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AH Primetime: Can Samsung Keep Their Premium Pricing?

August 15, 2015 - Written By David Steele

Manufacturing techniques have improved and smartphones are able to be thinner, lighter, more powerful and containing cleverer electronics. One of the sea changes we have seen across the industry is how the materials used in the construction of devices and the other is how some manufacturers are bucking the Apple-led trend that every year the flagship model price rises. In the last eighteen months, we have seen a number of devices launched into the market that are at or near flagship grade when it comes to finish, materials, screen quality, processor speed and battery life but are considerably less expensive than the Apples, Samsungs and to a lesser amount, the Sonys and HTCs of this world. We have the original OnePlus One, the follow up OnePlus Two, the ZTE Axon Pro and even the Motorola Moto X Style. These devices might not have quite the same on-the-box features as the Samsung Galaxy S6 Edge and one important question is, “are they good enough?” I’ll come on to this question a little later. Meanwhile, the new affordable smartphones range in price $330 to $450, compared with somewhere around $800 for the Samsung Galaxy S6 Edge Plus.

For those people who don’t look too closely at the overall cost of their smartphone, the difference in price is quickly lost in the noise of the airtime, connection costs and equipment replacement costs. It’s an easy way to compare devices, too, and it’s something that isn’t lost on Samsung. In the past, the company has said that the move to monthly installment plans has helped drive sales of premium smartphones because consumers can pay off the high price of the device bit by bit over two years. This is true: people still buy expensive cars because the figure they see if the monthly car payment. However, mobiles currently have a longer service life than many ‘phones and so the market dynamics are somewhat different. To put things into perspective, a Galaxy Note 5 is expected to cost around $29 a month, the Galaxy S6 Edge Plus a little under $33 and the Moto X Style under $17. It’s easy to see Samsung’s point: $15 a month is a handful of coffees. However, consumers are already starting to pause to reconsider. This is reflected by Motorola, ZTE, Huawei, Alcatel OneTouch and other businesses starting to direct sales towards consumers rather than to the carriers. We’ve seen strategic alliances between the device manufacturers and retailers such as Amazon and Best Buy, which brings unlocked devices to consumers. Carriers may become the “dumb pipes” so beloved of Apple, there to simply provide the radio infrastructure. Some customers may lose carrier loyalty as they will be able to quickly and easily move provider.

Another point is that of a ‘phone being good enough. The current crop of flagship devices are competent across the board. Some have better screens, cameras, battery life, or a slightly different feature set but all are competent products and it is becoming increasingly difficult to buy a bad ‘phone. One example of this is the choice of System-on-Chips by the leading manufacturers, with a less-than-top-model chipset selected by LG for the G4 and Motorola for the Moto X Style, which use the Qualcomm Snapdragon 808 rather than the 810. Here, the Snapdragon 808 is a good enough chipset compared with the 810.

What can Samsung do to offset the “new ‘phone fatigue” problem? The obvious answer is to reduce prices. The Galaxy S6 was a marked change from the previous five generations of Galaxy S but it might have been revolutionary if it were introduced at $400 unlocked. However, Samsung are non-plussed about their devices’ high prices. Their Head of Product Strategy and Marketing for the US business, Justin Denison, said this on the matter: “We’re very comfortable with how we’ve differentiated in the market. Our Galaxy promise is the latest and greatest technology.” Over the years, Samsung has invested a considerable sum into building its name up and they also have a solid relationship with carriers across the world and a bewildering portfolio of devices covering low, mid and high end points of the market. Many people sign up with their preferred carrier and pick a device: Samsung’s marketing muscle combined with cosy relationships with carriers will help keep Samsung devices on the shop floor and ultimately heading out with customers. We are unlikely to see a sudden dramatic change in consumer buying habits but instead a steady erosion. Meanwhile, for the Android enthusiasts and those of us who like to change our device every few months, the OnePlus, Alcatel OneTouch, ZTE and Motorola options are considerably cheaper if a less popular choice.