The Mid-Tier Smartphone Opportunity

If you live in North America, you could be forgiven for thinking the mid-tier smartphone market died a cruel death a few years ago. According to GFK, in fact, 81% of smartphone sales in 2019, in the US, came from smartphones costing $600 and higher. Across the rest of the world, however, where the $600 and higher price points captured anything between 11 and 65 percent, the mid-tier smartphone market is alive and well. There are different reasons why consumers chose a mid-tier device. The biggest driver is, of course, cost. Consumers might have limited disposable income to allocate to the device many see as their computing device in their pocket. Price for some is not only what they can afford but what they are willing to spend, the right balance between cost and return on investment.

Not Every Mid-Tier Smartphone is Created Equal

For many years, mid-tier devices were mostly designed as a stripped-down version of a higher-end device. Brands would start from a higher-end device and lower the feature-set to hit the price they thought was right. Often this meant that phones aimed at emerging markets did not quite feel as if they were designed for the users in that market. There was a disconnect between wants and needs and the product, which in turn was impacting what potential customers were prepared to pay. Another side effect of this lack of focus was that consumers might have preferred to opt for a refurbished or secondhand flagship product or a new but older version of that flagship model.

In the last couple of years, we have seen a drastic change in the way some top brands have been addressing the needs of consumers in this space. The drive behind this more targeted approach was born out of necessity as Chinese brands started to expand outside of China with a very aggressive pricing strategy. Brands like Huawei, Xiaomi and the brands in the BBK franchise were delivering smartphones showcasing features akin to a high-end device with a price point much closer to a mid-tier. Brands like Motorola started to bring to market more tailored mid-tier products and, as their position in the higher-end of the market weakened, they doubled down on product families like the Moto G and the Moto E.

But what could vendors with a robust high-end portfolio do to win share back and reinvigorate upgrades of a sizable part of the market? Well, in September 2018, Samsung’s Mobile CEO at the time, DJ Koh, made a decision that left some industry watchers puzzled. He announced a change in its mid-tier strategy. Koh wanted to bring to market new technology in its mid-tier portfolio first, rather than its flagship products, at first trying to appeal to the growing numbers of Millennials across the world who were in the market for a phone but saw flagship models just out of reach. Before the year was over, we saw the first example of what Koh envisioned in the Galaxy A8s, the first Samsung’s phone with an Infinity-O Hole-punch display. Then in early 2019, at an Unpacked -like launch event in Bangkok, Thailand and Milan, Italy, Samsung introduced the Galaxy A80 sporting Samsung’s first slide up triple camera system and an in-display fingerprint sensor. As the Galaxy A series grew, so did the number of countries where Samsung started to bring these products with skews that addressed both consumers’ needs and the competitive landscape.

The Times They Are a Changing in the US

Historically, the Galaxy A series phones you could purchase in the US were unlocked and mostly international models not optimized for the American networks or market dynamics. Earlier this month, Samsung announced a whole set of Galaxy A models that will come to the US market starting early this summer. In the portfolio, two models stand out the A71 5G and the A51 5G two devices that bring 5G to the $600 and $500 price points. As 5G networks continue to roll out, it is clear that carriers cannot only rely on high-end buyers to get their return on the huge infrastructure investment they made. At a similar time as Samsung’s announcement, we also had TCL confirm their TCL 10 line up, which included the TCL 10 5G prices at €399 or $488. Samsung’s strong brand, channel presence and marketing power will no doubt make TCL’s effort harder. Still, the opportunity in the market is sizable, sadly also due to the expected economic recession generated by the COVID-19 crisis.

This is not the first time that the smartphone market has faced an economic recession, but it is the first time such a recession happens at a time when there are no strong technology or market shifts. Back in 2008/2009, we were still at the very beginning of the smartphone market. Innovation around software, cameras and 4G technology were converging, giving consumers a solid reason to upgrade from their feature phones. Today most consumers have a capable smartphone already, it might not be the latest model, but it does the job. This means that, as their disposable income is restricted, if they need upgrading their phone, they will be driven by core purchase drivers such as display size and quality, camera and battery. For those consumers who are particularly pragmatic and usually hold on to their device for three to four years, they might also be interested in future-proofing their purchase when it comes to cellular and buying an affordable 5G device might look appealing. Bringing 5G into the mid-tier should also help Samsung lower the risk of churn towards the newly released second-generation iPhone SE.

The current economic environment might also bring to the US a trend that has been developing in Europe: the resurgence of the corporate-liable smartphones in the enterprise market. Having mid-tier devices that tick the box on crucial features will help organizations provide a full portfolio of options that are attractive to users. Samsung’s ability to have Samsung Knox support across the portfolio, including the Galaxy A series product, provides differentiation for enterprises looking at Android devices that have attractive features at a lower cost.

What About Cannibalization?

If you are a consumer, having options is great. If you are an investor or an industry watcher, however, you might be concerned about the cannibalization that products like the Galaxy A series and iPhone SE might bring to the flagship models. Well, you should not worry. I want to remind you of one point I made at the start of this article: the needs of consumers who could not afford a high-end phone have been met by older flagship models and secondhand phones. These will be the two main markets that will be impacted. Vendors will benefit from higher satisfaction and higher engagement that the newer features these mid-tier devices offer will drive in their users. In turn, that satisfaction and engagement might drive unique revenue opportunities from adjacent product categories like wearables or new services.

Published by

Carolina Milanesi

Carolina is a Principal Analyst at Creative Strategies, Inc, a market intelligence and strategy consulting firm based in Silicon Valley and recognized as one of the premier sources of quantitative and qualitative research and insights in tech. At Creative Strategies, Carolina focuses on consumer tech across the board. From hardware to services, she analyzes today to help predict and shape tomorrow. In her prior role as Chief of Research at Kantar Worldpanel ComTech, she drove thought leadership research by marrying her deep understanding of global market dynamics with the wealth of data coming from ComTech’s longitudinal studies on smartphones and tablets. Prior to her ComTech role, Carolina spent 14 years at Gartner, most recently as their Consumer Devices Research VP and Agenda Manager. In this role, she led the forecast and market share teams on smartphones, tablets, and PCs. She spent most of her time advising clients from VC firms, to technology providers, to traditional enterprise clients. Carolina is often quoted as an industry expert and commentator in publications such as The Financial Times, Bloomberg, The New York Times and The Wall Street Journal. She regularly appears on BBC, Bloomberg TV, Fox, NBC News and other networks. Her Twitter account was recently listed in the “101 accounts to follow to make Twitter more interesting” by Wired Italy.

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