment, also known as the mass segment (sub-$150), which shrank to 46 per cent of the market.

While the overall market witnessed a shipment decline, the premium market showcased impressive growth in 2022.

“The mid-premium and premium price segments of $300-500 and $500+ grew by 20 per cent and 55 per cent respectively, while the sub $300 has declined by 15 per cent YoY,” revealed Upasana Joshi, Principal Analyst – Mobile Phones at IDC Asia Pacific. “The market above $300 is now 16 per cent as compared to 11 per cent a year ago,” Joshi added.

Analyst point to this shift in growth in high-end device sales due to the rising average selling price (ASP) of smartphones. The ASP stood at a record $224 last year, rising 18 per cent YoY.

“Over the last few years, the (smartphone) market has predominantly been driven by the upgraded segment. And the premium range, especially the mid-premium range, is emerging as one of the preferred avenues to enter this segment,” Faisal Kawoosa, founder and Chief Analyst at Techarc – a research firm, told Business Standard. “The market has somewhat stagnated in terms of volume at 150-155 million units. However, the premium segment is offering growth in terms of value,” he added.

The other reason is, of course, the number of new launches in the premium segment has gone up when compared to entry-level or medium-level smartphones.

“Due to lower margins in this price segment, fewer vendors are keen on launching devices in this segment, compromised for key feature sets with low demand,” Joshi said. Companies are, therefore, more focused on higher-priced segments where they are able to sell fewer units, albeit at higher revenues.

Shifting consumer needs have also led to the requirement for better features like higher memory, 5G, better camera, etc. Furthermore, the availability of easier purchase options like EMI, cash backs, and trade-ins have contributed to a shift to higher price bands.

Market leaders

Apple currently sits atop the leader board for high-end devices in India, both in terms of overall shipments as well as market share, ahead of Samsung and OPPO – of which OnePlus is a subsidiary. The company led in the over $500 category last year, with a 60 per cent share – its iPhone 13 becoming the 3rd most shipped device in 2022, a first for the Tim Cook-led tech major.

The Cupertino-headquartered firm has been on an incremental path toward cutting a bigger piece of the smartphone pie.

Although operational in the country for the last 25 years, the company has only recently begun to expand its retail footprint in India. The recent launch of its two retail stores – one in Mumbai’s Bandra Kurla Complex (BKC) and the second in New Delhi’s Saket, although not likely to have a big impact on its overall sales, indicates the company’s proclivities in the Indian market.

The firm’s premium smartphone shipments grew from 1 million in 2018 – when it was behind Samsung and OPPO – to reach 4.7 million in 2021, before touching 6.3 million in 2022, according to data from IDC.

In contrast, Samsung’s shipments stood at 2.2 million, while OPPO’s were 1.2 million last year, both commanding a 21 per cent and 12 per cent market share respectively.

“Going forward, many Android brands will try to capture a bigger piece of the premium pie. However, Apple is currently in a prime position to grab a much larger base,” said Prachir Singh, Senior Analyst at Counterpoint Research, a technology market research firm.

Singh says that although Apple does not offer any discounts, the company has successfully managed to increase the affordability of iPhones in India by introducing various financing options such as no-cost EMIs, etc. “There will be competition, but Apple is in the lead with its brand image and financing options,” he said.

A new form factor

Analysts believe that with Apple now stepping up its play in direct retail, competition in the premium segment just got elevated.

To compete with Apple’s brand image, analysts are of the view that its competitors need to re-strategize. Brands must make their products more aspirational and offer differentiation. This differentiation has emerged as an altogether new form factor.
Apple’s chief rival Samsung already has an edge in the ‘foldable’ category, which might give the Korean manufacturer a leg up going forward.

Of the 144 million shipments in 2022, almost half a million devices had a foldable form factor – either flip or fold devices, mostly via Samsung. This year newcomers like Vivo are also expected to launch foldable offerings.

China’s Tecno, which is known for its entry-level offerings, has already taken a plunge into this realm by way of its Phantom V Fold. The device was launched earlier this month at a hefty price tag of Rs 77,777.

Analysts say that proper pricing for foldables will be a tricky ordeal. The challenges, however, do not end there.

“Foldable smartphones are an interesting as well as refreshing new form factor. But the sense I am getting from consumers that are using one is that the excitement of using a fold phones is getting over,” Kawoosa said. “We are expecting foldables to remain an ultra-niche consumer segment. We are not expecting India to sell more than 375,000 units in 2023.”
Furthermore, analysts maintain that this new form factor alone cannot give a fillip to the premium market.

The way forward

Despite this increasing momentum, challenges remain. The premium segment, analysts say, is expected to grow further but cannot be the only growth driver. A majority of the market still lies in the sub-$300 category, which is anticipated to remain flat or decline, in 2023.

According to Counterpoint’s Singh, customers looking to purchase premium smartphones are still price-conscious. Whoever is able to make acquiring smartphones more affordable will win the sales game, he says.

“Although the volumes for premium smartphones have been on the rise recently if you look at the overall quantum of these volumes, it is still very low. This segment is a value driver but there is still time for it to become a volume driver,” Singh added.