Is this a fraudulent business practice? Completely hypothetical, of course...

[MetalJunkie]

Let's say I work for a cellular company.
Let's say said company wants me to sell $150 worth of accessories with each $650 phone.
Company tells me to tell customers it's an $800 phone that comes with $150 worth of accessories.

If, and only if, customer asks "do I have to get accessories?" I can then say no.

Hypothetically.

[El Barto]

I'm going with no. It's not fraudulent. It's misleading, but such is the nature of capitalism. At Barto's Used Cars, I'm damn sure trying to sell $6500 cars for $8000, and I'm not necessarily including added value. In this case the customer is free to say "eh, I don't need your added bullshit" and walk next door to buy just the phone for MSRP. I'm a hardass shopper, myself. I would already know what the phone's worth and would happily walk away to save $150 for $20 worth of gadgetry.

[Skeever]

I think it's a poor sales tactic for some people, but I'm all for consumers educating themselves. But I do understand, I hate being sold a bundle when I'm simply trying to buy a single item, and that's the reason I educate myself, or buy everything online these days.

One thing I've found from as my 20's come to a close is that there are simply put, a lot of people out there, and a lot of them have a lot of money. It's hard to see this from the perspective of a guy making $12/hr from a mall kiosk (and trust me, been there), but people out there wandering the mall itching to buy $600 are generally loaded. They go to the mall knowing full well that they are paying a premium on everything they buy there. They don't care, or don't let it bother them, because they can afford to do that without thinking twice about it. Trying to sell people whatever they'll buy is part of your job and you shouldn't feel guilty about it. Of course part of your job is to size your customer up, and if all this added nonsense you're pushing is going to hurt the sale, you're right to not push it as hard.

[lordxizor]

I think if you sold it as a package for $800, that's fine. It's borderline saying it's an $800 phone with $150 of free accessories, but I think it's probably still legal. You can sell the phone for whatever you want to sell it for.

[ariich]

In the UK and EU I think that would count as fraudulent. I don't know about US consumer law though.

EDIT: Actually others are correct that the word "fraudulent" probably does not apply. But misleading, certainly, to an extent that would be illegal in the UK/EU. But not technically fraud, I imagine.

[mikeyd23]

I wouldn't say that is fraudulent, I'd say it's a shady way to up-sell.

[Stadler]

Devil's advocate here:  why is it fraudulent?  At the end of the day are you getting goods that, on the open market, are worth $800?   Yes, you are.   If the phone was filled with rice, I'd say you're on to something.  If the "accessories" were the box it came in, I'd say you're on to something.  That they don't tell you "you CAN spend just $650 but you won't get any of this [points to accessories]" is as much on the customer as the seller, in my opinion (not my LEGAL opinion, just my personal opinion).   

[ariich]

Good points about whether it is technically "fraudulent". I edited my last post.

[orcus116]

It probably should be fraud since it's a dishonest and deceptive tactic but in the spirit of consumer education, as some have mentioned, someone should know that it's a $650 phone and not an $800 phone, accessories or not. If this was considered a true fraudulent business practice I'd bet almost every business in the country would have to shut down.

[Cool Chris]

In a related story, the economy seems to be doing very well if people are paying $650 for a cell phone. And what accessories total up to $150? I have never spent more than $100 for a phone or $10 for a pair of ear buds. Maybe I am doing something wrong.

[cramx3]

If you bought the phone for 650 and the acccessories for 150, selling it for 800+150 would be the only way to profit though?  (I mean selling for more than you bought? so even at 1 more, that's your margin)  I'm just wondering if I am reading this wrong, because I am not sure how this hypothetical company makes money.  I don't think it's fraudulent one bit, but the way it is worded does make it seem like a rip off at least.

[MetalJunkie]

And what accessories total up to $150? I have never spent more than $100 for a phone or $10 for a pair of ear buds. Maybe I am doing something wrong.

Well, the phone is financed over 30 months. Accessories can also add up quickly, and can also be financed.

Otterbox/Pelican Voyager are 50 to 60 depending on phone size, 35 or 45 for tempered glass, plus stuff like LG Tones, Beats, UE speakers, etc.

[MetalJunkie]

If you bought the phone for 650 and the acccessories for 150, selling it for 800+150 would be the only way to profit though?  (I mean selling for more than you bought? so even at 1 more, that's your margin)  I'm just wondering if I am reading this wrong, because I am not sure how this hypothetical company makes money.  I don't think it's fraudulent one bit, but the way it is worded does make it seem like a rip off at least.

I'm pretty sure the carriers don't pay Apple $650 for an iphone. Or maybe they do, and all the income is from the phone service itself. And accessories.

[cramx3]

If you bought the phone for 650 and the acccessories for 150, selling it for 800+150 would be the only way to profit though?  (I mean selling for more than you bought? so even at 1 more, that's your margin)  I'm just wondering if I am reading this wrong, because I am not sure how this hypothetical company makes money.  I don't think it's fraudulent one bit, but the way it is worded does make it seem like a rip off at least.

I'm pretty sure the carriers don't pay Apple $650 for an iphone. Or maybe they do, and all the income is from the phone service itself. And accessories.

I was under the impression that's how they make money, from the plan and accessories, not from the phone itself (in real life that is).  A retailer selling the phone for more than the going price is not likely to get the sale, and if they do, it's on the consumer for not knowing that IMO.  The accessories are a huge rip off if you ask me.  You can usually find them so much cheaper online vs in a cell phone store.  If verizon was selling the phone for more money than Best Buy, than I don't see why anyone would go to the verizon store.

