One of Apple Inc. (NASDAQ:AAPL)‘s biggest competitive advantages over rivals has always been its large network of retail stores. Most other device makers sell primarily through third-party retailers and distributors. It turns out that Apple Inc. (NASDAQ:AAPL)’s not particularly happy with how iPhones are sold, since the vast majority is sold through third-party sellers like carriers.
The gateway drug
9to5Mac reported last week that Apple Inc. (NASDAQ:AAPL) hosted a huge meeting with retail store managers from all over the world, and the main topic on the agenda was iPhone sales through Apple Inc. (NASDAQ:AAPL) retail stores. Tim Cook talked at length at how the company needs to focus sales efforts on the iPhone. Mac and iPad sales through Apple Inc. (NASDAQ:AAPL) stores are proceeding swimmingly, but only 20% of iPhones are sold through its own retail locations.
Even though the remaining 80% of iPhones are sold through other outlets, 50% of these devices are still serviced and supported at Apple Inc. (NASDAQ:AAPL)’s Genius Bars. Cook would prefer those figures to match up more closely, and Apple considers the iPhone like a “gateway product” that introduces consumers to other products like the Mac and iPad.
As part of this push, Apple is implementing several initiatives. The company just launched its annual back to school promotion, and for the first time is offering a $50 gift card with iPhone purchases. There have also been reports that Apple is about to launch an iPhone trade-in program within Apple retail stores, partnering with Brightstar to implement the program. Apple also has price matching policies, since third-party retailers sometimes offer discounts.
Home court advantage
Cook supposedly addressed the possibility of having carriers give sales reps incentives to push rival devices that carry lower subsidies, underscoring how important it is to have more control over the purchasing experience.
Last year, BGR reported that AT&T Inc. (NYSE:T) was trying to steer customers away from the iPhone, a claim that Ma Bell staunchly denied with an official press statement. Verizon Communications Inc. (NYSE:VZ) CFO Fran Shammo provided a little more detail in how Big Red would lose out if it pressured customers toward devices they didn’t actually want: Verizon Communications Inc. (NYSE:VZ) Wireless would end up on the hook for two subsidies if customers return their devices under the 30-day guarantee.
AT&T Inc. (NYSE:T)’s iPhone mix is also higher than Verizon Communications Inc. (NYSE:VZ)’s. An overwhelming 80% of AT&T Inc. (NYSE:T)’s smartphone activations last quarter were Apple’s device, while just 56% of Verizon’s smartphone activations were iPhones. AT&T has a bigger incentive to move away from the iPhone.
Driving more iPhone sales through Apple retail stores reduces even the possibility of having third-party retailers prioritize competing devices.
Tim Cook reporting for duty
Apple still hasn’t found a new retail chief after John Browett’s brief stint, and the retail segment has been reporting directly to Cook ever since. Fortunately, the CEO has some ideas of how to boost iPhone sales through Apple retail stores.
The article Apple Doesn’t Like How iPhones Are Sold originally appeared on Fool.com is written by Evan Niu, CFA.
Fool contributor Evan Niu, CFA, owns shares of Apple and Verizon Communications (NYSE:VZ). The Motley Fool recommends and owns shares of Apple.
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