Luxury phones with luxury profits

Luxury phones with luxury profits

Although luxury handsets have to date represented only a small fraction of overall mobile sales, consumers’ increasing desire for differentiation combined with the high-profitability of such devices is boosting their presence in the market.

For Jeremy Newing, head of marketing in the UK and Ireland for LG, handsets such as the LG Prada and the manufacturers other designer phones could prove highly beneficial to the company in what he says will be a tough year for the mobile industry.

‘We expect the market as a whole to be flat, with not much growth in contract, but since people are prepared to pay more for these [ultra premium] phones then they will provide us with value rather than volume,’ he says.

Newing points out that it is not only manufacturers like LG who will benefit from this trend for luxury phones: ‘At the end of the day these handsets are aspirational so people will pay more for them so clearly there is an increased revenue opportunity for the operators and the retailers. They need to have them in their ranges.’

LG's tie-in with Prada and the similar arrangement between Samsung and Armani represent great successes but these are more the exceptions, according to Newing, who says there have been many misfits.

The result of little competition is that the majority of the luxury handset market has been left to Nokia’s sub-brand Vertu whose phones typically retail for a minimum of £5,000 and where distribution is, not surprisingly, much thinner than with lower-priced phones.

Elizabeth Maragh, spokeswoman at Vertu, says the handsets are sold in Vertu’s own stores and Nokia flagships as well as 400 high-end watch, jewellery, and upmarket department stores around the world, including Selfridges in the UK.

Despite this limited distribution sales have grown impressively: ‘The top-end of the market, pioneered by Vertu, is growing. When we started [10 years ago], the luxury phone market did not exist…but the brand has gone from strength to strength.’

In keeping with its exclusive nature Maragh would not disclose anything as vulgar as turnover figures for Vertu. However, Neil Mawston, associate director at Strategy Analytics, estimates conservatively that with its ‘quasi-monopoly’ of the luxury end of the market Vertu’s annual handset sales for 2007 would have been around 200,000 units, which equates to turnover of $1.6 billion – approximately 3% of Nokia’s total revenues.

The other benefit for Nokia is that Mawston says it will enjoy a 30%-plus operating profit margin on Vertu handsets compared with a 20% average across the rest of its mobile range. ‘The beauty of this market is the above-average revenues and profits. I’m astounded that other vendors are not doing it,’ says Mawston.

And he believes this situation will remain in the short-term: ‘It is the only one of the top five manufacturers to have a formalised strategy [in luxury phones] and I expect them to milk it for another year before the others catch on.’

This lack of competition has led to an influx of small niche players specialising in customising handsets with jewels and high-quality, expensive materials. Alexander Amosu, founder of custom phone manufacturer Amosu - whose phones sell in Harvey Nichols and Selfridges in London and Manchester – says there is a growing demand for his exclusive phones as evidenced by the quick sale of 11 of his 25 diamond versions of the Nokia N95 - despite their £27,000 price tag.

Clearly such phones are unlikely to find their way into the average high street stores of the major mobile specialists like Carphone Warehouse and Phones 4u but even here there is a noticeable demand for differentiation.

Although this does not mean jewel-encrusted phones a spokesman for Carphone Warehouse says it does mean major growth in demand for fashion handsets such as the Levis and Ted Baker limited edition phones. ‘They are here to stay and sales are set to grow further. We will see more diversification and variety,’ he predicts.

Jim Slater, marketing director at Phones 4u, agrees: ‘We target high ARPU, technology-savvy, fashion-conscious consumers and we are seeing continual growth in their numbers.’

And to help this growth he believes it is essential that these products are marketed appropriately: ‘We communicate the features and benefits of high-end handsets in a more comprehensive fashion than mid-range or basic phones as it is important for consumers to understand the power and flexibility of their device.’

Since the extra profitability of these devices justifies these extra levels of customer service then this provides a heady cocktail for growth, especially when into the mix is thrown the increased demand by consumers for more individual, stand-out products.


 

Written by Mobile Today
Mobile Today

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