In 2010 and a few years later, smartphones weren’t so expensive. But in the same decade, flagship phones crossed the $1,000 mark for the first time. And the uptrend doesn’t look like it will stop anytime soon.
So sure, flagship phones are getting expensive, but why is that? Are companies simply charging too much, or are there good reasons behind the trend? Here are seven main reasons why premium phones are so expensive.
1. Feature-rich and powerful flagship phones are getting richer and more powerful
It’s no secret that phones are getting more and more powerful year by year. And in the high-end market, consumer expectations are sky high. Companies have to keep up by bringing in more and more features to make sure consumers are satisfied. The highlight of a flagship phone lies in its features.
These include bigger and better screens with newer display technology like LTPO, better multi-camera setups, more memory and more storage. All of these features come at a price. Companies can only keep up by investing more in research and development. Ultimately, that investment must be paid back, and the only way is to pass it on to the consumer.
While the phone being so powerful seems to have enough reason to justify the sky-high price tag, inflation also plays a part. Inflation affects every product in every industry, so smartphones aren’t the only product that fights inflation. The Federal Government in the US publishes the annual inflation rate each year, which directly measures how the cost of goods has changed over the past year.
Let’s use an example to illustrate this point. Take the $649 iPhone 6 released in 2014 as an example. According to the US Inflation Calculator, today’s price, adjusted for inflation, is equivalent to $793 due to a cumulative inflation rate of 22.1%.
A $699 iPhone 11 will cost you $790 in 2022, with a 13.1% cumulative inflation rate applied. So the dollar becomes less and less valuable, leading to an increase in price. With inflation, you will have to pay more to buy the same amount of goods you could have bought a year or two ago. Therefore, smartphone companies need to ensure that inflation is well taken care of to protect their business from losses.
3. The cost of smartphone components is increasing
The cost of smartphone parts, known as bill of materials (BOM), is also steadily increasing. Counterpoint Research’s Component Research team claims that the iPhone 12’s materials cost nearly $415, 21% more than its predecessor, the iPhone 11. Apple’s move to OLED screens resulted in a $23 increase, and 5G support increased by 34 USD.
According to the report, even the price of Apple-designed components increased and accounted for more than 16.7% of the total cost. However, it’s not just for Apple. That trend is identical across the industry, especially in the premium segment, where companies have to include newer exciting features to keep pace with consumer expectations and competition.
And when parts become expensive, companies cannot afford these costs. Someone has to pay for it, and that’s you.
4. Increased production costs
In addition to increasing BOM, flagship phones are becoming expensive to manufacture. That fancy new design to make your device as small as possible and packed with features isn’t cheaper than the old smartphone designs from the early days. And as we’ve seen in the high-end market, designs are ever-changing.
Bezels are getting thinner, more features are added and these are the factors that lead to the price increase. The reason cheap phones are so good is because companies don’t innovate in the lower segments. They can subsidize prices by simply reusing old designs and manufacturing processes that have become more efficient thereby cutting costs.
A good example is Apple and their iPhone SE. One of the reasons why the iPhone SE is so cheap is because Apple reused the old design of the iPhone 8 and only replaced the processor and a few other important components.
Smartphones not only cost a lot of money to make, but also to sell. Going back to our iPhone 12 example above, if the iPhone 11’s BOM costs $415, Apple has to add manufacturing costs and taxes on top of that, plus sales-related costs like shipping. transportation, advertising and operating costs.
These plus a retail price of $699, where everyone involved seems happy, including resellers like Amazon, Walmart, and wireless carriers. Companies have to raise prices to ensure that all these costs are accounted for well and that they too can make a profit.
6. People are keeping their devices longer
Smartphone sales are falling and one of the main factors is that we are keeping our devices longer than before. According to Strategy Analytics, a well-known research firm, smartphone upgrade cycles have been on an upward trend since 2014. They peaked in 2020 with users holding their phones at record highs. 43 months, or a little more in three and a half years.
When sales fall, companies raise prices to survive and remain profitable. Although smartphone sales have been on a downward trend since 2019, according to Statista, overall revenue has remained stable. This trend can be explained by one thing; price increase. Unsurprisingly, global smartphone revenue has grown to an all-time high of $448 billion in 2021, a February 2022 Counterpoint Research report revealed, with Apple accounting for 44% of the total $196 billion.
7. Flagship phones have become luxury
If you need a smartphone, there are plenty of options out there. And there’s no shortage of good cheap phones. How much you spend on a smartphone depends on your needs. If you are shopping in the high end, many of the features available in this category are not essential and you can live without them.
Buying a high-end phone means you’re practically paying for most of the luxury. Value for money is in the mid-range segment. Besides, the marketing tactics for high-end smartphones show that they are no longer seen as mere phones; These are luxury items to own.
Flagships are getting expensive
There are many reasons why premium smartphones increase in price. High-end phones are becoming ever more powerful, with tons of new features, to the point that they have become luxury goods and companies are spending more to make and sell them.
Inflation plays a part, and people are holding onto their phones longer than ever, forcing companies to raise prices to sustain and even increase revenue. Sadly, this trend is likely to continue for the foreseeable future.
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