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Have we reached the end of smartphone price inflation?

By Georgi Zarkov

Updated: Aug 16, 2019, 6:11 AM

23comments

This article may contain personal views and opinion from the author.

Have we reached the end of smartphone price inflation?

During the last few years, a worrying trend was established on the smartphone market: prices of smartphones have been slowly creeping upwards. Things have gotten to the point where when we hear about a new high-end device being released, we mentally prepare for a four-digit price tag. If before you could buy the best Samsung or Apple phone available for about $650, now you have to fork out close to $1,000. But all that didn’t happen because people felt like paying more for their phones. So why did it then?

How did we get here?

Тhere’s no one clear reason for the price inflation. Instead, there are multiple factors coming together to set the whole thing in motion. Here are some of the major ones:

1. Smartphone sales are declining

For almost two years now, global smartphone shipments have been steadily going down quarter after quarter. The main reason for that is that most markets, or at least the ones that bring the most revenue, are already heavily saturated, and with the quality and performance of smartphones from all segments improving, people are holding onto their devices for longer. But investors only want to see positive trends, so companies increase prices to make up for the profits lost due to lower sales numbers.

While that works to an extent, the higher prices also force even more people to keep using the phones they already have, because the cost of upgrading is not one they can afford every year or two.

2. People are rarely paying full price for their phones

Carriers come up with all sorts of lucrative deals to sign new customers but even without one, it’s a lot more convenient financially to pay for your phone over time rather than having to drop a thousand dollars all at once. However, this also makes it easier to hide price increases. A $200 price bump spread over 24 months, the standard contract length, equals just over $8 per month. No big deal, that’s like two cups of coffee, right? Sure, then 2 years later, when you’re already used to what you’re paying, you can justify another price hike using the same logic. Before you know it, you’re paying twice what you were just a few years ago.

3. High-end phones became more “premium”

In the past, the smooth and lag-free performance was something that top-tier smartphones stood out for. Today, pretty much all but the cheapest devices offer an experience that’s good enough for most people. This forced manufacturers to look for other ways to diversify their lineups and make their flagships stand out from the crowd. We started getting all sorts of “premium” features: from hardware additions like multiple cameras and wireless charging to different materials and even premium color options.

Colors that look cool for about 2 minutes before you put your precious phone in a case

All that was meant to create a new class of more luxurious looking and feeling devices that can be marketed as the creme de la creme of smartphones and carry the appropriately high price tag. It seems, however, phone makers have reached a price plateau for smartphones.

Have we reached the psychological price ceiling?

Apple was the first popular brand to hit the $1,000 price tag, and although that was shocking at the time, it wasn’t long before it became the norm. Samsung and Huawei, the brands closest to Apple on the market, were quick to come up with their own $1,000 models. Sadly, that round number is not where the money crusade stopped.

Currently, both Apple’s iPhone XS Max and Samsung’s new Galaxy Note 10+ start at $1,099, and that’s for the base storage option. That might give the impression that manufacturers aren’t done with raising prices yet, but the data shows that consumers aren’t really on board with how much high-end phones cost these days.

On Apple’s side, that’s made clear by the company’s sales numbers. The cheaper iPhone XR which retails for $749 is by far the most popular 2018 model. Is it because Apple made it too good for its price or are consumers voting with their wallets by saying that $1,000 is too much for that premium feel? It seems most people can’t find enough value in Apple’s more expensive models that’s worth the difference.

You can easily see why that is

Over at Samsung, things are a little different. Its largest and most expensive phone from the Galaxy S trio, the S10+, is actually the one that’s been selling the best. However, Samsung phones are often part of deals that greatly reduce their prices, and you can easily find a Galaxy S10+ for around $800, which is a much better value for the device that you’re getting.

And now, with the release of the Note 10, Samsung decided for the first time to offer a smaller and cheaper variant of the phone that’s $50 below the $1,000 threshold. This move has a double effect. Firstly, it seemingly reverses the price inflation by keeping the price below the four-digit psychological limit some people have. Secondly, it allows Samsung to go all out with the plus version without having to worry if it will cost too much. Once you have an affordable option, you can safely rig out the other variant for those consumers that don't care about the price but only look for the best of the best.

OnePlus did something similar with the release of its latest smartphones. The regular OnePlus 7 is for those looking for an affordable phone with top-tier specs. With it, the company made sure it's not abandoning its loyal fans. Meanwhile, the 7 Pro is for those that don’t mind spending more for treats like a 90Hz display and a third rear camera. It won’t be surprising if in a couple of generations, the “Pro” version reaches the coveted $999 price tag.

But if you’re thinking companies are happy hovering around $1,100, then you’re forgetting the latest trick for squeezing the most of consumers.

5G — the cash grab of 2019

5G is still in its infancy which allows manufacturers to market it as an “ultra-premium feature” and charge for it accordingly. It came as a godsend just when companies were struggling to find a reason to sell even more expensive smartphones. “Futureproofing” a smartphone by adding 5G capabilities to it in 2019 can easily cost users between $150 and $200 on top of the four-figure price tag of their smartphone of choice.

The question is: will phone makers use this opportunity to raise the price bar even higher and keep it there once 5G is on every premium device, or will they be content to go back down to the current range when the manufacturing cost of 5G components goes down and the technology loses its early-adopter appeal?

The latter seems more plausible considering companies are already pushing the limits when it comes to prices. So don’t worry, you’ll still be able to buy a top-of-the-line smartphone for a thousand bucks a few years from now. However, there will be something else that might lure you to drop even more cash on a phone.

Foldable phones will take prices to new heights

Foldable smartphones didn’t make the entrance they were hoping for. In fact, they’re barely even here, but make no mistake, they will come sooner or later. And with them will come new sky-high prices. We already know Samsung and Huawei are planning to offer their upcoming foldable handsets for around $2,000 and that’s without adding the 5G premium.

Once foldables are established as a separate segment of smartphones, they will take a life of their own. That means they’ll probably go in two different directions. On one hand, devices with flexible displays will get cheaper and more abundant, just like regular smartphones did. On the other hand, this new technology opens new possibilities for manufacturers to make even more premium devices. They’ll have more space for additional features, different sizes and fold types to experiment with and luxurious materials to make them out of.

The temptation of a pretty gadget can be strong

We wouldn’t be surprised if certain brands not only keep their foldable devices around the $2,000 mark but venture further up the price ladder, perhaps even beyond $2,500. There's no telling exactly where foldable displays will lead us.

The ultimate answer

So, if we have to answer the question from the title in one word, it would be "No". However! That's only because smartphones themselves are undergoing a metamorphosis and their new form requires price adjustments. But at the same time, if you're adamant to not pay a dollar above $999 for your smartphone, you shouldn't be worried that you'll get less for your money in the future.

With the fierce competition that exists among smartphone makers and the realities of the global market, we as consumers are ultimately getting better value. That's even more so if you go a step down in price where the profit margins are usually slimmer thus you're getting more bang for your buck. Companies are expanding their smartphone lineups and with the improved choice you're free to get the devices that fits your budget and needs best. All in all, the situation isn't nearly as bad as it looks at first glance.