Greed or Inflation?: Death of the smartphone upgrade
Consumers don’t care to upgrade every year anymore
Selling smartphones is complicated. You need to set the price right in the USA, so markets with weaker currency won’t be hit.
This clearly isn’t the case. The Samsung Galaxy Note 10 is $1259 in Canada (before taxes). By contrast, the MacBook Air is $1499 and the larger iPad Pro is $1249. Whole the aforementioned are different types of devices, it begs the question who is the Galaxy Note for in the first place?
Yes, many people use their phone as their primary device instead of a laptop. This is due to convenience and cost. People who are spending over $1000 on a smartphone, likely aren’t in a market segment that can’t also buy a laptop. People who are willing to buy a $1259 smartphone, likely also would spend the extra $200 and upgrade to the much better Galaxy Note 10+ flagship.
This is likely why the Galaxy S10+ is selling better than the Galaxy S10 and S10e. The cheapest of the lineup, the S10e is in last place in terms of sales. This is pretty ironic considering some reviewers picked the S10e as the best of the lineup.
The same can be said about the cheaper iPhone XR vs it’s more expensive siblings the Xs and Xs Max. The iPhone XR is also selling better. So what gives?
International pricing is hurting smartphone manufacturers. In the United States, the iPhone XS costs $999 for the base 64GB model. In Canada that same model is $1379. The base 64GB model costs more in Canada than the 512GB model in the USA ($1349). Canada typically also has higher sales tax and other fees on the sales of iPhones as well.
This problem has a trickle down effect around the world. In wealthy Singapore, the iPhone XS starts at an insane $1649 and creeps up to $2199 for the most expensive model. The problem is when the Apple sets price for base model iPhone so high in the USA, it pushes the phone out of reach globally. Unless Apple decides to offer the phone for less in foreign markets, this will continue to work against them.
While Apple and Samsung have successfully pushed their most vanilla versions of their flagships upmarket and introduced “luxury” models, their base model phones remain expensive. Even at $749 (USD), the iPhone XR is still relatively expensive. Aside from people that are trading in or selling their older phone, that’s a large purchase. The most populous markets tend to also be the most expensive to live in. Students and families struggling to stay afloat are far less likely to buy the iPhone XR at that price. That same 64GB entry iPhone XR model is $1029 in Canada.
While the Galaxy S10e($849) is much cheaper than the iPhone XR($1029) in Canada, it is still too high priced to be considered an entry phone. People will continue to hang onto their older phones longer. There is good reason for this, older phones are performing better than they used to after software updates. If new phones aren’t that much different and older phones still work fine, why would the consumer upgrade?
This will only get worse if there is a recession. The iPhone XS Max and Galaxy Note 10+ will likely be unaffected as wealthy buyers can still spend the money on a shiny new toy. The middle of the linup and entry level device sales will be the most hurt by cash crunched people holding out as long as possible.
Ironically, the answer may be to charge the consumer more money.
The Samsung Galaxy Fold is a game changer. Yes, clumsy and unlucky reviewers had tons of issues with the phone breaking. Yes, it is a whopping $1980 USD starting price. The underpowered, flawed, yet game changing MacBook Air was $1799 and this was launched during a recession.
Consumers get excited about innovation and will pay more for it. Expensive game consoles, laptops, phones and even sneakers will sell out if they are seen as truly game changing. They have to be special and act almost as a status symbol. With its crazy folding display and massive price tag, the Galaxy Fold delivers on this promise.
Ability to manufacture and keeping up with consumer demand is always a problem with these game changing products. If Samsung can deliver (literally), the Galaxy Fold may save the modern smartphone. Otherwise, consumer spending will continue to fall and inevitably spiral downward if the economy does as well.
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