How telcos and operators improve sales and customer relationships through the second-hand smartphone market

Capgemini

2019-01-30

In recent years, growth in the global second-hand market for refurbished smartphones has outpaced growth in the primary market. Telecom operators and smartphone manufacturers are therefore looking to expand their horizons and reap earnings from the lifetime value of smartphones.

The sale of refurbished smartphones has flourished in recent years with a year-on-year growth of 13%¹. In comparison, the primary market experiences a yearly growth of just 3% and is expected to grow at the same pace in the coming years. Today, the second-hand market represents 10% of the global smartphone market, and according to IDC, the market will continue to grow and reach a market value of $52.7 billion by 2022².

Much of the attention given to the second-hand market is a result of increasing prices for new smartphones as well as an overall focus on green initiatives. Cannibalization of sales and decreased turnover have limited smartphone manufacturers’ profitability in the primary market. Manufacturers are therefore looking to incentivize increased spending on smartphones and higher turnover speed. For telecom operators, increased churn combined with decreased customer control due to intensified competition from other operators, retailers and GAFA, puts pressure on retaining stronger control over smartphone sales to create customer lock-in effects. Therefore, both smartphone manufacturers and telecom operators see it necessary to focus on innovative financing services and payment methods for smartphone sales, wherein the second-hand market represents an opportunity to increase earnings and recoup lost market share.

A single smartphone can deliver multiple revenue points during its lifetime

Financial institutions and insurance companies have tied up with telecom operators, smartphone manufacturers and companies specializing in device refurbishment (e.g. Brightstar), to create new offerings that reap the benefits of the second-hand market.

Major telcos like Verizon³ and AT&T⁴ are investing in the second-hand market through upgrade programs. By controlling handset sales and enticing customers to upgrade to a new handset, telcos hope to create a long-term customer relationship and stickiness that will increase sales of high-margin service plans. Upgrade programs are gaining in popularity and adoption, particularly in Scandinavia. Telenor⁵ and Telia⁶ have both launched successful upgrade concepts that replace the traditional subsidy model for smartphone sales. In their upgrade programs, customers enter a 24-month down-payment plan for a handset bundled with an insurance and pay a separate amount for a non-binding service plan. The key to customer lock-in is that the model embeds an option for the customer to trade in their used device for a new model after 12 months. If the option is exercised, the remaining 12 installments will be annulled, and the customer would enter a new 24-month payment plan.

Smartphone manufacturers have also added various handset upgrade programs to their supply of offerings as the traditional subsidy, and installment-based models are becoming less profitable. Apple, who is currently facing significantly lower sales than expected on its new iPhone X-models, is aiming to push sales through the Apple GiveBack-program where customers can trade in any eligible device and receive credit to use for purchasing a new iPhone. Both Apple and Samsung are furthermore investing in proprietary upgrade programs to incentivize new sales and realize multiple revenue points over the lifetime of smartphones. The two brands combined hold close to three-fourths of the refurbished smartphone market.

The second-hand market for devices is however not new. Several marketplaces like Craigslist and eBay have offered peer-to-peer sales of used devices for a long time. Recently we have seen a growth in professional sales of refurbished devices where platform players like Amazon and new market entrants like Swappa offer certified refurbished products. OneCall, a Norwegian low-cost MVNO has also opted in to this market; their concept is to offer refurbished devices including accessories in new and branded packaging. The offering includes device warranty, which is a key differentiator from traditional second-hand marketplaces.

There are areas for expansion and innovation in the second-hand market

Although the second-hand market is accelerating at a fast pace and upgrade programs have gained traction in the U.S and the Nordics, there is an untapped market potential for new business models in larger parts of Europe and Asia. While lower consumer purchase power implies that these markets might not be mature enough for full-fledged upgrade programs, the trend of increasing prices, decreasing device turnover and intensified competition still puts pressure on telcos and manufacturers in these markets. We expect to see a rise of new business models leveraging the second-hand market in the future.

A special thanks to co-author Gunnhild Øistensen Holthe – Innovation & Strategy