Global adoption of smartphones has been growing at an extraordinary pace. According to a report from research firm techARC, there were over 502 million smartphone users in India in January 2020, and that number is poised to grow sharply in the next few years. Increasing internet speeds at accessible prices and mobile solutions for banking, bill payments, shopping, and capturing memories are the leading reasons why consumers are turning to smartphones. For better experiences, consumers are frequently upgrading to newer smartphones.
Mr. Kunal Mahipal, CEO, Onsitego says; "There was a time when an average consumer would buy a mobile phone and use it for years. However, with the rampant advancement of technology and ever-increasing needs, consumers are directly or indirectly forced to keep upgrading to a new smartphone every two to three years. Some tech enthusiasts end up upgrading to a new smartphone every year, which means shelling out money frequently."
According to a recent report from Deloitte, two out of three Indian consumers seek to switch to a new device every 10-12 months. Hence, the used smartphone market is predicted to reach as high as $4 billion by the end of 2020, leading to a rise of many re-commerce platforms.
Smartphone users upgrading to newer models usually trade their existing devices to get some value back, but that value reduces as the phone grows older. The best time to sell is a few months before the arrival of a newer model and when the phone is still under warranty. The value of the device reduces by a huge margin due to two main reasons: the device is no longer under warranty protection and the launch of a newer model leads to a further price cut of the older model. A potential buyer might prefer buying a device that's still under warranty as that could mean zero-cost repairs, among other things.
Extended Warranty Plans: A Solution to the Problem
Mobile phone brands and retailers are increasingly offering smartphones with bundled extended warranty plans. Consumers can also choose to buy extended warranty plans directly through after-sales services companies up to six months after their smartphone purchase. Such extended warranty plans offer not only service assurance for an additional year but also higher resale value even after one year of purchase.
Most popular extended warranty plans offer the same benefits that are usually offered with the one-year manufacturer warranty. In the case of a device malfunction, it is repaired free of cost. Such plans usually come with no questions asked policies and minimal to no paperwork. Some brands also offer free pick-and-drop services.
Onsitego's white paper suggests that the average cost of smartphone repair ranges from 27% to as high as 41% of the device cost, depending on its price range. For example, replacing the faulty motherboard of a smartphone priced above Rs. 50,000 could cost around Rs. 18,000 on an average. If something breaks down, the cost of getting an out-of-warranty device could prove to be quite costly.
In comparison, extended warranty plans usually cost just 5% to 8% of the smartphone's cost, proving cost-effective. In case of breakdowns, it proves cheaper for consumers to get coverage for repairs under an extended warranty plan rather than spending the whole repair cost from their pocket.
"Sometimes, service centers don't have all the spare parts required for older smartphones, and they might take longer than usual to repair such devices. Buying an extended warranty plan can help in such situations as some plan providers offer repair or replacement guarantee, giving a new device to the user," Kunal added.
The above graph shows the price difference between an under warranty and an out-of-warranty smartphone's resale value. An extended warranty plan is a valuable addition to a new smartphone, offering peace of mind and the prospect of a relatively higher resale value for the buyer.
Note: The prices for used smartphones have been taken from popular online providers and physical retail stores that deal in used products. These prices have been mentioned assuming that the phone is in working condition and has few to no scratches.