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The new fashion is soaring prices

15 October 2014 / 19:10:44  GRReporter
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Several key factors are putting pressure on manufacturers of smartphones to increase their prices. The first is the market saturation with "smart" phones. These devices have become accessible to the masses and entered all price ranges, making the sales of ordinary mobile phones shrink. Next, we can mention the advent of an increasing number of manufacturers in this segment. Along with the well-known leaders in the field, a larger number of small and previously unknown companies are storming the market, waging a price war and cornering large companies with the low prices of their products. Third is the fact that an increasing number of Chinese manufacturers that have recently occupied the market with low and mid-range smartphones are starting to openly show their appetites for devices that offer superior performance at the relevant high price.

Companies like Apple and Samsung have shown that huge profits are mainly due to "flagship" models. Both companies have reported a decline in market share over the past year. While Samsung has announced a drop in profits, Apple is continuing to deal with the new conditions and to announce record high sales and revenue growth. Contrary to the standard business logic, which states that a technology is expensive at its entry and cheaper when it becomes accessible to the masses, we observe the opposite in smartphones, as the price of the top models increases each passing year. Let us look at the price of the first iPhone that appeared in 2007 and compare it with that of the subsequent models:

 

The situation with Samsung is similar, regarding the prices from the premiere of the Galaxy series of smartphones in the United Kingdom:

We see that the price of top models has increased over time, and the emergence of fablets that are a hybrid between a tablet and smartphone provides manufacturers with additional arguments to obtain a better profit.

Previously, we mentioned Chinese producers. Lenovo that bought Motorola from Google is preparing for its global expansion and is trying to compensate the price difference between its flagship and that of its rivals. Its last year’s Vibe Z series flagship that was officially sold only in Asia had very competitive prices, nearly one third of those of the established brands. The current model, Vibe Z2 Pro, which has officially appeared in Bulgaria recently is priced at 1,299 leva (665 euro). The price is quite comparable to that of the Note fablet by Samsung.

Whether we are talking about new players or established brands, it is clear that all are seeking to bite a big piece of the market of top smartphone models. Competition is fierce and the drive to maintain profit growth rates will lead to higher prices, regardless of the fact that in recent years we have not seen revolutionary innovations in smartphones to justify them.

How long will the market support this growth and retain the interest of consumers? In fact, the rise in the price remains hidden for most of them. This is because the majority of consumers buy phones from mobile operators. In practice, the operator subsidizes the price and offers the device at a low price in exchange for a two-year contract and an expensive monthly plan. The price of the iPhone purchased through mobile operators in the United States has not changed over the years.

However, the situation in markets where Apple does not have particularly large interests or official company shops and permanent contracts with local operators is different. The base model of the iPhone 6 appeared in Bulgaria at a price of 1,399.90 leva (715 euro) + a monthly fee of 64.90 leva (33 euro) with a two-year contract. This is rather an example of the local market than of Apple's policy worldwide.

Despite rising prices, Apple is selling more, namely a record high number of 10 million pre-ordered units in the first 24 hours and a record number of 20 million in China.

The situation regarding phones using Google’s operating system Android is much more complicated. Samsung has already announced lower profits this year, but analysts expect record low profits for the last quarter too. The company that dominated the market of Android smartphones with over 50% market share is now in a difficult period.

All this is happening shortly before the presentation of the new version of the mobile operating system Android, along with a new tablet and phone from Google’s Nexus series. And can you guess? The expected prices are again higher compared to those of last year's Nexus gadgets. The new fashion is soaring prices.

 

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