How installment plans are impacting sales of upscale phones: report

While some upscale smartphone manufacturers have been concerned about United States carriers? shuffle to no-contract options and installment plans, consumers are actually using the no-strings-attached choices to purchase more high-end devices, according to a report from Kantar.

U.S. carriers? decisions to experiment with more installment solutions for consumers have been met with an array of emotions from users and marketers alike, with speculation that high-end device sales would decline at the top of the list. However, customers have proven these accusations wrong by buying more iPhone 6 and Galaxy S6 smartphones via installment plans this summer.

?There were no surprises for Kantar, since we?ve been saying for some time that high-end devices were not going to be impacted by the new plans,? said Carolina Milanesi, chief of research at Kantar Worldpanel ComTech. ?What these plans have done, however, is that they have negatively impacted the mid-tier, so carriers are seeing high-end devices and very low-end devices being chosen by consumers.

?This means that carriers might have to rebalance their portfolio and, for marketers, this might mean not have having a clear read on the type of consumers they might reach through their advertising.?

Satisfying instant gratification
Installment options are likely an attractive solution for mobile-savvy consumers who may not have the necessary funds to purchase a new smartphone in full during its launch period. Instead, they can sign an agreement with their carrier to pay for the device over a specified number of months, with no initial payment required in most cases.

This financial strategy has worried some marketers and experts, leading them to predict that sales of high-end devices would suffer as a result. Conversely, sales made via no-contract options and installment plans have hovered at relatively high rates, proving that customers are willing to shell out cash for the latest mobile technology.

Over the course of June, July and August this year, 47 percent of U.S. smartphone sales were attributed back to installment solutions. Purchases linked to traditional contracts experienced a decline, representing a meager 20 percent of sales, while prepaid plans garnered 33 percent.

Kantar Worldpanel ComTech discovered out of all installment plans made in the three-month period ending this past August, 55 percent were for one of Apple?s latest products, the iPhone 6, with 22 percent coming in for the iPhone 6 Plus.

Meanwhile, no-contract buys for the Samsung Galaxy S6 smartphone accounted for 36 percent of sales, as opposed to 28 percent for traditional contracts.

?The trend of consumers purchasing high-end phones with no-contract options will most likely continue,? said Marci Troutman, CEO of Siteminis. ?Phone quality is going up while costs are decreasing, and consumers want to be able to shop around for the best offers and not be locked into a high-cost contract with a specific carrier when all of the costs may not be clear.?

Changing programs
Apple is cottoning on to the trend of consumers wanting the latest smartphone models by introducing a new upgrade plan that enables buyers of the latest iPhones to receive a new phone every year. While this may excite some of its customers, the program will also benefit Apple in the sense that it will help accumulate more of the previous generation?s phones for refurbishment.

According to Kantar, Samsung is expected to announce a similar solution soon. However, its program may suffer due to Samsung?s weaker retail and bricks-and-mortar presence.

The brand saw 24 percent of its sales stemming from online channels during the study?s testing period, suggesting that offering these buying options on digital platforms may be the best source of revenue.

?The smartphone marketers should remember they are a growing retail model, not a growing services model,? Ms. Troutman said. ?Retailers get the best price on the phones and the best price on the data/packages and can offer the best rates to consumers.

?Consumers are tired of the extras loaded on a bill when they can buy without a contract. Consumers always want to play the competition game to get the best price.?

Final Take
Alex Samuely, staff writer on Mobile Marketer, New York