Premiumisation In Smartphones - Who's Ready, Who's Not?

As someone who has witnessed the evolution of the Indian smartphone market over decades, I can confidently say that premiumisation, along with advancements in 5G and AI, will be the primary growth drivers in 2024 and 2025. Many equate the rise in Average Selling Price (ASP) with premiumisation, but it’s crucial to understand that this trend runs deeper than just price hikes.

What exactly is premiumisation?

Premiumisation reflects a shift in consumer preference towards higher-quality, branded products, and experiences. It’s about paying a premium not merely for a smartphone but for superior performance, cutting-edge design, enhanced functionality, and an exclusive brand identity. The premiumisation wave doesn’t stop at the product; it extends to the customer journey – personalized service, ease of access, and creating a sense of exclusivity.

Data speaks: The rise of premiumisation in smartphones

Historically, the Indian smartphone market was dominated by the basic and entry-level segments. However, since 2022, there’s been a significant shift towards premium segments, signalling an evolving consumer mindset. The premiumisation wave is evident in the surge in demand for entry-premium (₹17,000-₹34000) and super-premium (>₹68000) devices. In the entry premium segment, basis upgrades and in the super premium segment, basis aspiration.

According to IDC, the share of smartphones in the entry premium segment has grown to 30%, and in the premium segments priced above ₹34,000 to 15%, between 2022 and Q2 2024 - a near 50% increase in a short span.

Price-segment wise market share.

What’s fuelling premiumisation?

Several key factors are driving the premiumisation trend in India’s smartphone industry:

• Affordability through financing: Zero-interest EMI schemes, better trade-in values, and bundled offers make premium smartphones accessible to a broader audience.

• Rising disposable incomes: The growth of India’s middle class, with its increasing purchasing power, is fuelling the demand for premium offerings.

• Aspirational Shift: Urbanization, exposure to global brands, and a growing desire for a better lifestyle have led to smartphones becoming status symbols.

• The Digital Influence: Social media has created an environment of constant comparison, driving consumers to aspire for high-end smartphones showcased by influencers and celebrities.

• Brand Consciousness: With a greater focus on quality, Indian consumers are willing to pay for durability, superior after-sales service, and the prestige that premium brands offer.

Additionally, brands face increasing pressure to drive profitability amidst slow volume growth. The solution? Elevating the ASP by pushing higher-priced devices – a strategy that dovetails perfectly with the premiumisation wave.

Premiumisation across industries

This trend isn’t unique to smartphones. India is seeing premiumisation across various sectors, from FMCG to automobiles. Consumers are increasingly favouring premium products in personal care, durables, fashion, and even travel, reflecting an aspirational shift that permeates multiple facets of life. This larger cultural movement plays a pivotal role in driving premiumisation in smartphones.

Key beneficiaries in the smartphone space

A brand like Vivo have strategically positioned itself across consecutive price segments, putting it at an advantage to capitalize on this trend. Vivo’s presence in the top 3 brands in the basic, entry-premium, and mid-premium segments – covering a whopping 78% of the market – positions them perfectly to lead the charge as consumers upgrade to higher-tier devices. No other brand is present across three consecutive segments that too in the top 3. If Vivo can effectively tap into the super-premium segment through innovation and strong marketing, it will cover nearly 85% of the Indian smartphone market and take full advantage of the premiumisation trend.

Vivo can solidify its hold not just in the small share mid-premium segment where it leads with a 25% share but also make a play for the super-premium space. The brand’s recent launch of a foldable device was a step in the right direction, but it could have been leveraged more effectively to create an aspirational value.

Samsung is the other brand which has its presence and acceptance in the entry, premium and super premium segment and can gain due to premiumisation. They were impacted by Apple in the premium and the super-premium segment badly in Q2, 2024 but one can expect them to make a comeback.

Oppo and OnePlus too has a window of opportunity with their focus on R&D.

For Xiaomi and Realme they must initially aim to be the first choice of the upgraders rather than the aspirational as their strength lies in the entry and the basic segment. Of course, they should have a product or 2 in the premium segments for positioning.

The future of premiumisation: Sharing my insights

Looking ahead, the future of premiumisation in India appears robust. As disposable incomes rise and aspirations evolve, the demand for premium smartphones will continue to grow. However, the real test for brands will be in adapting to these evolving consumer expectations – focusing not just on high-end features but also on personalized experiences, sustainability, and omnichannel convenience.

That said, the tepid response to the Apple 16 demonstrates that even premium brands can’t rest on their laurels. Consumer expectations are sky-high, and brands must deliver on both product innovation and value proposition. While the entry-premium segment currently drives growth, the mid-premium segment will soon follow suit. Brands like Vivo that invest early in this segment, stand to benefit greatly as consumer upgrades shift upward.

With all the talk around premiumisation, the Super Premium segment in India was at just 7% share in volume in Q2 2024 growing by just 1% YoY. The premium and mid premium segments which had a small share actually had a degrowth of 2% from 8% to 6%. The focus for Vivo and Oppo has to be to drive the growth in the mid premium and above segment while consolidating their share in the entry premium segment. For Xiaomi and Realme the priority should be to come in the top 3 in the entry premium segment while taking a step forward in the entry premium segment, and for Samsung to come in the top 3 in all segments with a comeback in the super-premium segment where they have lost heavily.

Foldables: The next frontier

With ASPs for foldables expected to drop, the super-premium segment category is poised for faster growth. As per data available the category had a 2% share in H1 2024 which translated into volumes of approximately 14 lac devices which is good.

Samsung should be eyeing a strong comeback in the super-premium segment, leveraging the foldable trend and the weak response to the Apple iPhone 16. Android also has to take ownership in working with leading brands to position Android as an aspirational alternative to iOS from the software side while the brands come up with innovations like the triple fold in hardware.

In conclusion, premiumisation is not just a trend – it’s the future. Brands that can effectively ride this wave through innovation, value-driven propositions, and consumer-focused experiences will be the winners in India’s ever-evolving smartphone market. As a veteran in this space, my belief is clear: premiumisation is not a destination but an ongoing journey, and the brands that adapt will lead the pack.