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iPhones/Galaxy S5/Note 4... Consumer Price Gouging

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booksbooks

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Aug 28, 2013
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I'll use US dollars here, pretax.

My iPhone 6 Plus 128 GB cost me $949. Let's keep it simple for comparison purposes.

Apple

An iPad Air 16 GB Cellular costs $629.
An iPad rMini 16 GB Cellular costs $529.
An iPhone Plus 16 GB costs $749.
An iPhone 6 16 GB costs $649.

For every jump in memory on the iPhones, Apple charges another $100.

Some other phones.

A Samsung Galaxy Note 4 (32 GB) retails for ~$750.
A Moto X (16 GB) retails for ~$525.
A Samsung Galaxy S5 (16 GB) retails for ~$600.

Why is this ok? I mean, we're paying $1000 for a 128 GB phone where this price exceeds the price of:

  • A Mac Mini
  • An 11" MacBook Air (128 GB)d

And is only $150 less than a 21.5" iMac.

Build of Materials Cost (BOMC) for iPhone 6: ~$200
Build of Materials Cost for iPhone 6 Plus: ~$215
Assemblage: ~$5 per unit.

As others have said the BOMC is likely much lower as component pricing for Apple is confidential and likely lower, or much lower, than what the public has access to on a per part basis.

http://www.zdnet.com/teardown-estim...o-make-iphone-6-plus-just-15-more-7000033998/

Please do not reply with the old, tired "But their R&D needs to be paid!"... "But their advertising costs need to be factored in..." If you know anything about these things you know there's a formula for that where these things are indirect costs associated with your product and that they would not account for such a massive markup from BOMC. There's limits on what you spend on these things given what you sell/think you'll sell. Here's the bottom line:

We're paying more for iPhones than we are any other mainstream phone, in some cases by several hundred dollars (Moto X/S5 vs iPhone 6/Plus), as well as paying more for an entry level iPhone 6 Plus compared to an entry iPad Air Cellular. And when you factor in higher memory amounts like 128 GB, the 6 Plus costs about $1000. With such volume and low build costs, the mark up is over $500.

Why is this ok?
 
I posted something similar and everyone criticized my post. I guess money is no object when it comes to smart phones.
 
D1G1T4L said:
So just how are they gouging? I just don't see how that case can be made here.
Click to expand...

For starters, the entry level iPhone 6 Plus cost $120 more than an entry level iPad Air Cellular, yet the iPad Air is much larger (a full tablet). On the BOMC, the screen is one of the most expensive components on these devices. So the Air must have a more expensive screen.

Another aspect to this: the markup on a 6 Plus could be as much as ~$700 on BOMC alone.

What I wonder if there is a conspiracy amongst the manufacturers (Apple) and cell carriers to have these unlocked phone prices inflated to encourage people to get subsidized phones locked to carriers who themselves stand to make money from people on cell phone plans.

The subsidized iPhone plans across Canada are terrible: overpriced garbage. And I can see in the US their not super great either.

I have an unlocked iPhone 6 Plus because instead of paying $80 per month for a crap plan that limits everything I do, I pay $35 per month for unlimited data, calling, and text with WIND. The cell companies don't make their money on my subsidy and Apple slurps up all the profit.

My point is that buying a phone outright and upfront should be materially cheaper than a subsidized version as the consumer is paying a massive amount of money all upfront and not over 2 years.
 
booksbooks said:
For starters, the entry level iPhone 6 Plus cost $120 more than an entry level iPad Air Cellular, yet the iPad Air is much larger (a full tablet). On the BOMC, the screen is one of the most expensive components on these devices. So the Air must have a more expensive screen.

Another aspect to this: the markup on a 6 Plus could be as much as ~$700 on BOMC alone.

What I wonder if there is a conspiracy amongst the manufacturers (Apple) and cell carriers to have these unlocked phone prices inflated to encourage people to get subsidized phone locked to carriers who themselves stand to make money from people on cell phone plans.
Click to expand...

US carriers are slowing drifting away from the subsidized phone model. Next and Jump or whatever were created to lessen the effects of cell phone sticker shock. Do away with the carrier financing phones and much MORE people would jump ship to phones <$500.

First iphone with 8g was what....$599? Then they lowered the price 2 months after and that was just an off contract price. Somehow the technology has gotten cheaper, yet the price keeps increasing.
 
booksbooks said:
For starters, the entry level iPhone 6 Plus cost $120 more than an entry level iPad Air Cellular, yet the iPad Air is much larger (a full tablet). On the BOMC, the screen is one of the most expensive components on these devices. So the Air must have a more expensive screen.

Another aspect to this: the markup on a 6 Plus could be as much as ~$700 on BOMC alone.

What I wonder if there is a conspiracy amongst the manufacturers (Apple) and cell carriers to have these unlocked phone prices inflated to encourage people to get subsidized phone locked to carriers who themselves stand to make money from people on cell phone plans.
Click to expand...

I would have to do some research to compare the components between the Air and 6 plus as gut feeling the 6 plus has some newer components that off set the $120. I still don't see how this is in any way price gouging basing the prices of the Air vs the 6 plus.

Now the idea of the manufactures price fixing is another story.
 
booksbooks said:
For starters, the entry level iPhone 6 Plus cost $120 more than an entry level iPad Air Cellular, yet the iPad Air is much larger (a full tablet). On the BOMC, the screen is one of the most expensive components on these devices. So the Air must have a more expensive screen.

Another aspect to this: the markup on a 6 Plus could be as much as ~$700 on BOMC alone.

What I wonder if there is a conspiracy amongst the manufacturers (Apple) and cell carriers to have these unlocked phone prices inflated to encourage people to get subsidized phones locked to carriers who themselves stand to make money from people on cell phone plans.

The subsidized iPhone plans across Canada are terrible: overpriced garbage. And I can see in the US their not super great either.

I have an unlocked iPhone 6 Plus because instead of paying $80 per month for a crap plan that limits everything I do, I pay $35 per month for unlimited data, calling, and text with WIND. The cell companies don't make their money on my subsidy and Apple slurps up all the profit.

My point is that buying a phone outright and upfront should be materially cheaper than a subsidized version as the consumer is paying a massive amount of money all upfront and not over 2 years.
Click to expand...


There is a lot more to the cost to build and iphone than the numbers that are reported
 
booksbooks said:
I'll use US dollars here, pretax.

My iPhone 6 Plus 128 GB cost me $949. Let's keep it simple for comparison purposes.

Here's the bottom line:

We're paying more for iPhones than we are any other mainstream phone, in some cases by several hundred dollars (Moto X/S5 vs iPhone 6/Plus), as well as paying more for an entry level iPhone 6 Plus compared to an entry iPad Air Cellular. And when you factor in higher memory amounts like 128 GB, the 6 Plus costs about $1000. With such volume and low build costs, the mark up is over $500.

Why is this ok?
Click to expand...


Other mainstream phones don't have an extensive store network with on-site support, repair, and replacement. Apple also provides software updates on a regular basis.

Is this worth the high price premium? Everyone must decide for themselves.

There's always the option of Google Nexus phones for those who want high-end hardware and software updates at a relatively low price. The Nexus 5 starts a $349 unlocked.
 
Retired Cat said:
Other mainstream phones don't have an extensive store network with on-site support, repair, and replacement. Apple also provides software updates on a regular basis.

Is this worth the high price premium? Everyone must decide for themselves.

There's always the option of Google Nexus phones for those who want high-end hardware and software updates at a relatively low price. The Nexus 5 starts a $349 unlocked.
Click to expand...

Wow, nice price for the Nexus 5. I wonder if it's a good phone. I can see 445 ppi and gorilla glass 3 on it. I also like the design. In Canada it's $500 by the way...
 
OP, you say price gouging is illegal. Can you please find that law, state or federal, and explain how it applies to this case? (Hint: you're not going to be able to)
 
Companies charge what the market will bear. Apparently, the market will bear $650-950 iPhones. Apple's not a charity. They're in this for profit and you can be darned sure they'll try to find the sweet spot maximizing both pricing and demand on the demand curve.
 
One thing to keep in mind here is that, we all realize that Apple offers service and support, spends money on R&D and advertising, and develops the software on the phone.

Well guess what? You just described the majority of what every other business does. We develop software and we offer support, spend money on R&D and advertising, and develop the software ourselves.

My Dad is in the auto industry. Guess what, they do all of this too. In other words, Apple isn't special because they do these things, it's part of the ordinary course of business.

And let's also not forget how many Apple Care+ packages Apple sells that helps them do these things. If you want to talk corporate finance, let's do it.
 
There's a simple solution to this.

Just don't buy one if you feel it is overpriced.
 
booksbooks said:
I'll use US dollars here, pretax.

My iPhone 6 Plus 128 GB cost me $949. Let's keep it simple for comparison purposes.

