The secondary market for mobile phones has been exploding in recent years due to the proliferation of new devices and the wider range of availability.
While we’re so used to seeing carriers and device manufacturers compete in the primary market for smartphones, competition in the secondary market continues to heat up.
Redefining the mobile lifecycle benefits consumers, carriers, and manufacturers alike. However, that doesn’t mean companies aren’t vying for leadership in the secondary market.
Looking at mobile trade-in data between Q4 2015 and Q3 2016, the current state of the North American secondary market seems clear—everyone is chasing Apple.
Samsung Tries to Replicate Apple’s Consistency in Mobile Trade-Ins
If you look at the average trade-in value for iPhones against the average value of an Android trade-in, the picture is fairly clear. Depending on the time of year relevant to Apple’s annual device release, the average trade in value for an iPhone is around $140. However, the average trade-in value of devices has consistently fallen since Q4 2015 (from a high of nearly $93 in Q4 2015 to about $70 in Q3 2016).
But the vast range of budget-friendly Android devices contributes to lower average trade-in values. If you look just at Samsung’s numbers for high-end devices, the story is a bit different.
As Apple brings more devices to market, the secondary market is increasingly dominated by iPhones—except for in Q2 2016 when Samsung Galaxy S5 trade-ins surged. What happened?
Q2 2016 was Samsung’s best quarter in 2 years because it launched the Galaxy S7 and S7 Edge. The initial trade in value of an S7 rose to $420, higher than both the iPhone 6S and 6S Plus as Apple prepared for its new release. However, Samsung wasn’t able to retain that kind of value as the iPhone 7 and 7 Plus hit the market.
One of the biggest problems for Samsung’s position in the secondary market has been consistency. Where Apple sees the majority of trade ins from the previous year’s model, Samsung users were trading Galaxy S5s for Galaxy S7s due to the apparent difficulties with the Galaxy S6.
A consistent stream of new releases of quality, in-demand devices is the key to competing in the secondary market—especially as the way we purchase mobile devices continues to evolve.
The Year that Two-Year Contracts Died
While it will take time for all mobile subscribers to get out of their current contracts, 2015 was the year that carriers killed the two-year contract. Instead, we’re shifting toward leasing as the main way to get a new device.
In Q4 2015 when two-year contracts were still offered, there was parity between contracts and leasing (49% and 51% of new subscriptions, respectively).
However, the gap widened as the year went on until it reached 65% for leasing to just 35% contracts in Q3 2016.
Carrier subsidies should be gone along with contracts, but the customer acquisition battle is leading to big trade-in deals that resemble the subsidy model. As carriers revert back to subsidy models in some ways, device manufacturers are able to take advantage of an opportunity to gain more control of the secondary market.
The best example is how Apple is leveraging the iPhone’s prominence in the secondary market to create its own upgrade program where you can get a new iPhone every year as the next version is released.
Samsung has the kind of device sales figures that could support this same kind of program, but again, the consistency is key to building ongoing trade-in demand. As device manufacturers take more control of trade-ins and buyback for their smartphones, the amount of money in customer hands will continue to rise.
Competition Is Growing, but Apple Is Putting Money in Customer Hands
With Apple’s across-the-board dominance in the secondary market, it shouldn’t come as a surprise that it is responsible for putting money back in the hands of customers. Looking at the statistics from Q4 2015 through Q3 2016, you can see that money returned to customers through trade-in and buyback programs is dictated by iPhone release cycles.
Holiday spending, compounded by last year’s iPhone release, resulted in $661 million returned to customers via trade ins and device buyback - but these numbers dipped dramatically early in 2016 to $404 million in Q1 and $384 million in Q2.
When the 7th generation iPhones were released in Q3, the trade-in market surged again back up to over $600 million—and the numbers should continue to grow in Q4 amidst holiday shopping.
The bottom line here is that the secondary market is growing and it will continue to grow as release cycles speed up and become more consistent. If your mobile trade-in program isn’t up to par, you risk falling behind the competition regardless of whether you’re a carrier or a device manufacturer.
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