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dimanche 15 septembre 2013

The Real Price Of A Smartphone

iPhone, Android, or Windows Phone: Is any
cheaper? The answer might surprise you.
(Photo credit: Wikipedia)
This week, Apple announced two new devices: one to mark the high end of its offering and a new, cheaper option. But how cheap is really cheap? And how does it compare, price-wise, to other phones?

Methodology

In order to assess the real prices of smartphones, I compiled a list of phones that were available on the four major carriers (AT&T, Verizon, Sprint, T-mobile) in the U.S. and, as a point of reference, I also checked the price of similar devices with no carrier lock as offered on Amazon. For each device, I went with the cheapest option available on the market for that given line. This allowed me to complete a list of devices that are offered by each carrier:
  • Apple (iOS): iPhone 5S 16Gb, iPhone 5C 16Gb, iPhone 4S 8Gb
  • Samsung (Android): Galaxy S4 16Gb, Galaxy S3 16Gb, Galaxy Note II
  • HTC: HTC One 32Gb (Android), HTC 8X (Windows Phone)
  • Nokia (Windows Phone): Lumia 925 (used the 928 on Verizon as the only difference is the network type it uses)
  • Blackberry: Q10, Z10
For Apple devices, I pulled the prices off of Apple’s store (for upfront prices, I contacted each vendor separately); For all other devices, I pulled the upfront and total price off their web sites.

Upfront prices

When looking at the marketing behind each device, it’s easy to see that each carrier is trying to leverage its ownership of a particular device as an advantage. For years, U.S. consumers have paid an upfront fee that locked them into a 24-month contract with their carrier. In the last year there has been some transparency in device pricing as T-mobile has done away with contract lock-ins, replacing them with a different type of financing.

However, subsidized upfront costs still exist. This is what they look like today:



Looking at this chart, the cost of a new smartphone seems to range from free to around $200. Apple’s three-tiered pricing (the 5S on the top, the 5C in the middle, and last year’s model at the bottom) is mirrored by Samsung with the Galaxy S4 as its premium phone, the Galaxy Note II as its mid-range offering, and last year’s Galaxy S3 on the bottom of its pricing scale. As such, the leader in the Android ecosystem has reproduced an approach to upfront pricing that has allowed it to gain the lead as the iOS alternative. HTC is currently fighting a battle where it has tried to price itself in the premium tier of the range, fighting the Galaxy S4 for customers.

In the back of the pack, we have Blackberry and Nokia fighting for that number 3 spot (Nokia produces exclusively Windows Phone and will soon be part of Microsoft). Here the pricing strategies are quite interesting: While Blackberry is trying to mirror a high/low approach to pricing with the Q10 and Z10 on each end of the spectrum, Nokia seems to be aiming for the value play, providing a device priced in the mid-tier range. And HTC is still providing last year’s version of their Windows Phone at the lowest point of the range.

Another thing of note is that there doesn’t appear to be four different pricing approaches from the carriers: instead the market has broken out into larger and smaller players, with AT&T and Verizon charging $50-100 more upfront than Sprint and T-mobile do for the same devices. Are T-mobile and Sprint using upfront prices as a marketing tool to attract new customers or are those phones more expensive on leading carriers?

The real price of your smartphone

To answer that question, we need to take a look at the real price of a phone if you pay for it in cash upfront instead of agreeing to the kind of 24-month lock-in most carriers offer. Fortunately, each carrier is presenting the device prices on its site, in an attempt to show you how much of a discount you’re getting. If you aggregate the data in that way, it looks like this (I’ve added unlocked devices price from Amazon as a point of reference):



Looking at these prices, smart phones no longer look quite as cheap, but what is particularly fascinating is how aligned the pricing schedules are. There is relative consistency in how much you will pay for a given model across all carriers, with no carrier being cheaper than the others. One would think that there may be an opportunity there for a carrier willing to move some marketing dollars towards actually subsidizing pricing on a hot mobile device, potentially selling it at a loss to acquire customers.




In fact, looking at the data in more detail, and drawing some averages across all the carriers, it appears that the full price of this year’s devices is no more expensive nor cheaper than unlocked devices. (However, if you are looking for last year’s model, you are better off buying an unlocked device and bringing it to the carrier as prices as consistently higher on older carrier-sold phones.)

How much for how much?

Given the relative stability in pricing among the different carriers, one can get a sense of price points for a top line product. Looking at the manufacturers’ pricing, the top-of-the-line offerings are iPhone 5S (Apple), Galaxy S4 (Samsung), HTC One (HTC), Lumia 925 (Nokia), and Q10 (Blackberry). But how do they rate price-wise compared to other phones in the same range?

The average price for unlocked premium phones is $585 (the median is $608) compared to $578 (and a median of $588) for carrier-locked devices. Apple, of course, is priced on the high end of the spectrum, but surprisingly Samsung and HTC have also pushed themselves above the average, with Nokia substantially pulling everyone down.

Let’s run the same numbers on the cheapest devices: iPhone 4S (Apple), Galaxy S3 (Samsung), HTC 8X (using the HTC phone here as no Nokia model from last year is consistently available, leaving this device as the cheap Windows Phone option), and Z10 (Blackberry). The average price for an unlocked “cheap” smartphone is $398 (median is $372) compared to $478 (and a median of $477) for carrier-locked ones.

Surprisingly, the only phone to go above that average is the iPhone 4S, a phone that is older than all the other ones in the list. But here is where things get interesting: Apple’s iPhone 5C is 38% more than the average cheap phone (compared to a 16% premium for the iPhone 5S over other “luxury” phone prices and a 13% premium for the iPhone 4S over other “cheap” phones). So while the C may be marketed as color and rumors were that it would standing for cheap, the real meaning of it may be “cash is cool.”

Tristan Louis, Contributor

9/14/2013 @ 4:09PM

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