While many of us may not like to admit it, our smartphones are a key part of our everyday lives—from the alarms that wake us up in the morning to the maps that plan our journeys to work, the news we read on our commutes, and the emails we answer. While once upon a time we would need a clock, a map that was always difficult to refold, a newspaper, a computer to do all of these things, today, we can do all of these using a smartphone.
And with smartphones so integral to our lives, device manufacturers are taking advantage and launching new devices more and more frequently. In fact, over the last few weeks alone, Samsung has announced it is set to launch a new device, a Google Pixel 3 is rumoured to be on the way, along with the launch of a new smartphone from Huawei that’s targeted specifically at younger consumers. Not to mention Apple breaking from tradition in 2017 and launching 2 new models in Q4.
But despite the flurry of new devices to the market, consumers are holding onto their smartphones for longer. So, what’s driving this trend? And how do the likes of Apple, Samsung, Google and Huawei get consumers to part with their devices in favour of the latest and greatest?
New dog, old tricks
Even though we’re seeing new devices launch with new features like larger displays, facial recognition and unlimited cloud storage, these innovations aren’t majorly ground-breaking. Simply put, if a new device isn’t enticing enough, and a consumer’s old device still works (albeit not to the standard of a new phone), they will often wonder why they need to upgrade to a new phone. In fact, our own research (opens in new tab) has found that the average age of a device that is traded in is almost three years old.
Take the iPhone as an example. As Apple tends to release a letter and a non-letter device every other year (like the 6 and 6S), customers tend to wait for the non-letter device to be released, as they are the devices that are likely to have gone through the biggest functional upgrade. Which means most consumers are waiting at least two years before they even consider getting a new device.
The price isn’t right
Rising prices of new smartphones is another factor that is contributing to longer upgrade cycles. One of the main reasons that consumers aren’t upgrading to newer devices is because of the costs associated with newer models. Generally, customers are happy with their devices—it is only early adopters that are keen to get the latest and greatest device and upgrade their phones every 12 months. And with devices now in the $1000 price bracket, consumers need a good reason to pay more for a new device.
Let’s use another Apple example to provide some context. Apple is set to launch three new devices in 2018, and there’s plenty of rumours about what these devices will be. So far, there’s talk of an iPhone with an edge-to-edge LCD screen and TrueDepth facial recognition; a 6.5-inch iPhone with a design like the iPhone X but with a bigger OLED screen; a successor to the iPhone X; as well as a cheaper, lower end model.
There’s no doubt the cheaper model will be welcomed by consumers following the steep $1,000 price tag of the iPhone X launched last year—but that said, the new high-end devices that Apple is set to launch this year are rumoured to still be in the $900-$1000 bracket. Does that make the cheaper model the saviour? Well, not really, as even the cheaper model is set to cost between $649-$749—a tough sell to cost-conscious consumers.
So what impact are these rising prices having? Typically, when a customer gets to the end of their 24-month contract, and they decide against an upgrade, they’ll enjoy a lower monthly bill. And customers are hesitant to increase this price until they absolutely have to (usually when their phone becomes so unusable they have no option but to get a new one).
Dangling the carrot
Although the combination of a lack of innovation and rising prices means consumers are holding onto devices for much longer, there are steps operators can take to encourage customers to part with their devices. The first is turning the upgrade agenda from reactive to proactive. More often than not, it will be customers that are keen to upgrade that will get in touch with the operator to find out whether they can upgrade their device, and the monthly costs attached to this. Reports (opens in new tab) from last October, where Citizens Advice found three of the four largest mobile phone providers in the UK continued to charge customers extra for a handset after it had been paid off as part of their fixed deal, is a perfect example of why operators shouldn’t rely on a reactive approach. A Three spokesperson even commented: “We encourage all Three customers to contact us if they would like to change their plan at the end of their fixed term deal.”
Ultimately, smartphone upgrades shouldn’t be left up to the customer to manage. If operators take a proactive approach and get in touch with customers when their contract is up for renewal, it’s much more likely to be effective. Why? Because it’s much easier for a customer to say no to an upgrade and enjoy lower monthly costs if it’s up to them to do all of the hard work to seek out the best upgrade deal.
Operators can even go one step further than this and look at offering early upgrades to customers. On the face of it, this seems like a losing situation—offering a customer a brand-new device before they’ve paid off the full value of their existing device—but this model is based on latent value. If, for example, an operator wants to use repurposed devices for insurance purposes, or cater to the increasing need of Certified Pre Owned (CPO) devices or sell these on to other markets, then it’s important for them to be able to recoup the maximum value from these devices—and this could be when a device is between a year and two years old. For those customers tied into 24-month deals, offering an early upgrade not only means operators can retain a device when it’s at its most valuable, they keep customers happy (and paying) for newer devices earlier than they expected, offering them a better experience.
Managing the status quo
With prices on the rise and innovation slowing down, operators need to do more to actively engage customers to depart with their older devices. Although churn is at an all-time low, if operators don’t encourage upgrades, they’ll reach a stage where customers will simply make do with any device. If operators think this isn’t the case, then they should consider this—2 out 3 devices sold by Apple* in the past 10 years are still in use.
By taking a proactive approach, operators won’t just be providing good customer service—they can continue to keep churn low and put new devices in customers hands—a win-win situation for all involved.
Biju Nair, President & CEO of Hyla Mobile (opens in new tab)
Image Credit: Rob Eradus / Pexels