Apple

An iPad Air 16 GB Cellular costs $629.
An iPad rMini 16 GB Cellular costs $529.
An iPhone Plus 16 GB costs $749.
An iPhone 6 16 GB costs $649.

For every jump in memory on the iPhones, Apple charges another $100.

Some other phones.

A Samsung Galaxy Note 4 (32 GB) retails for ~$750.
A Moto X (16 GB) retails for ~$525.
A Samsung Galaxy S5 (16 GB) retails for ~$600.

Why is this ok? I mean, we're paying $1000 for a 128 GB phone where this price exceeds the price of:

  • A Mac Mini
  • An 11" MacBook Air (128 GB)d

And is only $150 less than a 21.5" iMac.

Build of Materials Cost (BOMC) for iPhone 6: ~$200
Build of Materials Cost for iPhone 6 Plus: ~$215
Assemblage: ~$5 per unit.

As others have said the BOMC is likely much lower as component pricing for Apple is confidential and likely lower, or much lower, than what the public has access to on a per part basis.

http://www.zdnet.com/teardown-estim...o-make-iphone-6-plus-just-15-more-7000033998/

Please do not reply with the old, tired "But their R&D needs to be paid!"... "But their advertising costs need to be factored in..." If you know anything about these things you know there's a formula for that where these things are indirect costs associated with your product and that they would not account for such a massive markup from BOMC. There's limits on what you spend on these things given what you sell/think you'll sell. Here's the bottom line:

We're paying more for iPhones than we are any other mainstream phone, in some cases by several hundred dollars (Moto X/S5 vs iPhone 6/Plus), as well as paying more for an entry level iPhone 6 Plus compared to an entry iPad Air Cellular. And when you factor in higher memory amounts like 128 GB, the 6 Plus costs about $1000. With such volume and low build costs, the mark up is over $500.

Why is this ok?
Click to expand...

You know why its ok, its ok because you make it ok by buying it. I will never buy a product and then complain about the price. There are options out there.
 
booksbooks said:
I'll use US dollars here, pretax.

My iPhone 6 Plus 128 GB cost me $949. Let's keep it simple for comparison purposes.

Apple

An iPad Air 16 GB Cellular costs $629.
An iPad rMini 16 GB Cellular costs $529.
An iPhone Plus 16 GB costs $749.
An iPhone 6 16 GB costs $649.

For every jump in memory on the iPhones, Apple charges another $100.

Some other phones.

A Samsung Galaxy Note 4 (32 GB) retails for ~$750.
A Moto X (16 GB) retails for ~$525.
A Samsung Galaxy S5 (16 GB) retails for ~$600.

Why is this ok? I mean, we're paying $1000 for a 128 GB phone....
Click to expand...

OP this is where you're mistaken. You're NOT paying $1000 for a PHONE. Today's SmartPhones are being marketed as a "phone" but you're buying a portable computer with a high-resolution precision 8MP rear camera that also records 1080p videos. They also have a front facing camera. You're also paying for a relatively large high-resolution screen. Your $1000 also pays for a device that surfs the web, gives full internet communications and email services, plus GPS. Fast storage and the ability to download apps to turn your device into nearly anything you want it to do while still maintaining a small profile that fits in your pocket. Don't forget that it's a full music player.
All of this and I didn't even mention about it being a phone.

Try to buy most of that stuff individually that you can do with your smartphone. You'd be paying a lot more for a handful of paperweights.

So that's where the message goes out improperly in marketing. These smartphones need to stop being marketed as "Phones" because yes, $1000 for a PHONE is gouging....but you're not paying for just a phone.
 
QCassidy352 said:
OP, you say price gouging is illegal. Can you please find that law, state or federal, and explain how it applies to this case? (Hint: you're not going to be able to)
Click to expand...

I never said price-gouging is "illegal": but it is in some countries. Anyway...

This is a complicated issue but in the US (I'm not from the US, just north of it...), my understanding is that there are several states that have price-gouging statutes so there are laws against it. It is illegal in many of these states. This isn't the issue.

The issue is how much these phones cost compared to how much they cost to make, specifically in relation to other products like iPad: you can see a basis to propose inflationary pricing.

If we are to look at price-gouging and the law... one issue is the very definition of price-gouging, which, in the US from what it looks like, is more based on exorbitant price increases in times of emergency where it covers essential commodities (e.g., food).

We are not in a state of emergency so price-gouging, say, for food, as it's currently defined in law in the US wouldn't be as applicable if food all of a sudden became much more expensive.

