Deceptive androids and rotten apples. This is what hides behind smartphone price

For the most expensive smartphones you’d have to pay thousands of euros. But if you’d taken into account only production costs, you’d got four mobile phones instead of one! Why smartphone producers take so much of our money?

Smartphone prices can be scary. Even though there are some more wallet-friendly devices, it’s been a long time since the most expensive models exceeded €1000. Their production costs however, are much much lower.

What do we pay for then? Maybe by buying the high-end smartphone, unknowingly we line its producer’s pockets? We looked into one of the most popular smartphone in the world and investigated how its price is formed—from production line to the store shelf.

The analyzed model is not the latest one—it’s been on the market for about two years. Despite the fact we still have to pay around €650 for the new one.

Made in China—really though?

The “made in China” sign printed at the back of our smartphone in theory doesn’t leave any place for speculation about the place of origin. But in reality the case is not so transparent.

Although the device is in fact assembled in China, the Chinese factories are only the last link of the long chain of deliveries. The different parts of the phone are made on various continents, e.g. in Germany, Netherlands, USA, Japan or Taiwan. The screen, processor and other components have to come a long way until they finally reach the production lines. And, obviously, their transportation costs.

We need to add also the labor costs—especially low (there’s a reason why the device is assembled in China). It’s not even 1% of the whole price. Together the production costs of the smartphone and the attached accessories (earphones and charger) are making almost one fourth of the price we pay in the store.

Every fourth euro goes to the manufacturer

Ready and packed devices (the packaging is an additional cost, around €1.70) are send to distribution. When buying the smartphone we pay also for the cost of transportation from factories to the wholesalers. With insurance it’s around 4% of the whole price.

From wholesalers smartphones finally reach the store shelves. While determining the final price, in addition to production and transportation costs, we have to take into account:

• Reseller margin – in the official distribution its amount is set not by the resellers themselves but the producer. This is why after the new model’s premiere the prices in different stores are usually identical. In our case the reseller gets almost 5% of the whole price;
• Producer margin – almost one fourth of the whole price we pay goes straight to the producer. Of course it’s not a pure profit, but still, the margin is quite high. The brand can afford that—after all, we’re talking here about the product which is supposed to be luxurious, which means also the higher price;
• VAT – smartphones are charged with the standard 23% rate.

Hit up for the gigabytes

In the store we can choose between two options with different memory available. Although for the manufacturer the cost of upgrading the memory from 32GB to 128GB is several dozen of euros, the difference in price we pay is much bigger. For the 128GB version we have to pay €110 more!

It’s a psychological trick. Usually we don’t think about how much the additional gigabytes cost—we’re convinced by the fact that there’s four times more memory. Of course, we could rationalize it (in theory the more expensive model we buy, the less we pay for the single gigabyte). But in the age of streaming and clouds does it really make sense to pay for the additional memory? Well, it’s a topic for another day.

For now, the one thing is certain—the high-end smartphones are expensive and will be even more expensive. Even now, in face of the rising costs of production and various components, the producers are lowering the margins to keep the prices in order. But the technological race is rushing without being concerned about our wallets.

The information stated above are based on the manufacturers’ reports, international carriers’ offers, data sets found on the professional websites and more. Of course, they’re not a perfect reflection of the reality but only estimation that we used to show the products’ journey to the stores. Not many companies share the details of manufacturing and distribution of their products. By taking a closer look at their prices we want to encourage discussion and above all—conscious shopping!

About VAT: this tax is charged on the net price, which means net price = 100%, gross price = 123% (100% + VAT 23%). Consequently, VAT makes approximately 19% of the gross price.

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Check what you pay for

Take a look at our Real Price of Goods series and find out what’s the price of: