It seems like every year a new model of your favorite cell phone comes out that is more expensive than ever. A review of prices for the top cell phone models demonstrates that prices have steadily risen almost 25% since 2012.
New Hardware and Materials
One of the many reasons cell phones are more expensive is that each new model uses new hardware which often require new materials during production. These may also result in the company having to revise how they manufacture the phones which requires more money for re-engineering their production process and staffing.
Material Acquisition
Another issue involving hardware is the difficulty in getting the components needed to build the phones. Because the number of manufacturers has grown to take advantage of the cell phone market, there is more competition for parts and rare materials which raises the price by suppliers substantially.
More Features Equals More Development
Every new model of a phone includes exciting new and complex features which means higher costs for research and development to create them. Samsung spent 12.7 billion in 2017 on research and development and Apple 10 billion. These are not small amounts in comparison to other companies as both Apple and Samsung are one of the 20 companies in the U.S. that spend the most on research and development.
New Innovations
If you look at some features on new popular phones, the innovation and technology required is extensive. For example the current new flagship models for two popular smartphones have new features such as:
- Samsung's S9 has improved photography with dual rear-facing cameras, upgraded slow motion video and low lighting settings.
- The iPhone X has an upgraded interface, higher screen resolution and face recognition security features.
High End Pricing Factors
When one looks at the technological innovations and cell phone trends with new smartphone models, they aren't nearly as revolutionary as they were when they first hit the market.
Premium Markets and Consumers
With increased competition among manufacturers, many cell phone companies are looking to make more money focusing on consumers with a higher income level. These phones are known as the "ultra premium" market and the reason companies can charge as much as they do is simply, consumers with the funds are willing to pay for them. Well-to-do consumers who want the latest innovations in technology contribute to the high prices by continuing to want more from their phones and accepting the higher cost to have it.
Examples of Typical Cell Phone Prices
Smartphones from the top companies have reached pricing that would be unheard of just a few years ago. Brands will keep up with each other's pricing models. For example:
- The iPhone model XS Max is about $1,100.
- Apple's biggest competitor, Samsung, sells their new Galaxy S9 starting at $720 for the base model up to $840 for the 256 GB model. The Galaxy S9+ starts at $840 for the 64 GB version and $950 for the 256 GB model. Depending on where you buy, the Galaxy prices may be even higher.
In comparison, in 2012 the new iPhone 5 started at $649 and the highest memory model, 64 GB, was $849. If these phones included a service contract, the prices began at $199 up through $399. The new Samsung model in 2012, the Nexus, was about $300 with a contract and $750 without.
Installment Plans
Almost half of smartphone purchasers buy them via an installment plan linked to their carrier plan. In the past, these phones were subsidized by the carrier so they came at a lower price. With less carriers subsidizing phones, the price has gone up but still is paid in installments. As a result, consumers may not feel the impact of a phone's high price because they are not putting all the money out at once. It's psychologically easier to spend more on an item if you pay it in small amounts spread out over time.
The Rising Cost of Cell Phones
Cell phone costs continue to rise for reasons including manufacturing costs, research and development, and the push for more and more innovations. Ultimately, the prices go up because consumers are willing to pay. Since major manufacturers like Apple and Samsung raise pricing around the same time, this normalizes the cost which means higher pricing will continue to be an issue for the foreseeable future.
