China and India are the world’s most populous countries, so naturally, Apple (NASDAQ:AAPL) has a strong desire to sell more smartphones, tablets, laptops, and desktop computers in both markets. If Apple captures a larger share of either of those markets, a positive catalyst for Apple stock will be activated. 

There’s only one problem.

In both countries, AAPL seems to be trying to put a square peg in a round hole, attempting to win market share without meeting the needs of the people on the ground.

That’s especially true in India, where the company has seen its shipments of Apple iPhones — Apple’s biggest revenue generator by a country mile — drop by 40% in 2018. Its previous, tiny 2% market share in India has shrunk to 1%, resulting in revenues of just $1.8 billion in the past year, less than half of its expected haul.

The obvious solution in India would be to create a cheaper Apple iPhone solely for that market. However, sliding down the pricing pole simply to capture market share creates risks for AAPL and Apple stock.

Here are the pros and cons for Apple stock of launching a cheaper iPhone solely for India.

The Pros of Catering to India’s Smartphone Buyers

India’s economy is massively lucrative, in part because of the country’s huge population, but also because when Indians really like a product, they generate considerable revenue for the company that makes it.

Take whiskey, for example.

Many people in India don’t drink, and yet the Scotch Whisky Association reports that India is the association’s third-biggest export market. Whiskey sales in India have grown by 15% over the past five years; in 2014, according to Merrill Lynch, Indians bought 1.5 billion liters of whiskey, four times the amount purchased by Americans that year.

Good products, combined with the world’s second-largest population, yields significant revenue generation.

When it comes to smartphones, just 24% of Indians have one. If we exclude the 15% of its 1.36 billion people who are too young to own smartphones and another 15%  who’re too old to adapt to the technology, the country has 952 million potential users, but just 326 million are currently participating in the smartphone revolution.

If Apple was to sell $1,000 phones to the more than 600 million Indians who could use smartphones but don’t have one, Apple would generate over $600 billion of incremental revenue, creating a tremendous positive catalyst for Apple stock.

Of course, that’s never going to happen.

In India, Apple iPhone generated a little more than $1 billion of revenue in 2011. Today, it’s around $1.8 billion, and AAPL is looking to hit $5 billion by the end of 2020. With only two years to achieve that target, it will fall well short if it continues on its current path.

However, if AAPL creates an affordable smartphone just for India, it could hit the target by 2025.

The Cons of Catering to India’s Smartphone Buyers

Apple’s Services revenue surged 24% year-over-year in fiscal 2018, generating a record $10 billion in the fourth quarter alone and $37.2 billion for the year. Services is now solidly in second place, behind the iPhone, in terms of generating revenue for Apple.

As I stated in November, Tim Cook plans to use Services revenue to keep Apple stock elevated.

“Those who are dialed into Tim Cook’s plans for the business understand that the iPhone is merely the conduit for generating recurring services revenues,” I wrote in an article published on Nov. 12. “AAPL is most concerned about keeping owners of iPhones happy, whether they have the latest and greatest phone or own five-year-old iPhone 5Ss.”

Cook wants Apple to generate more revenue from each existing iPhone user, instead of primarily relying on sales of new phones every year.

I agree with Cook.

For two reasons, it’s wiser to sell premium phones for $1,100 everywhere in the world and then get those users to buy $500 of other products and services than it is to sell two $800 phones.

The first reason is that the people who buy the $1,100 Apple iPhones are demonstrating loyalty to the Apple ecosystem and ultimately might buy an Apple laptop or desktop for even more money.

The second reason is that selling other products and services generates recurring revenue, one of the best types of revenue. Owners of Apple stock will feel more secure about the company’s outlook if it has a large amount of recurring revenue because of the predictability of such revenue. 

Selling cheaper iPhones in India might enable Apple to win the battle there, but it will lose the war because once global consumers get a whiff of the company playing the lowest-price game, its mystique and domination will end.

The Bottom Line on AAPL Stock

Tim Cook and Apple’s other executives should figure out how to win a bigger slice of the Indian market without changing Apple’s business model.

Those in India who appreciate what Apple is about will pay to own an iPhone. Those who won’t, won’t. There’s no sense worrying about what you can’t control.

Apple’s never been a product for everyone. For the sake of Apple stock, AAPL should not change its philosophy now.

As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.