We’ve all surely wondered why flagship smartphones are so expensive from time to time. The typical price for a flagship now easily exceeds £600, which is about what you pay for a half-decent laptop. It’s a huge amount of money which justifies why most people resort to expensive contracts as a way to fund the habit. Since smartphones only have an operating life of a few years and are largely disposable, dropping £600 on a flagship every few years would be a painful task.
To find out why smartphones are so expensive to buy you need to look at more than just manufacturing costs. An iPhone 7 costs just $224.80 to manufacture, while the Samsung Galaxy S8 is a little more expensive at $307.50. These are both figures which fall far lower than their recommended retail price, showing that the hardware isn’t really the problem. Corporate giants like Apple and Samsung are huge companies which operate on an international level, investing various resources while manufacturing the latest flagship. A lot of this will go into research and development (R&D), while another large chunk goes into marketing and promotion. Apple has an annual R&D budget of $10 billion alone, which is almost one fifth of their income. These costs all need to be taken into account when profiteering from their latest handset, as much of that R&D will involve creating the device from prototype to final product.
The next big hurdle is supply chains. The raw cost of a device only takes into account materials and hardware, not the factory in which it was built. Apple iPhone manufacturer Foxconn has various contracts with electronics corporations; this again needs to be added into the overall product resale figure. Once the handsets have been made, they are then handed to suppliers who want to profit further. High street sellers will often put a hefty markup on the wholesale price, which is why you often find online sellers offering the same handset much cheaper. If you’ve ever worked for a business and bought from a distributor, this is exactly why. Companies who focus primarily on selling bulk devices cut out the middle man by offering wholesale prices direct to the consumer, as long as they can afford the numbers.
We all remember when OnePlus used to be a fledgling manufacturer with only a few staff… because their handsets were ultra cheap. The original OnePlus retailed for just over £200 back in its April 2014 release. The OnePlus 5 now costs £449. Gut reaction would be that OnePlus is just ripping off the consumer because they can, but it’s not that simple. As a company grows, so to do the operating costs and overheads. More expectation means more R&D. More demand means more staff. More handsets in the wild means dedicated customer service teams. This all adds up in the background. I’m sure OnePlus would rather not increase handset price but when you have a successful product and unprecedented expansion, what else can you do? There’s a reason the company expanded its customer service team to over 500 employees in anticipation of the OnePlus 5.
Combining all these little increments together is the main reason why a general consumer pays through the teeth for a flagship.
Do you agree with this? Do you think smartphones should be cheaper? Sound off in the comments below.
