Report: Device financing boosts sales of high-end iPhone 5s

An uptick in U.S. wireless customers using device financing plans has led to an increase in sales of the  more expensive Apple (NASDAQ: AAPL) iPhone 5s among customers who activated iPhones, according to a new report from Consumer Intelligence Research Partners.

According to the report, customers who financed unsubsidized phones gravitated toward the more expensive models. In the case of Apple, CIRP found that the high-end iPhone 5s accounted for 73 percent of financed iPhone sales, compared to 61 percent of all iPhone sales overall. The report was based on the findings on a survey of 1,500 U.S. customers who activated a new or used phone in from July 2013 to March 2014.

The report comes as more and more data is indicating that U.S. customers are embracing device financing plans, which U.S. carriers have made available as part of early upgrade programs. Enrollment in smartphone upgrade plans among U.S. consumers has more than quadrupled since September 2013, going from 7 percent to 31 percent by the end of the first quarter of 2014, according to a report earlier this month from the NPD Group.

On one hand, it might seem odd that consumers would choose to finance a device that costs $650 unsubidized, as the 16 GB iPhone 5s does, rather than a cheaper model. However, CIRP found that the marginal difference in monthly financing costs is not a barrier to customers choosing higher-end phones.

"The move away from subsidized phones has given an unexpected boost to the iPhone 5s in the U.S.," CIRP co-founder Josh Lowitz said in a statement. "When customers are paying the full price of their new phone, the common prediction was that they would gravitate toward less expensive models. The carriers' decision to offer interest-free 24-month financing seems to have more than counteracted that pressure. When confronted with a payment difference of less than $10 per month, iPhone buyers have chosen to buy the higher price, premium phones. "

At AT&T Mobility (NYSE: T) for example, the 16 GB iPhone 5s can be financed over 20 months for $32.50 per month, for a total cost of $650. The cheaper iPhone 5c can be financed over 20 months for $27.50 per month, for a total cost of $550.

"A decision whether to buy a subsidized iPhone 4s, 5c or 5s means a big difference in spending, $100, $200 or more, or immediately spending double or more," Lowitz said. "In contrast, unsubsidized phone prices tend to differ by about 20 percent, and when they are broken into 24 payments, they are truly marginal."

CIRP estimated that during the survey period, the U.S. weighted average retail price (US - WARP) for financed iPhones was $696, compared to a WARP for subsidized iPhones of $669. That estimate was based on data on individual iPhone model sales, which the research firm said is comparable to Apple's reported average selling price data. "This change in behavior especially surprised us given the retail channels in play," Levin added. "All of these carrier-financed phones are sold at carrier stores and websites, notably not at Apple stores. And traditionally Apples stores have been strongest at selling flagship and premium iPhones."

For more:
- see this release (PDF)

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