Samsung Electronics has decided on the name of its rental phone service as ‘Galaxy Club’ and is going to introduce it at the same time as ‘Galaxy S7’. Its plan is going to continue the fire of Galaxy S7 that will be ignited in Barcelona next week. It will be interesting to see whether or not purchasing program that manufacturers are introducing in cellphone distribution structure that is centered on mobile telecommunication businesses will succeed.
According to mobile telecommunication industry on the 18th, Samsung Electronics’ rental phone service called ‘Galaxy Club’ will start on the 11th of next month and its first target is its premium Smartphone called Galaxy S7. Finance that is needed for rental phones will be taken care of by its affiliates. It is heard that Samsung had finished preparation of release and is currently filming TV advertisements.
Samsung Electronics is going to introduce Galaxy S7 in Barcelona on the 21st which is a day before the opening of MWC 2016. Consumers will be able to buy Galaxy S7 on the 11th of March which is 3 weeks later. Galaxy Club will also be introduced on this day, and Samsung Electronics is planning to put both of its product and rental phone program at the same time.
Industries and consumers are interested in detailed information of Galaxy Club that is still unknown. Rental phone service is a system that allow consumers to exchange their phones after using them for certain period of time. When used phones are returned, remaining installments are exempted.
Time for exchange really depends on how system is set up. Looking at examples in the U.S., time period for rental services are diverse from couple months to a year. ‘iPhone Upgrade Program’ that was introduced by Apple in September exchanges used phones with a new phone every year. T-Mobile customers can change their phones 3 times a year if conditions are met. Industries are expecting that Samsung will also allow customers to change their phones once every year just like Apple.
Installment is also another factor that makes industries and consumers curious. Usually installments of rental phones are more expensive than production cost of cellphones. Because advantages of rental phone service can be neutralized if installments are too expensive, it is important that reasonable cost is set.
Apple set installments of 16GB iPhone 6S at $32.41. If one pays for 24 months, it comes out to $777.84, which is $100 more expensive than its production cost at $649. Apple was able to resolve customers’ complaints by selling insurance program called ‘Apple Care Plus’, which is worth $129, along with iPhones.
Even then, installments that are too low cannot be set. This is because exempted installments are covered by selling used phones and Android phones is lower than used price of iPhones. Samsung Electronics can actually suffer a loss.
It seems that 20% discount will work well with Galaxy Club because markets that allow customers to buy phones at regular stores and activate them at mobile telecommunication businesses need to exist if manufacturers want to start rental phone service. Although these markets did not exist in South Korea, it seems that a gap is starting to widen as 20% discount is starting to receive popularity.
It is predicted that mobile telecommunication businesses will start their own plans when Galaxy Club is started because they do not want to lose their leaderships in distribution markets. 3 major South Korean mobile telecommunication businesses also have finished preparing for rental phone service. In the U.S., distributors put out rental phone conditions that are cheaper when Apple put out ‘iPhone Upgrade Program’.
Rental phone system is appealing to users that often want to change their premium cellphones and it is also the biggest choice for manufacturers because sales of premium Smartphones are currently stagnant due to saturation of cellphone markets, reduction of subsidy from mobile telecommunication businesses, standardization of cellphones’ performances and others. Rental phone can reduce exchange cycle for cellphones and increase sales volume of premium phones.
“While people are starting to buy cheaper phones, manufacturers have no choice but to put out programs such as rental phone system that boosts number of consumption.” said Kim Jang-won who is a director from IBK Investment & Securities Co., Ltd. “Even in profit aspect, manufacturers need to increase sales of premium phones.”
Staff Reporter Kim, Yongjoo | kyj@etnews.com