The other problem is that smartphones may not be considered an "essential commodity", something that is also important when considering a product or service falling under some price-gouging legislation.

However, there are arguments that may be made to start swinging the pendulum our way. Telecommunications may be looked at, as a whole, as "essential" or perhaps an "essential commodity". Smartphones are part and parcel of this as they are now mainstream telephones: the networks are being shaped around them and they themselves operate off of industry standards. Smartphones can seen as an essential part of this for the foundation to be of any value to people: we're well past the corded phone era now.

I'm not just taking aim at Apple because I believe they are part of the broader telecommunications industry as they work so closely with carrier partners who themselves are profit hungry entities. That smartphones are a necessary part of the telecommunications industry as much as the cellular network that serves as the foundation of the industry itself. And that the manufacturers of such smartphones are themselves and by extension a necessary constituent of the telecommunications industry.

One issue is the definition of a commodity: smartphones/telecommunications may not really meet the strict definition of commodity or essential commodity, but arguments are being raised for this or at least a rethink of what these things should mean to people in this modern economy.

Competition laws are more relevant to deal with these things, which includes things like anti-competition laws (e.g., price fixing). In this latter case, if a conspiracy could be shown amongst the various actors (Apple, Samsung, cell carriers...) to have inflated smartphone prices, then this would apply.

Anyway, I'm using price-gouging more loosely and am not the first and likely not the last to collocate price-gouging and smartphones/mobile phones/carriers in the same piece.

There are many issues associated with the telecommunications industry. People getting bills for $16,000 in one month because their child or whoever dialed long-distance or roamed... and don't defend the carriers because the lid has already been blown off of things like roaming: it's a joke and the government in Canada has now cracked down on the big carriers here charging exorbitant roaming fees on their networks.

Price-Gouging in a Global Context

Many respondents compared the Canadian market to their experience of wireless providers in other countries, and were appalled by how Canada compares.

https://openmedia.ca/upgradecanada/hitshome/price-gouging/price-gouging-global-context

----------
617aircav said:
You know why its ok, its ok because you make it ok by buying it. I will never buy a product and then complain about the price. There are options out there.
Click to expand...

Like what options? I want to stick with Apple but I feel they're inflating the price of their smarphones. I also feel like others (Samsung) could be inflating their pricing as well.

----------
HenryDJP said:
OP this is where you're mistaken. You're NOT paying $1000 for a PHONE. Today's SmartPhones are being marketed as a "phone" but you're buying a portable computer with a high-resolution precision 8MP rear camera that also records 1080p videos. They also have a front facing camera. You're also paying for a relatively large high-resolution screen. Your $1000 also pays for a device that surfs the web, gives full internet communications and email services, plus GPS. Fast storage and the ability to download apps to turn your device into nearly anything you want it to do while still maintaining a small profile that fits in your pocket. Don't forget that it's a full music player.
All of this and I didn't even mention about it being a phone.

Try to buy most of that stuff individually that you can do with your smartphone. You'd be paying a lot more for a handful of paperweights.

So that's where the message goes out improperly in marketing. These smartphones need to stop being marketed as "Phones" because yes, $1000 for a PHONE is gouging....but you're not paying for just a phone.
Click to expand...

My god is this a joke?
 
HenryDJP said:
OP this is where you're mistaken. You're NOT paying $1000 for a PHONE. Today's SmartPhones are being marketed as a "phone" but you're buying a portable computer with a high-resolution precision 8MP rear camera that also records 1080p videos. They also have a front facing camera. You're also paying for a relatively large high-resolution screen. Your $1000 also pays for a device that surfs the web, gives full internet communications and email services, plus GPS. Fast storage and the ability to download apps to turn your device into nearly anything you want it to do while still maintaining a small profile that fits in your pocket. Don't forget that it's a full music player.
All of this and I didn't even mention about it being a phone.

Try to buy most of that stuff individually that you can do with your smartphone. You'd be paying a lot more for a handful of paperweights.

So that's where the message goes out improperly in marketing. These smartphones need to stop being marketed as "Phones" because yes, $1000 for a PHONE is gouging....but you're not paying for just a phone.
Click to expand...

HA HA. April Fools. You got me. (I hope your not serious)
 
Sadly the OP doesn't even know the true definition of price gouging, which is illegal in 34 states IIRC.

OP, if you don't like the prices, vote with your wallet, then, learn about economics and stop posting things that have no basis in reality.
 
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