No-interest financing tips consumers to priciest iPhones
People paying full price are more likely to go high than consumers getting subsidized deals
Computerworld - iPhone buyers who finance full-priced smartphones are more likely to open their wallets and pick the flagship -- and most expensive -- iPhone 5S than U.S. consumers sticking with the subsidized-purchase model, analysts said today.
In the July 2013-March 2014 timespan, the iPhone 5S was selected by 73% of those who financed the purchase, said Consumer Intelligence Research Partners (CIRP), a Chicago-based firm, citing a survey of 1,500 American consumers. Meanwhile, about 58% of those who bought a subsidized Apple smartphone went with the 5S.
In the U.S., all four major carriers -- AT&T, Sprint, T-Mobile and Verizon -- offer installment plans that require the consumer to pay a monthly fee for a phone, which is priced at its full, or unlocked price. Rather than pay $199 for a 16GB iPhone 5S at the time they sign a two-year contract, consumers can instead pay about $27 each month -- the carriers don't add interest charges -- to account for the iPhone 5S's $650 full price. The latter group does not have to sign a long-term contract, and can generally upgrade to a new phone in just over a year.
The skew towards the upper-end iPhone by consumers opting for installment caught CIRP analysts by surprise. But they said it made sense.
"When customers are paying the full price of their new phone, the common prediction was that they would gravitate toward less-expensive models," said Josh Lowitz, co-founder of CIRP, in a note to clients. "The carriers' decision to offer interest-free 24-month financing seems to have more than counteracted that pressure. When confronted with a payment difference of less than $10 per month, iPhone buyers have chosen to buy the higher price, premium phones."
Buyers comparing the price of a subsidized iPhone 5S against that of an iPhone 4S face a difference of $199, as the latter is free with a two-year commitment. But when paid in installments, the monthly difference at Sprint is just $8.34 (over 24 months), at AT&T $10 (over 20 months).
It's perception and psychology, the same that softens sticker shock at the car dealership and leads buyers to opt for higher-end vehicles when they lease.
"A decision whether to buy a subsidized iPhone 4S, 5C, or 5S means a big difference in spending, $100, $200, or more -- or immediately spending double or more," Lowitz said. "In contrast, unsubsidized phone prices tend to differ by about 20%, and when they are broken into 24 payments, they are truly marginal."
Installment plans boosted sales of the iPhone 5S and depressed those of the iPhone 4S, the 2011 model that Apple uses as its entry-level phone. Of those who financed an iPhone, only about 4% selected the 4S, compared to about 18% of those who bought a subsidized iPhone.
For the iPhone 5C, the new, lower-cost model Apple introduced last year, about the same percentage picked it who took the installment path as chose the subsidized price.
Apple is expected to roll out one or more new iPhones this fall, most likely with larger screens.
Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is firstname.lastname@example.org.
- Carmakers put Apple's CarPlay in the slow lane
- What matters in the fall smartphone lineup: brand, display size, battery life, LTE
- Why HTC put Windows on its M8 smartphone
- iPhone 5C's China bust raises questions about Apple's pricing for '14 models
- China scrubs Apple's iPad and MacBooks from government buying list
- Navdy's planned heads-up car display works with iPhone or Android
- Circle the date: Apple's iPhone 6 event slated for Sept. 9
- Stable Mac prices fuel reliable profit engine
- Apple will 'set the world on fire' with iPhone 6 sales
- The other Apple economy: $2B in devices on eBay
Read more about Smartphones in Computerworld's Smartphones Topic Center.
- Tips for Driving User Adoption in New Technology Deployment Read this checklist on tips for driving user adoption to see where you stand.
- ACM Leadership Guide Knowledge worker effectiveness has emerged as a top priority to both optimize the customer experience and help employees work more efficiently. See how...
- The Cloud BI that IT and Developers Demand Jaspersoft for AWS allows developers and IT professionals to easily and affordably build business intelligence solutions as well as embed visualizations and analytics...
- AWS and Jaspersoft Disrupt BI TIBCO Jaspersoft for AWS and Amazon Redshift disrupt business intelligence with cost-effective analytics in the cloud. Available by the hour in a pay-as-you-go...
- Cloud BI in Action: Recorded Webinar of Customer, Kony, Inc. See how Kony, Inc., a leading enterprise mobility company, is using TIBCO Jaspersoft for Amazon Web Services and Redshift to achieve embedded analytics...
- Cloud BI Overview: Jaspersoft for AWS Check out this overview of Jaspersoft for AWS, to easily and affordably build business intelligence solutions as well as embed visualizations and analytics... All Smartphones White Papers | Webcasts