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Phone Financing Changes Buyer Behavior

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Buyers Finance Better Models of Less Expensive Brands

Consumer Intelligence Research Partners (CIRP) released results of its research on mobile phone financing plans. This analysis features findings about consumer trends in financing plans from July 2013-March 2014.

Somewhat counterintuitively, customers that finance an unsubsidized phone buy more expensive models of phones. For Apple, iPhone 5S accounts for 73% of financed iPhones, compared to 61% of all iPhones (Chart 1).

Chart 1: iPhone model of phone finance customers
2014-07-03-chart.jpg

The move away from subsidized phones has given an unexpected boost to the iPhone 5S in the US. When customers are paying the full price of their new phone, the common prediction was that they would gravitate toward less expensive models. The carriers' decision to offer interest-free 24 month financing seems to have more than counteracted that pressure. When confronted with a payment difference of less than $10 per month, iPhone buyers have chosen to buy the higher price, premium phones.

A decision whether to buy a subsidized iPhone 4S, 5C, or 5S means a big difference in spending, $100, $200, or more, or immediately spending double or more. In contrast, unsubsidized phone prices tend to differ by about 20%, and when they are broken into 24 payments, they are truly marginal.

CIRP analysis indicates that for the survey period, the US weighted average retail price (US-WARP) for financed Apple iPhones is $696, compared to a US-WARP for subsidized Apple iPhones of $669. CIRP estimates US-WARP using its data on individual iPhone model sales, which is an analogue to Apple's reported average selling price (ASP) data. US-WARP includes sales of all Apple iPhone models at all available storage configurations during the survey period.

This change in behavior especially surprised us given the retail channels in play. All of these carrier financed phones are sold at carrier stores and websites, notably not at Apple Stores. And traditionally Apples Stores have been strongest at selling flagship and premium iPhones.

CIRP bases its findings on a survey of 1,500 US subjects that activated a new or used phone in the July 2013-March 2014 period.

For additional information, please contact CIRP.

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