Author(s): Kester Mann
Today, Samsung reopened its early upgrade programme for the recently announced Galaxy Note7. Like its similar scheme for the Galaxy S7 and S7 edge smartphones that launched in April 2016, it will be available only for a limited period. Samsung again introduced the plan with little fanfare but is likely to be targeting existing customers through direct marketing.
Samsung's strategy makes a lot of sense. It plays to the rapidly growing SIM-only market in the UK, which now accounts for more than half of all contract sales, according to our estimates. But more importantly, it could create an "autopilot" mentality among Samsung's most loyal Galaxy customers to upgrade each year. This could be vital in a depressed smartphone market that endured a double-digit decline in the UK in 2015 and 2014.
Samsung's schemes are similar to Apple's upgrade programme for iPhones that launched in the US in September 2015. In part a response to the strong adoption of operators' instalment plans, the scheme represents a further move away from traditional two-year subsidised contracts that seem to have almost disappeared overnight. We won't see such a dramatic shift in Europe, but these developments certainly point toward changes in smartphone purchasing behaviour.
In introducing the scheme, Apple said that it would subsequently expand to other markets. It's surprising this hasn't happened; the UK in particular appeared an obvious candidate for the programme, given the huge affinity for Apple products. An announcement alongside the launch of the iPhone 7 in a few weeks' time would be a perfect opportunity for the company.
CCS Insight is currently trialling Samsung's upgrade programme for the Galaxy S7 device and over the coming months we'll assess how it responds to a range of scenarios. The scheme requires an upfront fee followed by 24 monthly instalments. After 12 months, you can upgrade to the latest Galaxy device, simply by trading in the existing phone. Samsung will pay the balance and customers then enter into a new two-year agreement.
Interestingly, unlike Apple's US variant, the Samsung upgrade schemes are open only for a limited period, but the company still offers interest-free credit on all devices above £249. In our view, this reflects the challenges of a more ambitious price management cycle and the depreciating value of handsets. It may be that Samsung found the sums just did not add up to offer this promotion permanently.
Overall, we were impressed with how straightforward the upgrade process was. Signing up online took only about 10 to 15 minutes — including a credit check — and the device was delivered within two working days.
A couple of aspects caught our eye. Firstly, when checking out, we were offered the option to subscribe to a range of tariffs from EE, Vodafone or Three. This means customers can bypass direct interaction with these providers, a scenario that reduces their opportunity to engage and cross-sell. Enabling customers to compare tariffs on different networks could also lead to downward pressure on prices. Secondly, Samsung took the opportunity to cross-sell additional accessories such as its Gear S2 smartwatch, Gear VR Lite headset and a range of supporting covers. A voucher code enables customers to redeem a 5 percent discount on the purchase price.
Samsung's upgrade plan is clearly a major retention ploy in its current guise. It aims to prevent customers switching to rival brands, while trying to boost smartphone sales in a stagnant market. Time will tell how much of an impact it has.