The factory price of local smartphones has been lowering and the trend is expected to continue down the road, according to the latest report released by Digieco, KT's economic research institute.
Under the title of “Change of smartphone price and strategy of smartphone makers,” the report said the average factory price of Korea’s top ten smartphone has seen a decline since 2014. During the period of 2012 and 2013, the price did not drop to below 850,000 won but in the first quarter of this year, the price dropped to below 800,000 won.
The reason behind this trend is that the premium smartphones, which has led the entire Korean smartphone market, has seen a continued decline. In effect, the factory prices of Samsung Electronics Galaxy S6, LG Electronics’ G4, and Apple’s iPhone 6 were all lowered despite the increased performance and functions compared to their previous models, the report said.
Also, when compared by factory prices among top ten smartphones, the portion of premium phones has been continually dropped.
Chung Yeon-seung, a researcher of Digieco, said in the report, “The portion of premium smartphones in the Korean market now stands at around 80 percent, 16 percent down from 96 percent in 2012. Instead, the portion of low-end smartphones – below 370,000 won – increased to 18 percent.”
“Reasons behind the trend are upward leveling of smartphone performance, the strengthening of low-end smartphones and the government’s increased subsidies on low-end smartphones,” he added.
Chung predicted that Korea’s smartphone price would continue to go down on the ground of the downsizing of smartphone retail size, consumers’ needs to reduce factory price and the government’s pressure to cut price.
According to a research firm IDC, the delivery amount of Korea’s smartphones has continually gone down for the past three years. During the period, the sales amount accounted for around 79 percent of the entire delivery amount. Given the decreasing trend, fiercer competition is expected among Korean smartphone makers and the price is expected to further go down.
Also, consumers want lower factory price, according to Digieco. For consumers, sales price is more important than factory price but it became difficult to reduce the sales price because of the Telecom Act that caps handset subsidies.
Chung said the reason behind the growing interest in low-end and secondhand smartphones is that consumers still find it expensive to buy smartphones. “Because there is a limitation to reduce sales price through subsidies, consumers’ needs to reduce factory price is expected to continue.”
The government is also pressing smartphone makers to reduce factory prices. The government views that communications prices have gone down but handset prices haven’t decreased much since the implementation of the Telecom Act. The government and the National Assembly are expected to continue to call for further price cut.
In regard with the decreased factory price, Chung suggested the adoption of separate notice of smartphone subsidies. This means consumers can see subsidies of smartphone makers and telecom operators respectively. For instance, if consumers of Galaxy S5 are given 400,000 won subsidies, they should be notified as “200,000 won from smartphone makers and 200,000 won from telecom operators.”
When smartphone makers make their subsidies more transparent and make subsidy policy more consistent, they can keep the consistency of brand image and also can manage market price of secondhand phones, according to the report.
Also, it is necessary to simplify the line-up of high-end smartphones, the report said. Currently, the line-up of costly smartphones is diverse, accounting for 26 percent of the total handsets. However, there is no high-end smartphone in the top ten sales list.
Chung said, “It is necessary to simplify the line-up of unpopular high-end smartphones.”
