10 REASONS WHY SMARTPHONES ARE EXPENSIVE

iPhone logo Smartphones are becoming more expensive each day. What is causing the rise in the prices of smartphones? Are we paying too much for smartphones? I had these questions in my mind and just like you; I wanted to know the answer. I did research and found out eight reasons that make smartphones to cost a lot of money.

Just to let you know the current prices of smartphones, the Huawei Mate X foldable phone costs roughly $2600, the Samsung galaxy fold costs $1980, and the Motorola razr V4 costs about $1500. A few years ago, it was unthinkable that phones would go over $1000, but as things appear now, we are already approaching $3000.

Are these high smartphone prices justified? That is what I want you to decide after reading the following eight reasons that cause prices to go up.

Research and Development

Not known to many people, smartphone companies spend a huge chunk of their money in doing research before they make a smartphone. Research is a critical part of making a product because it determines if the product will sell or not. In 2018, Huawei increased its budget for research and development to at least $15 billion.

In 2017, Huawei spent $13.23 billion on research and development, which accounted for 14% of its total revenue.

Research in smartphone industries involves things like determining the price that buyers will be willing to pay, coming up with a good phone design that will appeal to the consumers, determining what features to include in a smartphone, deciding what materials to use in making the phone etc. Huge teams of people are constantly working out hundreds of considerations to bring out the cool smartphones you see.

Due to the high cost of research and development, small companies ride on the research of big companies. Samsung pioneered the curved screen with the Galaxy S6 edge. It was a huge risk to make such a move in smartphones and when people loved it, other companies jumped into it.

The Essential PH1 phone made by Essential Company was the first phone to have a notch. When people loved it, other manufacturers adopted it and modified it. Pioneering anything is hard. Companies take huge risks and spend a lot of money to bring up anything new.

The next time you see a cheap phone with great features, know that they have skipped the research and development phase by adopting already available technology.

Where do you think Huawei gets all the billions to spend on research and development? Obviously, it is from selling their products. Therefore, the first factor that makes smartphone prices to go up is the amount of money that research and development of that smartphone costed.

Manufacturing Cost

A phone has many components. These components are assembled to form the smartphone you see. For example, Corning is a company that makes Gorilla glass screens used on almost every smartphone. Sony makes cameras used on several smartphones. The processors used in iPhones are designed by Apple but manufactured by Samsung.

Most of the manufacturing work is assembling different parts to fit in one shell. Smartphone companies have to buy these components separately. Therefore, the cost of buying these components affect the price of the final product. That is why a phone with better features costs more than one with average features.

iPhone X components are estimated to have cost $370 according to a research done by IHS Markit Company. The most expensive part on the iPhone X is the AMOLED screen made by Samsung and it costs $110 each. The retail price of the iPhone X during launching was $999, which was the highest smartphone price in the history of mobile phones at that time.

Doing quick mathematics shows that the production cost of the iPhone X was 37% of its price. The production cost is what most people think about when it comes to smartphone prices.  Here is a list of some smartphones and their production costs done by Techwall.

production cost of smartphones

production cost of common smartphones

Apart from the cost of buying components and assembly, manufacturing cost also includes software development. Smartphone companies have to pay software companies to get the license to use their software.

Taxes

Taxes take a huge portion of the revenue of smartphone manufacturing companies. These companies must therefore increase the price of their smartphones to stay in business. The smartphone manufacturing business is a worldwide business, which makes it subject to many taxes.

Apple is the world’s leading taxpayer. It pays taxes in different countries. Recently on their website, they reported to have paid $ 1.5 billion in taxes to Ireland alone. In the last three years, they reported having paid over $35 billion in taxes.

Marketing Cost    

Despite the popularity of smartphones, companies still need to market new phones that they produce. They have to pay celebrities to talk about their phones, they have to create compelling videos to put on YouTube and TV stations, sometimes they have to pay news websites or bloggers to spread rumors etc All these and many more marketing strategies cost a lot of money.

Samsung was the biggest spender in advertising in the world for the year ending June 2018. The South Korean giant spent a whopping $11.2 billion on advertising. One of the factors that made Samsung spend that much money was the recalling of the Samsung Galaxy Note 7, which had battery explosion issues. Samsung was determined to win back the trust of consumers, which led to the pumping out of all those billions.

Marketing cost adds up the price of smartphones. As advertising becomes more expensive, so does the price of smartphones.

Market Saturation

When smartphone production started a decade ago, very few people had mobile phones. The demand for smartphones was at its highest. Over the last 10 years, more and more people have bought mobile phones and the demand kept on diminishing. It has come to a point where almost all people who need smartphones already have smartphones.

New smartphones are durable, which means it takes longer for someone who buys a phone today to buy a new one. On the other hand, production of new smartphones never stops. To make profits, smartphone companies are left with few options. They can either make fragile phones that spoil fast so that consumers go to the market for new phones sooner than what they are currently doing or reduce the number of smartphones they make.

However, if they reduce the number of smartphones they make, they have to increase the price of each phone for them to maintain the high profits they are used to. Unfortunately, companies cannot start making fragile phones and so the only thing they do is improve the current phones to attract consumers who have earlier versions of the same smartphone and charge more for each.

Added features like the notch, curved screen, fingerprint scanners, triple cameras etc pushed consumers to buy new phones over the last couple of years. However, improvements also have a limit. We cannot tell just how far they will go. Be sure prices will keep increasing to cater for the thousands of phones not made.

New Features

As smartphones become better each day, they cost a lot more. Today, when you buy a smartphone, you don’t need a watch, a camera, a TV, a home theater and many more appliances. You can think of a smartphone as a combination of all those electronics in your house. Cumulatively, such house appliances will cost over $1000. As phones keep adding features, their prices keep climbing.

In the beginning, phones were only for communication, which made them a bit cheaper than today. If you prefer to have a 4K camera, you can either buy a cheap phone and a DSLR or just get an expensive phone that has a 4K camera.

Shipping Cost

Most smartphone manufacturing is done in China. For these phones to reach the whole world, there is shipping. Some by sea others by flight others in vehicles and trains. Whatever the means, there is the cost of shipping.

The shipping cost is part of the expenses, which means the price of each phone has to go a little higher to accommodate it. If shipping costs increase, prices of smartphones will also increase.

Retailers Profit

Once smartphones reach the hands of retailers, they add their profit on the price of the phone. Even though the manufacturer may have announced the recommended price, the retailers set their own price depending on the expenses they incur to get those smartphones. This causes smartphones to become expensive each day.

Employees’ Salaries

Smartphone companies have thousands of employees working for them day and night. Each of these employees needs a salary at the end of every month. When governments raise the minimum wage for employees, these smartphone companies are forced to pay more in salaries. The way to raise more money is to increase the prices of smartphones or sell more.

Company Profit

After everyone has had his share, the manufacturing companies themselves need to have a profit. They have their own way of setting how much profit to make from every sale but be sure that profit increases the price of smartphones significantly.

In the end, smartphone prices are a combination of many factors. Considering all these factors will give you a clue why smartphones are so expensive. For any rational man, you will agree that smartphones being expensive is justified. The only time it may seem as manipulation is when the companies raise their own profits from the sales too high.