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Demand for Second-Hand Smartphones on the Rise Due to Steep Prices of Newer Models

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There's a pretty good reason why smartphone manufacturers are currently experiencing a decline in their sales. The blame can be put on the popularity of old devices and how these are being refurbished for new customers.

Among these refurbished devices, the ones that are getting the most customers include the likes of Apple's iPhones and Samsung's Galaxy S models. Part of the reason why shoppers resort to refurbished devices is because of the $1,000 price tag on newer models. Not to mention, the new features really haven't been as impressive these days.

And with the sheer volume of people holding onto their devices, this explains why there has been a decline in smartphone sales last year. As a matter of fact, research firm Gartner revealed that smartphone sales in the fourth quarter of 2017 dropped 5.6% compared to the previous year.

The decline in sales of smartphones can be compared to the car industry. If you want to continue driving a Mercedes, it would be better to wait a couple of years before you buy an older model so you don't have to pay an excessively high amount for a new model. This same mentality goes with smartphones. Anyone who wants to buy the latest iPhone X but does not want to spend close to $1000 will have to wait a few years before they get their hands on one. By then, Apple would have released at least two more flagship models and the price of the iPhone X would have declined.

Another similarity the smartphone industry shares with the car industry is the trend of leasing models. Instead of spending money to buy a new phone, there is now an option to lease them. Through this option, customers can keep themselves up to date with the latest smartphone model. Companies like Sprint and T-Mobile are already offering this as an option for their customers even though it isn't a very mainstream strategy yet.

The latest data reveals that refurbished phones have become a fast growing segment among the global smartphone sales. Counterpoint Technology Market Research pointed out that for every 10 devices sold, almost one refurbished device is sold as well. The research firm showed a total of 1.6 billion smartphone shipments in last year alone.

It's impressive to note that even though older phones have, well, aged, they can still be sold for a few hundred dollars. And since they don't cost as much as the brand new models, they reduce the demand for the latter. With the price point of newer phones delivering the most profits, it can really put a drain on the sales of smartphone manufacturers. Instead of spending thousands on a brand new premium handset, users tend to opt for refurbished devices, which can have up to three or four different owners prior to getting disposed of.

For quite some time now, second-hand phones have found a market in India, Africa, and other developing nations. Recent results, however, show that about 93% of second-hand phone purchases were made by U.S. buyers. This was compared to the global buying market in 2013.

Out of all smartphone manufacturers, Apple and Samsung outsell the other brands. The two companies manage to capture around 95% of the profits of the industry.

BayStreet Research LLC conducted a study to track device sales revealed that U.S. consumers tend to upgrade their devices every 23 months in 2014. The practice now, however, is that these customers hold onto their phones for another eight months, making it a total of 31 months. The research firm estimates that this time gap could grow to 33 months by next year.

Despite this new trend, smartphone manufacturers won't really lose a lot in terms of their sales. Apple, for instance, receives more revenue for the other services it provides such as the App Store, payment, and music services.

But still, there is some reason for concern as Apple has been under fire over the iPhone throttling issue it faced late last year. Both the U.S. and European government conducted investigations over Apple's practice of slowing down the performance on older models. The company, for its part, has iterated that it did not intentionally degrade or shorten battery life to entice people to switch to newer models. Since then, the company has cut down the prices of its replacement batteries.

On the other hand, the growing popularity of second-hand devices has prompted Samsung to rethink its portfolio strategy. Even though they have not yet decided on anything at this point, there are reports that Samsung is considering a more aggressively push on its refurbished flagship devices instead of its newly released budget devices.

Another study revealed that in 2017, a quarter of U.S. buyers sold their devices after they switched to a newer model. This is considered as the highest turnover rate throughout history. Because of this, an ample supply of smartphones has been created for other customers who don't really feel like they are missing out on the latest models. After all, they simply need their devices to make calls, text, listen to music, and check social media.

A reason for the growth of the refurbished smartphone industry can be attributed to the steep prices of newer models. In today's time, a laptop can be cheaper compared to a new flagship device. And right now, manufacturers are slowly realizing that, yes, their phones maybe too expensive for the public today.



Source: Wall Street Journal

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23 comments:

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  1. There are a lot of reasons for this, yes phone prices are getting too high a grand for an iPhone? Easy pass for a lot of people, yes there will be a lot of people who want the latest and greatest, but for plenty of others, that’s not an option.

