Apple investor takeaways: Why loyalty will decide Apple’s future

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The iPhone 5S remains the number-one smartphone in Britain and the U.S.

Samsung’s (SSNLF) Galaxy S5 was released in April this year in Europe with high expectations. But, according to the latest report from Kantar Worldpanel ComTech, Apple’s (AAPL) iPhone 5S and iPhone 5C continued to lead the British smartphone market in May. Novelty couldn’t help the Galaxy S5. It ended up the third-highest-selling smartphone in Britain, behind the iPhone 5S and iPhone 5C.

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Interestingly, loyalty for Apple’s iPhone was even higher in the U.S. Only 8% of Galaxy S5 buyers switched from Apple. The majority of buyers who shifted to the Galaxy S5 had been LG (LGEAF) and HTC (HTCKF) users. To maintain loyalty, Apple decided to slash the prices of its iPhone 5S and iPhone 5C ahead of the iPhone 6 launch later this year. This deal will only be valid with a two-year contract with U.S. telecom providers. Consumers can purchase these phones from Walmart’s (WMT) retail stores but not online.

You can see how important customer loyalty is for tech stocks.

Mobile Phone Brand Activation in the U.S.

Apple led the U.S. mobile phone market in Q1 2014

According to a report from Consumer Intelligence Research Partners, CIRP, and as the chart above shows, Apple was the number-one player in terms of mobile phone brand activation in the U.S. It had a share of 43% in Q1 2014. Samsung came second, at 29%. Meanwhile LG, Motorola, HTC, Nokia, and BlackBerry (BBRY) were the remaining smaller players in this market.

But, according to Kantar, the release of the Samsung Galaxy S5 made it the second-best-selling smartphone in the U.S., behind Apple iPhone 5S, in May. The Galaxy S5 helped Samsung to the top position in the U.S. smartphone market in Q2 2014.

China is a different market for smartphone vendors

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Loyalty for a particular smartphone brand is quite low in China. According to the same report from Kantar, 35% of Apple’s iPhone current owners are planning to move to Samsung and 46% of current Samsung smartphone owners are planning to move to Apple in China. In the last year, 39% of Apple iOS users have switched to Google (GOOGL) Android–based smartphones. About 12% of these users have opted for bigger smartphones of 5.5 inches or larger. So it’s key for Apple to launch a bigger-screen-size iPhone 6 later this year.

Apple depends heavily on binding users to its ecosystem

As you’ve seen, Apple users are generally loyal to Apple products—with the exception of Chinese users. People also tend to buy more products from Apple due to the “halo” effect. For example, a user who bought an iPhone for the first time will also tend to then buy an iPad and then a Mac. The “halo” effect also come from Apple’s strong app ecosystem. This means users find using different products from the same vendor convenient.

The same trend applies to Google. Google also has a strong app ecosystem for its operating system Android. So if a user switches from Apple’s ecosystem to Google’s ecosystem, it hurts Apple in more than one way. That’s why loyalty plays such an important role for Apple.

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