Consumers Balk at Premium Smartphone Prices

Only a fraction of consumers are willing to pay US$1,500 or more for a flagship Apple iPhone or Samsung Galaxy smartphone, suggests an informal ECT News Network survey conducted from April 15 to 22. Fewer than 2 percent of those who took part said they'd be willing to paying such a premium for a handset.

Since the release of the first iPhone in 2007, the latest smartphones arrive with almost disturbing regularity. Their prices typically have increased with each new product -- unlike other consumer electronics categories, notably TVs, where prices have fallen steadily.

For years, consumers have been driven to acquire the latest and greatest. Perhaps because of worries of a new recession on the horizon, or just the fact that the new devices largely fail to offer improved bells and whistles, consumers have begun showing a reluctance to fork over whatever the manufacturers have asked.

Moreover, the days of consumers lining up to be the first to own the newest handset also are largely a thing of the past.

Survey Findings
Fewer than one-sixth of respondents to the ECT News survey said they would want the latest model, but even those individuals were reluctant to pay in excess of $1,000 for that new shiny phone.

Just shy of one-fifth said they'd be content to buy a slightly older model for $500 to $750.

The bulk of respondents, about one-third, were happy to forgo an iPhone or Galaxy device, and felt that any good handset for $350 or less would suffice.

More than one-fifth flat out felt that phone prices were ridiculous and said they wouldn't pay more than $100. Nearly one-tenth of respondents indicated they didn't even want a smartphone.

How much are you willing to pay for a new smartphone?
  • I'll pay $1.5K or more for the latest iPhone or Galaxy flagship phone. (2%)
  • I want the latest model, but I can't see paying more than $1K for a phone. (14%)
  • I'm content to buy a slightly older model in the $500 - $750 range. (19%)
  • I don't need an iPhone or Galaxy. I can find a really good phone for $350 or less. (33%)
  • Phone prices are ridiculous. I won't pay more than $100. (23%)
  • I don't have or want a smartphone. (9%)
Smartphones may have hit a saturation point in the United States. The U.S. ranks third in the world for total number of smartphone users -- behind China and India -- but has the highest user penetration, according to a recent study by NewZoo.

As of 2018, 77 percent of Americans had a smartphone, up from 67.3 percent a year earlier, the research firm found.

Price of Phones
After the 2008-09 Great Recession, smartphone prices did remain steady, and thanks to the release of lower-priced iPhone models, as well as the entry of competitors into the Android OS space, the overall price of smartphones followed the course of other consumer electronics for a while.

Then, beginning in 2016, phone prices increased again, and the trend toward ever higher prices has picked up momentum since then. By the beginning of 2018, smartphone prices had risen by a staggering 10 percent.

"Parks Associates consumer survey data finds that between 2014 and 2018, the average amount paid by U.S. broadband households on their most recently purchased smartphone doubled from a mean of $258 to $528," noted Kristen Hanich, senior analyst at Parks Associates.

In 2013, the average price of a smartphone in North America was $531, and that average increased to $567 in 2017, according to research firm Statista. Today a new iPhone X has a price tag hovering near $1,000, which has pulled up the entire average for the product category.

That average is expected to increase; Sprint currently offers a Samsung Galaxy Note9 for nearly $1,250, and the Galaxy Fold phone could be priced near $2,000. Even Samsung's "cheaper" smartphone models will command price tags of around $750.

The prices of the phones thus have exceeded TVs and personal computers, devices that have a lifecycle longer than the expected 32 months for a smartphone.

Price comparison website Flipsy actually broke down the costs of regularly replacing a smartphone. Based on an average price of $567 with an upgrade cycle of 32 months, it found that if users bought their first phone at age 18 and replaced it every 32 months until the age of 78, it would result in 22 smartphone purchases and a total cost of $12, 474.

That number doesn't include monthly service or the costs of apps. Just with the service plans, Flipsy estimated that in a lifetime a smartphone will cost a consumer, on average, around $75,000.

Increasing Lifecycle
The increasing cost of smartphones has resulted in consumers keeping the devices longer -- something that manufacturers have tried to address by offering devices with newer features, but without much success.

The lengthening has occurred alongside two major shifts in the smartphone market, noted Parks Associates' Hanich.

"First is the movement of smartphone payment models away from mobile carrier subsidies and towards consumer-carried payment plans," she told TechNewsWorld.

The second shift has been the rising price of flagship smartphones.

