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The $400 Contention Point

Apple and Samsung have made $650 the standard starting point for flagship smartphones in the US. Each year these leading manufacturers up the specs with their new generation products while maintaining the price, but at some point in time, this cycle is bound to break down. This could be starting now.

We believe that consumer behaviour is showing a shift that’s starting with the younger generation of users who better understand device pricing and product features. On social media platforms and at several leading online retail sites, some smartphones are trending — an important indication of a growing awareness of value.

In particular, there is a trinity of budget premium smartphones making $400 a new standard price for value buyers. Huawei’s Honor 8, the OnePlus 3 and ZTE’s Axon 7 are attention-grabbing phones and it’s difficult to believe that devices like these won’t have a longer-term effect on the overall global market.

Huawei’s Honor 8 is a 5.2-inch phone with 32GB of storage, a 12-megapixel rear camera, USB Type-C and 4GB of RAM. It has a fingerprint sensor and NFC as well as an octa-core HiSilicon processor (Huawei’s in-house chipset brand). ZTE’s Axon 7 is a 5.5-inch phone running Android on a Snapdragon 820 with 4GB of RAM, a 20-megapixel rear camera, and 64GB of on-board storage. It also has a fingerprint sensor and NFC reader. The OnePlus 3 is also a 5.5-inch phone running on a Snapdragon 820 processor, but comes with 6GB of RAM. It’s also loaded with the same sensors and readers and USB-C.

For consumers who are less brand-conscious and interested in separating their phones from their operator payments, such devices are proving to be appealing.

The $400 fighting point is having an effect on the market and is a trend that hasn’t gone unnoticed by established competitors. For Samsung, this could be a key motive for establishing an online store for certified pre-owned phones with prices starting at $400 for the year-old Galaxy S6 handset. This compares with a full retail price of $576.

This type of price erosion could trickle up and down the market during the coming years and it could be particularly painful to Android brands such as LG and HTC, which have been losing out to Samsung at the high-end segment but have been moving volumes at the budget price tiers.

There’s no reason to believe that the smartphone market will escape the substitution effect, eventually touching both sides of the aisle (Android and Apple). There’s something about $400.