Retailers win at cell phone pricing

This Deal of the Day comes from Kelli B. Grant at partner site SmartMoney.

 

In the market for a new cell phone? Consider shopping at the nearest electronics store.

 

Starting today, Wal-Mart will sell the 16GB iPhone 3GS for $97 with a two-year AT&T contract, instead of the $199 price tag both AT&T and Apple offer. When Wal-Mart announced its planned price drop last week, analysts and consumers alike saw the move as a confirmation that Apple would unveil a new model of the popular smart phone in June.

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But it's not at all unusual for big-box retailers such as Wal-Mart, Amazon.com, Best Buy and RadioShack to offer handset prices that are significantly lower than those at carriers. In April, the average subsidized smart-phone price from retailers was $43.64, while mobile operators charged nearly three times as much -- an average $117.08, according to industry tracker ABI Research. The averages shift monthly as new phones enter the market, and overall prices have steadily dropped as smart phones have gotten cheaper, says Michael Morgan, a senior analyst for the firm.

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For example, New Yorkers can get the Motorola Droid online from Verizon Wireless for $200 (after an instant discount of $100). Best Buy has it for $100; Wal-Mart and Wirefly.com, $20. (Without a contract, Motorola sells the handset for $600.) These prices are possible because the stores have more room to discount than carriers, which shoulder the burden of the initial phone subsidy (the difference between the lower retail price and manufacturer's suggested price) no matter which of its authorized resellers makes the sale.

 

But there are things to keep in mind when heading to the big-box retailer nearest you. For one, they tend to carry only the most popular -- and so most incentivized -- phones, Morgan says. What's more, retailers are seeking to get you into the store with low-cost phones -- and keep you there to make more profitable purchases, including phone accessories. "It's a highly profitable business," says R.J. Hottovy, a senior stock analyst for Morningstar who covers the industry.

 

Carriers, too, are anxious for business and can be open to negotiating on handsets at a loss if it means gaining new customers, says Harry Wang, the director of mobile product research for Parks Associates. Wal-Mart, for example, has a strong foothold with lower-income households that could broaden the audience for major carriers. Ultimately, the two-year service contract is more profitable, he says.

 

Where to buy

Sales and promotions can vary widely, so it's worth shopping around:

 

Sign up for loyalty programs. Members often get exclusive deals that can drop prices further. For example, Best Buy offered members an extra $50 off the new Sprint LG Rumor Touch if they purchased it over Memorial Day weekend, pushing the price down to $30. Nonmembers got the phone for $80, as did those purchasing it directly from Sprint. Consumers can sometimes earn airline miles and other rewards for phone purchases.

 

Look for instant discounts. Claiming rebates can be a hassle, Wang says. Look for instant discounts and service credits whenever possible.

 

Read the fine print. Many carrier offers don't apply to retailer purchases. When it debuted the BlackBerry Storm in 2008, Verizon widely advertised a $50 rebate on the handset. But the fine print noted that the offer was limited to purchases made at a Verizon store or the carrier's website.

 

Monitor manufacturer rebates. Manufacturers occasionally rebate handsets, which can push the price down further, Morgan says.

 

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