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  2. I used to upgrade my phone every year. By buying last years model I could save up to 50% on phones in new or mint condition. I bought them on Craigslist until I got burned by someone selling a stolen iPhone. Now I stick to Swappa or eBay. The last phone I bought, a new Galaxy S6 in 2015 for $385 on eBay, I like it so much, that I haven't bothered to replace it yet. It does everything I need and is just the right size.

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    Replies
    1. Is the battery still pretty good?

      Delete
  3. I have Red Pocket prepaid and use the money I save to buy my phones.

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  4. Continuing on the car analogy, there needs to be an equivalent for a clean title so that when someone's buying from a private party, they know a) the phone has been paid off and b) the seller isn't going to turn around and make an insurance claim on the phone, leaving the buyer with a brick.

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    1. Buy an Apple refurb from their online store. 1 year warranty included.
      Or, buy via Swappa or eBay. Swappa helps you if there is a problem, and blocks buyers who don't resolve issues. eBay protects you for 30 days.
      PayPal protects you for up to 180 days.

      Delete
    2. Samsung-refurb website is also a good source:
      https://www.samsung.com/us/explore/certified-pre-owned-phones/

      Delete
    3. "Continuing on the car analogy, there needs to be an equivalent for a clean title so that when someone's buying from a private party, they know a) the phone has been paid off and b) the seller isn't going to turn around and make an insurance claim on the phone, leaving the buyer with a brick."

      I've had good luck simply by avoiding the Ukrainian mafia when doing Craigslist deals. They show up for anything in my area, and once I hear from them about my ad, I just ignore. Same thing with ignoring the emails from someone in Malawi who wants to secure your $100 phone to be mailed by sending you a "good" $400 check in the mail.

      Be wise with Craigslist!

      Delete
    4. You guys missed the point. Buying refurbs from manufacturers/carriers, while safe in terms of history, would be just like buying from car dealerships--they'll end up setting the prices, and you'll end up paying more. They're the ones selling new phones for $1000 now, remember?

      And while I can appreciate the little bit of protection that comes with Swappa/eBay/Paypal, I'd rather not have to deal with the headache of filing claims 1/3/6 months down the road--especially when a phone has been bricked already.

      Delete
  5. How many people carrying around the expensive Samsungg Galaxy line of phones do more with their phones than people with the low end ZTE phones?

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    1. "How many people carrying around the expensive Samsungg Galaxy line of phones do more with their phones than people with the low end ZTE phones?"

      A lot more, I'm sure: I've had top Galaxies, and also the supposedly flagship-level ZTE Axon 7. The cameras on the Samsung Galaxy's are top flight, and the one on the ZTE Axon 7 unusable except in rare situations of perfect light.

      You get what you pay for.

      Delete
  6. "Despite this new trend, smartphone manufacturers won't really lose a lot in terms of their sales. Apple, for instance, receives more revenue for the other services it provides such as the App Store, payment, and music services."

    No, you may have mis-understood the WSJ article, and changed the meaning to state something that is not correct. Here is the original statement:

    "Device makers don't lose out completely when older phones pass through several hands: For Apple, more iPhone users from the price-conscious crowd translates into more revenue for its fast-growing services arm, including the App Store and its music and payment services."




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  7. I'd love to buy a new Galaxy S9...

    Any new and significant features that I'm missing with my Galaxy S5, so I can justify spending the $800. Or, should I just spend $15 for a new battery, like I did last year at this time, when the S8 hit the market; when the S7 and S6 launched it was new battery time, too. Maybe with the the Galaxy S "X" (ten) it will be worth the upgrade.

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    1. You should buy a S7 refurb by Samsung with 12 month warranty, new charger and earbuds for $399. You may not need it, but you know you want it. Your S5 is obsolete, and you have already kept it going twice as long as the average user uses their phone. Only the average iPhone is still in use after 4 years.

      https://www.samsung.com/us/explore/certified-pre-owned-phones/s/Device/

      Delete
    2. "Any new and significant features that I'm missing with my "Galaxy S5, so I can justify spending the $800. Or, should I just spend $15 for a new battery, like I did last year at this time, when the S8 hit the market; when the S7 and S6 launched it was new battery time, too. Maybe with the the Galaxy S "X" (ten) it will be worth the upgrade."

