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Daily Dose of iQ: Does Android Cater to Lower-Income Consumers?

Yesterday, Sam Biddle of Gizmodo posited that "Android is popular because it's cheap, not because it's good." While Biddle is certainly entitled to his opinion on the quality of Google's mobile OS, but what's more interesting is how he shows Android to be a more accessible brand to lower-income consumers.

Apple, meanwhile, is widely considered a more expensive “status” brand. This is not new: It was the same with PCs and Mac desktop computers. Android phones like the Samsung Galaxy S3 compete head-to-head with the iPhone, however, many of the cheaper Android models are sold as more of a "good enough" alternative to the pricey iPhone.

Google doesn't care about device margins; it cares about getting its OS in front of users.

Biddle points to a class distinction between Android and Apple, but some consumers choose a phone based simply on carrier and brand loyalty/hate. With respect to price point, Apple has traditionally aimed to be a high-end, high profit company and does not seem interested in low-end sales (although a cheaper iPhone model has been rumored for release later this year). 

Android appeals to a wider demographic with a kind of shotgun approach, offering high-end phones like the Galaxy S3, while many of the phones they sell are very low-end smartphones. This approach does not hurt Google at all; they are simply trying to get the OS in front of users. It is the manufacturers (Samsung, HTC, LG, etc.) that are dealing with the race to the bottom and thin margins (see above photo).

Apple and Samsung commanded 99% of mobile phone profit in Q1 2012.

Google and Apple have very different OS agendas. Apple is very much in the hardware game whereas Google is all about the software and their platform.  If manufacturers make low-priced, low-profit phones, it only helps Google to get their OS out there. For Apple, the focus on high-priced devices makes for higher margins.

"Apple makes money on hardware, a game that Google is relatively new to," wrote TechCrunch's Jordan Crook, yesterday. "Google, on the other hand, makes its money off of search and ads."

In Q1 2012, for example, IDC reported Samsung had a 29.1% share of the global smartphone market, while Apple had 24.2%. But Asymco reported Apple reaped 73% of the profit from the mobile market, followed by Samsung, with 26%. That's 99% of the profit.

"HTC barely made a blip with just 1 percent of operating profits," wrote Brandon Hill of DailyTech.com (May 4). "LG, Motorola, Nokia, RIM, and Sony have all posted losses with regards to their respective mobile phone divisions, so they don't even factor into this equation."

Coming back to Biddle's article in Gizmodo, the most compelling portion is its breakdown of lower-income Android users, Pew Research stats, racial and demographic trends –- all of which point to an Android advantage: "A full 12% more black and hispanic smartphone users are Android users compared to Apple customers, and owners of any race with a high school diploma or less made up 38% of Android owners, over iPhone's 31% mark in that cohort."

Granted, 38% over 31% isn’t staggering. But what does this all mean for the retailer?

Retailers shouldn't focus on which manufacturer sells the most phones, but rather on their own gross profit per invoice ratios.

Take-home message for retailers: Know the market and who you are selling to. Ultimately, you want to match a device with the customer's needs and his/her budget. Having a user feel ripped off or under-sold leads to returns and unhappy customers. Retailers should look at gross profit per invoice ratios when measuring the value of transactions as well. This is where Apple and Samsung are strong.  Simply looking at how many phones someone is selling is not the answer. Looking at total profit on those sales and factoring in things like discounts, returns and cancellations is also equally important.

Date: 
January/23, 2013