"With smartphones on the market for over a decade now, and innovative hardware features fewer and further between, the smartphone market is quickly commoditizing," Hanich said.

"This typically means more competition, with less ability to differentiate, and lower margins," she suggested. "New, low-cost brands are taking the opportunity to gain market share by offering powerful smartphones at attractive price points, challenging the traditional market leaders to innovate or cut costs."

Price Pressure
One reason the high prices aren't turning off some customers is the fact that many individuals actually aren't paying the full sticker price -- at least not up front. Even the highest-end phones continue to be subsidized by the carriers.

"People rarely pay the full sticker price, but finance the device," said Roger Entner, principal analyst at Recon Analytics.

"The monthly cost is usually around $30 to $35, so as the device becomes more expensive, the length of the financing term increases," he told TechNewsWorld.

"Hence the out-of-pocket cost is the same -- it's just that people keep their phones longer," Entner added. "It's like the old joke: I don't care how much gas costs, as I am only putting $10 in the car."

However, even with the subsidies, Apple and Samsung may have hit a point where even the most avid early adopters finally are saying, "enough" -- especially if the phone is going to cost more than $30 to $35 a month.

"Customers' appetite for new phones is cooling off for two reasons," said telecommunications industry analyst Jeff Kagan.

"One, the prices are higher than ever, and two, there is little innovation making the move worthwhile," he told TechNewsWorld.

More of the Same
Smartphones have tended to increase in price, in contrast to TVs, but TV prices have fallen in part because of widespread consumer adoption. Once everyone had a new flat panel HDTV there was little reason to buy another.

The TV manufacturers had to introduce new products -- such as 3D, or more recently, UHD/4K -- and that was crucial in getting people to replace a product before it reached the end of its normal lifecycle. Smartphones followed a similar path, but in recent years there has been increasingly less reason to upgrade.

Simply put, the bells and whistles aren't there.

"If Apple iPhone, Google Android and Samsung Galaxy would focus on keeping prices low and keeping innovation high, the same as we saw a decade ago, the smartphone market would still be very strong," maintained Kagan.

The slowing pace of innovation isn't the only factor.

"The weakened condition of the smartphone market is a result of the actions of the smartphone makers themselves, not the market," Kagan added.

"The global market is approaching saturation. Everyone who might use one, has one," suggested Steve Blum, principal analyst at Tellus Ventures Associates.

No Technological Leap… Yet
One other factor is that the newest phones really aren't much of a leap forward, at least not yet.

"The marginal attraction of new apps and more powerful and faster hardware is diminishing," Blum told TechNewsWorld.

Then there is the fact that a new dawn is on the horizon, he added.

"Look at it from a network perspective. 5G networks need 5G-capable smartphones, and over the next five years that will be the primary driver of upgrades and new phone sales," Blum explained.

Would-be phone buyers shouldn't expect to see anything significant in the 5G segment in 2019.

"The bleeding-edge, technophile segment will be significant in 2020," noted Blum.

Yet, even when those phones appear, there could be issues to overcome -- and the biggest likely will be battery life.

"5G service requires more intensive processing, which burns up energy, as do faster bit rates generally," warned Blum.

"The first units on the market won't be optimized yet, so it will be at least a year before manufacturers and carriers really understand power budgets," he added. "But at this point, it looks like 5G smartphones will burn through batteries faster than 4G phones, and that's a problem yet to be solved."

Cost vs. Innovation
Aside from new handsets not being innovative enough, there's also the problem that the manufacturers haven't been innovating in the ways they market them.

Until 5G arrives, and until some of its early issues are worked out, there will be few reasons to invest big dollars in the latest phone.

"This warning flag has been waved for the last couple years, but still phone makers keep heading down this same weaker growth path," said Kagan.

It isn't just a matter of customer fatigue.

"It's simply higher-cost versus lower-innovation," said Kagan.

"Customers do get a technically advanced phone with the higher-priced models, but most [consumers] are not interested in this kind of innovation," he added.

"After all, the average customer is happy with three cameras and doesn't need six -- especially if it costs them more," Kagan observed, noting that more features don't equal innovation.

New features aren't enough to overcome the brand loyalty that many smartphone owners already have, but loyaltly doesn't immediately translate into consumer willingness to pay more.

"Users fall in love with their brand," said Kagan. "If it suddenly becomes unaffordable, they will stick with their present device longer or even buy pre-owned devices." 
Source: https://www.technewsworld.com

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