The vast majority of high–end cellphone users are blissfully unaware the $200 they pay to upgrade their phone is a heavily subsidized price. Most of us think the $200 is bad enough, but if customers were paying full retail for their newer phone the price would be in excess of $650 for a model from Apple.
That’s a lot of money to pay in one big chunk for a device your teenager is likely to drop in the toilet.
Cell service providers cushion the blow by folding the rest of the cost into the contract. That’s why early cancelation fees are high. The company is recovering the cost of the phone.
This system worked fine as long as competition in other areas of the business was at a manageable level, but that’s changed. AT&T, Verizon, Sprint, T–Mobile and other providers are cutting prices and beefing up bundles on minutes, data and contract length. Consequently, financing phone purchases is less attractive.
This is where competition works to your advantage. Apple knows if customers have to pay the entire cost upfront, sales decline as customers wait longer between upgrades.
So Apple will now finance iPhone purchases for $32 per month AND allow customers yearly upgrades. In addition, Apple includes its premier AppleCare service ($99/yr.) as part of the package.
Finally, Apple will give customers the option of switching cell carriers every year, marking the end of the two–year contract and repaying cell provider’s decision to stop financing phones.
What’s more, this instance of competitive creativity would solve many of the lingering, intractable problems of Obamacare. How? Click the link below to find out in my Newsmax column: