Apple and Samsung have pushed smartphones into luxury items

By: Ted Kritsonis

September 21, 2017

With Apple’s iPhone X and Samsung’s Galaxy Note 8, both companies have unveiled flagship handsets that are likely going to be out of reach for a significant subset of customers.

The sticker shock probably shouldn’t come as a surprise. For Apple, the new pricing territory is merely an extension of what it’s been doing for years. For Samsung, however, there’s more of a gamble in pushing this far above the $1,000 mark.

Let’s do the math. The iPhone X 64GB will be $1,319, while the 256GB model will be $1,529 when they become available for pre-order on Oct. 27. Taxes vary by province, but in most cases, their respective prices will rise in and around $1,500 and $1,700, respectively.

AppleCare for either device will be $249, protecting the device for an extra two years. Add a case or even a screen protector. Maybe even splurge some more for a wireless charging pad, which can be from a third-party, like Belkin, since Apple is now officially supporting the Qi wireless charging standard. The total price tag easily exceeds $2,000 at that point.

It’s still unknown what Apple’s profit margin will be on its new iconic device, but expect it to be high. CEO Tim Cook recently stated in an interview with Good Morning America that the company was selling it at a “value price.”

A slip of the tongue, perhaps, but he was referring to how many consumers don’t buy their phones outright. With trade-ins and contract pricing, price relief might be within reach. Apple also offers three-month payment plans at its Canadian retail stores and website. The problem is that his response lacked context.

Carrier contracts are albatrosses that ultimately cost more in the long run. Plus, we still don’t know what the likes of Rogers, Bell and Telus will seek on two-year terms to make up the initial subsidy. Trade-ins are usually heavily skewed in favour of the carrier, assuming the phone being traded has much value left to begin with. Any way Cook slices it, the iPhone X is a huge big ticket purchase that consumers will start comparing to other things they pay for. A TV? A laptop? A mortgage payment? Social media was abuzz with satirical takes in that vein.

This is different from how the iPhone steadily increased from its modest start at $200-$300 a decade ago to the $1,000 mark. At that price, there was enough of a discount on contract to make the phone affordable, despite the punitive treatment many would receive on their monthly plans afterward.

Samsung has followed a similar path, yet always fell under Apple’s pricing enough to be fiercely competitive. The Note 8 changes that paradigm completely, and portends where the company is likely to stay when it comes to its most advanced phones.

The Note 8 is currently available for $1,300 outright, or $550 on a two-year contract. By comparison, the Galaxy S8+ — a device very similar to the Note 8 — is now available for $100 on a two-year term. For example, Rogers will sell the device for $740 on a Smart Tab Share Everything plan that starts at $85/month. It’s $900 for the same exact terms with the Note 8. Not the worst scenario in the world, but far from the best.

No matter how the numbers add up, it’s an expensive proposition that will give many pause over what to do.

What is essentially happening is that branding has helped catapult the latest and most popular smartphones into a luxury territory that makes them status symbols. Having an iPhone X is supposed to feel different from having an iPhone 8 Plus. Having a Galaxy Note 8 is supposed to feel different from having a Galaxy S8 or S8+.

It’s not unlike how a MacBook Air or MacBook Pro garnered a different impression from a Windows PC laptop. One felt cool and elite, whereas the other felt common and pedestrian. The main contrast, however, was that buyers would stretch out the value of the machine over years.

Apple needs people to keep buying iPhones annually because its bottom line depends on it. To date, it still earns two-thirds of its revenue and profit from the iPhone line. If the phones don’t sell in volume at their high margins, it misses quarterly sales targets, shareholders start grumbling and questions grow over what’s going on in Cupertino.

Let’s be fair though. While some may deride the pricing strategy as borderline criminal, there is nothing truly nefarious at work here. It’s just two leading brands pursuing what they believe the market can bear. Even so, it doesn’t soften the blow much for loyal fans who feel they’re being priced out.

However, the word ‘luxury’ in this sense is also divisive. To me, luxury refers to a product or experience that isn’t particularly necessary beyond the whims of whomever is partaking. Apple and Samsung are justifying their respective pricing by the technology they’ve crammed inside. A new OLED screen, face scanner, new cameras on the iPhone X. A dual lens camera, updated S Pen and gorgeous screen on the Note 8.

There’s no doubt both pack impressive specs and, at least in the case of the Note 8, I can personally attest to its prowess. The iPhone X will probably come away impressing its users too. It’s just not effectively clear that those new features are that much of a jump over devices like the iPhone 8 Plus and Galaxy S8+, which are less expensive.

Not to mention that solid Android devices are pretty abundant now. Google will unveil the Pixel 2 and Pixel 2 XL on Oct. 4, and they may well undercut both competitors, but don’t be shocked if they also cross the $1,000 price point. Others, like the Huawei P10/P10 Plus, Essential, and upcoming LG V30 are highly capable phones that are competitively priced.

Having long advocated that buying a phone outright is the smartest move to make when upgrading to a new phone, so as to avoid terrible contracts and worse monthly plans, it’s hard to make that case with the iPhone X and Galaxy Note 8. If you want the luxury attached to them, there’s nothing wrong with that. But many will opt for something on a more reasonable budget.

 


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