Monday, November 22, 2010

Open Post #4 Current Event

You’d be hard-pressed to find a person out there who is not passionate about their cell phones and service providers. There is intense competition within the telecommunications industry and many cell phone companies market their products heavily in order to gain market share. For some, this means slashing phone prices to a penny or even selling them for free. Smartphone’s (iPhones, Blackberry’s, Droids) are the leading source of revenue for many companies because along with it comes unavoidable pricy data packages. (If you’ve ever wondered how phones can be so inexpensive, well you’ve got your answer) With the advent of social media and the trend of mobile devices being used as a means of instant communication, the intense competition in the marketplace is not surprising.

Nearly every major competitor is synonymous with a certain device; for example AT&T and the iPhone. Sprint received positive reviews with their HTC Evo. Apple has now confirmed Verizon will carry the iPhone within the next few months. It was recently announced that Amazon is selling all Verizon Droid phones for 1 penny. This may seem absurd, but might be a brilliant move on the part of retailers. By Verizon subsidizing the phone so heavily, this guarantees that new Verizon customers are locked into a two year contact. Companies like Amazon and Verizon might take a onetime hit for subsidizing a $600 phone, but will see high returns on investment when that same customer pays monthly data and service packages. Consumers might view this as a “deal” and will want the same phone for their spouses and children, heck even for their grandchildren. Why not switch the whole family over to Verizon and enroll in a family plan?? Smart move. And that’s exactly what companies like Verizon want you to think.

You think you’re only spending 5 cents per phone for a family of four, but in reality a typical family plan with unlimited text and data can run upwards of $275 per month. The upfront savings hardly seems like a bargain after a year of service (if you do the math that’s about $3300 per year).

There are also other psychological things to consider. If the Droid phone only cost 1 penny to the consumer, they might think that the product is an inferior one. One might wonder, why anyone would pay more than $50 for a phone that costs a penny. This leaves other companies like T-Mobile and AT&;T with no other choice but to meet those same prices, or just risk losing a customer to Verizon. An inexpensive price might denote that no one was willing to buy the phone before the markdown. If no one is willing to pay $199 for a Droid (like everyone would happily do for the iPhone), why not just buy the “better” phone?

In the long run the positioning of this product as an inferior one could hurt the corporate image of the Droid phones and compromise profits in the long run. I mean, you’ve never seen an Apple product below the sticker price, much less sold for a penny. So, before logging onto Amazon and expending your precious pennies, take out your calculator and crunch the numbers. If it makes financial sense to spend less now in order to pay more later………..I say hit the Buy Now button and start entering your credit card information!

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