      The security updates for the S5 have gone to the great roundup in the sky, and the thing is crawling with Chinese and Russian spies.... so beware.... You never know when you pick it up you will see Boris Badanov and Natasha peering back at you. The "shrug, what me worry" situation of security in the Samsung Galaxy S5. is the same sort of problem you will have with any phone on an expired OS version.

      But aside from that, the Galaxy S5 has a superior design compared to the subsequent S6 through S9. You can drop it without a case on it and chances are it WILL survive, and a fingernail will pop off the back to do basic changes "under the hood" of battery and card slots. Super easy, and a much better design.

      And to add insult to injury, there is NO chance you will smudge the camera lens using the fingerprint sensor on your tough little Samsung Galaxy S5. 0%.

      With the S8, there's a 90% chance of smudging the camera lens due to the fingerprint sensor, and the incredible improvements on the S9 have reduced this chance to 95% by moving the sensor from "too close" on the side of the camera lens to "too close" just below it.

      Enjoy!

      Delete
    3. If you have upgrade itch you can get a NEW S8 from Cricket for $350 + tax + sim unlock = approx. $400, add $2 if you need to buy a # to port in to get the deal.

      Delete
  8. Phone manufactures need to stop raising prices for new models and keep them stable at the same price you’re in a year out .

    ReplyDelete
  9. Do refurbished phones have a new battery in them?

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    1. yes and no. depends on who does the refurbishing. a bunch of sellers will just try to clean the phone, reset the phone, and say it's refurbished. so, you should ask the seller if at least was the battery replaced. for my iphones, all bought used, just assumed no changes, and tested the cycles on the battery when got the phone, and changed the battery myself if too many cycles.

      note that apple sells its refurbished iphones with new battery, new housing, new screen. you would expect other resellers to also do all that, or at least change the battery, but that is not the case across the board when buying pre-owned used phones. sorry, but my experience is there are sellers who are too dumb to even have the skills to take a phone apart. or, this is a real story, the seller is a stupid idiot who mix up his answer to my question because he was answering someone else also and mixed up the phones the seller was selling. or other situations is the seller may send a phone that is okay but not really refurbished requiring me to change the battery and/or screen. so, scrutinize whoever is the seller, and ask first if you are unsure about the extent of any "refurbishing". just because it says refurbished, the seller may at minimum only mean cleaned up and added a new charger. so really look at the listing, scrutinize the seller, and directly ask the seller about the refurbishing and particularly if the battery was changed.

      Delete
  10. car hot rod analogy: my next project is to buy a used iphone 6s, replace the battery, maybe replace the screen, and to replace the back housing with an iphone8-lookalike back.

    have replaced batteries and screens on my iphones, but have yet to scoop everything out and put it all in a new housing.

    ReplyDelete
    Replies
    1. Do a youtube video of this please.

      Delete
    2. turn your iphone 7/6s/6 into an iphone8 :::
      https://youtu.be/psKYFcZYKRM

      also watch iphone full disassembly videos to take completely apart. and then do the reverse to assemble.

      search for the lookalike back housing replacement on ebay and elsewhere on the web.

      and be very organized to know where each part goes and where each screw is located.

      Delete
  11. In the developing world, phones are priced accordingly for impoverished people.

    But phones sold in American are priced as if we're all rich big city liberals, which ignores the ever increasing income equality that plagues this terribly mismanaged nation.

    The result is a market where demand and sales are stifled by an unrealistic interpretation of American society.

    That's what created such a robust interest in resold and unlocked phones that people can keep for years.

    After all, ol' Steve Bigowitz just can't afford an iPhone X now that he got laid off.

    McDonald's automated touch screen registers took his job, while his wife took his house, money and even the kids.

    And since nobody's forced to hire him, he's burning through savings and loans just to keep up with his medications and stave off dying on the street.

    His only real friend in this world is a cheap refurb, because it's pretty much the only part of American society that won't let him down.

    In a sense, the decline in sales and rise of refurbs are both indicative of much larger economic problems within modern American society.

    And however bad the news is for the industry, it's much worse for actual Americans.

    But hey, at least resellers are still making bank, so I guess there's that.

    ReplyDelete
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