The Indian smartphone market is popular to be one of the hottest and most competitive ones in the world. This growth is primarily driven by price sensitivity along with the largely untapped market, creating a lot of potential for manufacturers.
However, things are not how they used to be. Budget smartphones have started going up the price ladder with hikes, stocks are usually low and after-sales support is struggling to be able to keep up.
There are multiple reasons to why the market has turned around over the last few months. Of course, the Covid-19 pandemic had a huge hand in pressurizing the budget smartphone space which already runs at pretty thin margins. It had a ripple effect on others in the supply chain and things got worse with time.
Some manufacturers even had to introduce price hikes on older models, while the new ones were directly introduced at slightly higher price points. While the budget segment contributes to the majority of sales, it is also the worst hit by these factors.
Let’s break down the reasons for the unforeseen rise in the prices of smartphones in India.
Market forces
As with all commodities, the prices of smartphones are based upon their demand and supply. Smartphones are becoming more indispensable with time, and are thus gradually becoming less price elastic. Moreover, with almost an entire quarter of no sales, there was a pent-up demand as consumers were willing to make the purchase but were unable to do so. Naturally, with increasing demand and an all-time low supply, the prices were adjusted. We also think that another factor was brands noticing that demand was not taking a big hit with small increments in price, and decided to go ahead with them.
Running a business
It’s no secret that the pandemic and other related issues hit many businesses. While the demand for smartphones was high, it doesn’t necessarily indicate great business. In fact, the inability to sell goods made matters worse. With almost three months of sales wiped off, manufacturers will also need to resort to ways to achieve their yearly targets in a shorter period of time without affecting the product cycles. Moreover, most factories are also currently not allowed to function at full capacity, creating a bottleneck in the production.
Supply chain disruption
The production lag is not just from the manufacturer’s side, but also from their suppliers. Complex products such as smartphones have numerous sources for every component. With their Indian factories acting as assembly hubs, all parts need to be available at the right time for production to proceed. However, component suppliers are also facing similar challenges while trying to meet the demand. The ongoing crisis with China has also delivered a blow as some key components can only be sourced from there.
External economic factors
Even if these factors eventually normalize, businesses will still be affected by other factors. The most prominent one was the rise in GST from 12% to 18%. This had a direct impact on the price of smartphones, which for a price-sensitive market like India, is not always easy to pass on. Secondly, there’s also the factor of the depreciation of Indian rupee against the US dollar. Since components and partners are based in different countries, a lot of transactions happen in dollars. Over the course of this year itself, the value has appreciated by almost 10% (1$ = Rs 75.5, at press time) which had to be borne by manufacturers.
The offline market
Things are not much better in the offline market, which is where a majority of smartphones in India are sold. Products sold online are almost always cheaper than those available at retailers. This is because of multiple markups the product is subjected to, such as the manufacturer, distributor, wholesaler, retailer, etc. Not just that, but since the product will switch so many hands, it creates more opportunities for time lag to be a part of the equation. It is evident that many retailers are currently stuck with older inventory which might no longer be the best deal in the market.
When will things improve?
What does all of this mean for you, as a consumer? Sadly, it looks like the increased prices are going nowhere in the near future. Some manufacturers expect to be closer to previous levels by the end of this year, but the reality is anyone’s guess for now. Moreover, the external factors might never go away, and will be a part and parcel fo the Indian smartphone market for a while. There’s also not a lot more localization possible to reduce our dependency on foreign suppliers. It will be interesting to see how OEMs plan to navigate through these times while continuing to maintain the excellent value propositions that we’ve come to expect from them.
