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.