Lessons can be learned from the recent rapid drop in iPhone prices. What is really going on in this debacle is that product cycles are getting shorter by the day in consumer electronics, and the industry hasn’t yet realized the massive changes that this entails for their business models, and the way they need to talk to their consumers.

The problems consumers face:

1) It no longer makes any sense to “invest” in electronics because they depreciate so quickly, so many people delay their purchase.

2) New models come out so quickly these days that the tech-savvy customer rarely wants to own a device for a long time anymore.

3) Upgrading constantly is way too expensive for most people because they don’t get any money back for their used device.

The problems retailers face:

1) Consumers delay purchasing because they are afraid to buy devices that they know are going to get cheaper.

2) Compressed margins on devices mean that accelerating velocity of sales is increasingly important.

3) Extended warranty plans make up most of their profit, but actually encourage people to own the device for longer periods, and are increasing irrelevant to consumers who want temporary ownership.

4) Few retailers understand how to own the full lifecycle of the consumer’s upgrade path. The current plan is “Sell them something and hope they come back at some point.”

Ownership 1.0 Solution: Trade-In Services

The pitch: At the end of of the useful life of a device, trade-in services can help consumers and retailers by turning the value of the device into store credit or cash that can help make upgrading more affordable, and help drive a new sale for the retailer.

Problem: Don’t connect the trade-in value at the end of ownership to the upfront sale, so they do nothing to encourage people to buy sooner.

Problem: Don’t provide any incentive for the consumer to come back to the same store to trade the device in.

Problem: People fear the uncertainty of the depreciation more than anything. The shock that consumers experienced with the drop in iPhone prices is a perfect example because what shocked them was not the depreciation itself, but how unexpected it was. If people knew upfront what to expect, they would have been able to make more informed choices about when to purchase.

Ownership 2.0 Solution: Locking in Trade-In Values At Point of Sale

The Pitch: By guaranteeing future value for the devices *at the time the consumer buys the device*, the consumer can:

Solution: Purchase with confidence during turbulent times.

Solution: Know how much they can get back for the device at any time in the future.

Solution: Plan their upgrade path better, and make upgrading more affordable at the same time.

By guaranteeing future value for the devices when the consumer buys, the retailer can:

Solution: Encourage customers to purchase during turbulent times.

Solution: Encourage the customer to come back to the same store to get their guaranteed price in store credit.

Solution: Provide certainty around the depreciation a consumer will experience over a given period of time.

Solution: Encourage consumers to upgrade faster because they can plan their upgrade paths better because they know the guaranteed value of their trade-in.

Guaranteed Buyback plans from TechForward solve many of these problems (yes, this is a shameless plug – it’s my company) .