iPhone users are abandoning their loyalty to Apple
iPhone users are becoming less loyal to Apple over time, according to research by UBS analysts Steven Milunovich and Benjamin Wilson. While users largely remain loyal to their iPhones in the West, the anti-Apple trend is so pronounced in China that it has lowered Apple's average customer retention rates globally, the UBS analysts said in a recent note to investors:
This chart is particularly surprising because it shows that Apple's customer retention rates are heading toward parity with Android phones, including those made by Samsung (which suffered last quarter due to the recall of its flagship device, the Galaxy Note 7, which was prone to explode).
iPhone sales are hugely dependent on Apple's ability to persuade its existing customers to trade in their old iPhones for this year's model. Cowen analyst Timothy Arcuri believes that 43% of current iPhone owners are currently considering a new iPhone.
iPhone sales have been in decline recently because customers seem to be holding on to older models, especially iPhone 6 and iPhone 6s. This year's iPhone 7 was not as dramatically new as observers had hoped, and many customers may be waiting another year to see what the 2017 iPhone looks like.
The picture is complicated by China, however. Broadly, loyalty to Apple is strong in the US, UK, and Germany. There has been significant weakening in Japan. But in China, retention rates have fallen off a cliff:
Apple's sales in China declined 30% last quarter. According to UBS Asia telecom analyst Jinjin Wang, the improving strength and quality of Chinese Android brands plus their lower price has hurt demand for the iPhone 7 in Apple's second-largest market. "Domestic brands are catching up as Apple's innovation has lagged - consumers are now not embarrassed to own Oppo, Vivo, or Huawei handsets. Apple this year is number five or six among the top 20 sellers," she said recently.