Smartphone manufacturing costs vs retail prices

Statistics company, Statista, published this chart showing the manufacturing costs of leading smartphone brands:

chartoftheday_9064_production_costs_of_smartphones_n
Image source

 

Focusing on phones launched in 2016, only, we can see that Huawei uses the cheapest components, and Google Pixel the most expensive. And that Samsung phones use more expensive hardware components than their Apple counterpart:

Phone model Manufacturing cost $ Indexed Manufacturing cost
Huawei P9 2016 205.3 1
Apple iPhone 7 2016 224.8 1.09
Samsung Galaxy S7 2016 255.1 1.24
Samsung Galaxy S7 Edge 2016 271.2 1.32
Google Pixel XL 2016 285.8 1.39

 

More interesting, though, is to compare the relative costs of manufacturing each smartphone with the brand’s ability (or desire) to charge an equally high or low retail prices.

 

For this very rough analysis, I collected US prices for each smartphone model, from the brand’s official webpage (I removed Huawei P9 because I could not quickly find official US prices for it). As shown, while Samsung’s Galaxy S7 costs 13% more than Apple’s iPhone 7 to produce, it is sold at only 88% of the iPhone 7’s retail price. Samsung’s Galaxy S7 Edge is sold at a similar price, but costs 21% more to produce. Google’s Pixel XL has the most expensive components, costing 27% more to manufacture than the iPhone. Yet, it is sold below the iPhones’ retail price.

Phone model Manuf. cost $ Indexed Manuf. cost Retail price $ Indexed retail price Retail price sources
Apple iPhone 7 2016 224.8 1.00 649.00 1.00 https://www.apple.com/shop/buy-iphone/iphone7
Samsung Galaxy S7 2016 255.1 1.13 569.99 0.88 http://www.samsung.com/us/mobile/phones/galaxy-s/s/galaxy_s-galaxy_s7/_/n-10+11+hv1rp+zq1xa+trouj/
Samsung Galaxy S7 Edge 2016 271.2 1.21 669.99 1.03 http://www.samsung.com/us/mobile/phones/galaxy-s/s/galaxy_s-galaxy_s7_edge/_/n-10+11+hv1rp+zq1xa+trouk/
Google Pixel XL 2016 285.8 1.27 599.00 0.92 https://store.google.com/product/pixel_phone

Phone cost vs price

 

A very good illustration of the power of brand strength and consumer perceptions on pricing, don’t you think? I am saving this example for my lectures!

 

What about the new Galaxy S8?

 

If we compare it with Samsung’s Galaxy S7 Edge (as suggested by IHS Markit), we can see that, even though the S8 costs 13% more to manufacture than the S7 Edge, it is being retailed at only 7% more.

Phone model Manuf. cost $ Indexed Manufacturing cost Retail price $ Indexed retail price
Samsung Galaxy S7 Edge 2016 271.2 1 669.99 1
Samsung Galaxy S8 2017 307.5 1.13 720.00 1.07

 

Why is that?

 

Again, a great example of the power of consumer perceptions. In my view, the lower mark-up is the result of low consumer confidence on the brand, after the exploding batteries fiasco. It is a powerful warning for brands to manage public relations crisis quickly and effectively.

 

If you were in the market for a new smartphone, would you feel confident to buy the new Samsung?

 

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