[ariich]

Er, no the carriers pay Apple a lot less than the retail price.

[MetalJunkie]

If you bought the phone for 650 and the acccessories for 150, selling it for 800+150 would be the only way to profit though?  (I mean selling for more than you bought? so even at 1 more, that's your margin)  I'm just wondering if I am reading this wrong, because I am not sure how this hypothetical company makes money.  I don't think it's fraudulent one bit, but the way it is worded does make it seem like a rip off at least.

I'm pretty sure the carriers don't pay Apple $650 for an iphone. Or maybe they do, and all the income is from the phone service itself. And accessories.

The accessories are a huge rip off if you ask me.  You can usually find them so much cheaper online vs in a cell phone store.

People clued in on this are why we have to bundle to hit our quota.

[cramx3]

Er, no the carriers pay Apple a lot less than the retail price.

Do you have a source for this?  Not saying you are wrong, genuinely curious as this thread has sparked an interest in seeing if the carriers do make money off the phone sale itself.  I can't seem to find anything with google for data on this. I want to lean towards you are right because the carrier will try to make money anyway possible, but the prices of phones seem to be standard regardless of where you buy them which leads me to think it's similar business model of a gaming console (money not made on the console, but through games (accessories) and plans (xbox live))  I'm just guessing on this though.

Also, Verizon doesn't charge interest when you buy a phone and pay a monthly installment on it.  I think that's actually kind of interesting.  I'm currently actually paying off my Samsung S6 (which I broke and isn't covered under warranty or insurance) through verizon and also paying off my Samsun S7 through a zero interest best buy credit card.

[orcus116]

I believe the carrier stores sell the phones at the same MSRP. The carriers' product is the service so any way they can get a device into your hands to access that service they'll do. Money from phones (if they get any extra) and accessories are just a bonus. The data plans are their cash cow.

[ariich]

Er, no the carriers pay Apple a lot less than the retail price.

Do you have a source for this?  Not saying you are wrong, genuinely curious as this thread has sparked an interest in seeing if the carriers do make money off the phone sale itself.  I can't seem to find anything with google for data on this. I want to lean towards you are right because the carrier will try to make money anyway possible, but the prices of phones seem to be standard regardless of where you buy them which leads me to think it's similar business model of a gaming console (money not made on the console, but through games (accessories) and plans (xbox live))  I'm just guessing on this though.

Also, Verizon doesn't charge interest when you buy a phone and pay a monthly installment on it.  I think that's actually kind of interesting.  I'm currently actually paying off my Samsung S6 (which I broke and isn't covered under warranty or insurance) through verizon and also paying off my Samsun S7 through a zero interest best buy credit card.

I couldn't say whether the carriers make much profit on the phone when factoring in other costs such as storage, distribution, overheads, etc. But with ALL products there is the wholesale price which is lower than the retail price. Retailers (which includes carriers in this instance as well as stores) will buy the products in bulk from the producer (Apple in this instance) at wholesale prices and sell at retail prices. This allows them to make a "profit" (technically called a contribution) on the products themselves in order to cover their own costs - efficient ones should be able to make an overall profit on them; others maybe not and might be more reliant on higher-margin accessories.

That's just how trade works.

[Stadler]

Ariich is right 98% of the time, but I believe the cellphone industry - at least with Apple - is slightly different.   The CANNOT - Antitrust Laws - tell their distributors what to sell for, and the distributors CANNOT - Antitrust laws - collude with each other to set the prices.   So the lack of any deep discounts, or "loss leaders", tells me that they are all getting charged the same or very similar prices, and that they aren't really making a ton of money on the units themselves.   

You'll note too that the advertisements are almost always centered around the plans themselves, and not the hardware.   

I don't know any of this for hard fact, but it can be inferred from the data available.

[El Barto]

The current business model. A bit over my head, honestly.

https://www.bloomberg.com/news/articles/2015-04-30/t-mobile-changes-iphones-from-loss-leaders-to-source-of-finance

[cramx3]

Er, no the carriers pay Apple a lot less than the retail price.

Do you have a source for this?  Not saying you are wrong, genuinely curious as this thread has sparked an interest in seeing if the carriers do make money off the phone sale itself.  I can't seem to find anything with google for data on this. I want to lean towards you are right because the carrier will try to make money anyway possible, but the prices of phones seem to be standard regardless of where you buy them which leads me to think it's similar business model of a gaming console (money not made on the console, but through games (accessories) and plans (xbox live))  I'm just guessing on this though.

Also, Verizon doesn't charge interest when you buy a phone and pay a monthly installment on it.  I think that's actually kind of interesting.  I'm currently actually paying off my Samsung S6 (which I broke and isn't covered under warranty or insurance) through verizon and also paying off my Samsun S7 through a zero interest best buy credit card.

I couldn't say whether the carriers make much profit on the phone when factoring in other costs such as storage, distribution, overheads, etc. But with ALL products there is the wholesale price which is lower than the retail price. Retailers (which includes carriers in this instance as well as stores) will buy the products in bulk from the producer (Apple in this instance) at wholesale prices and sell at retail prices. This allows them to make a "profit" (technically called a contribution) on the products themselves in order to cover their own costs - efficient ones should be able to make an overall profit on them; others maybe not and might be more reliant on higher-margin accessories.

That's just how trade works.

yea I totally understand that, but as Stadler pointed out and I mentioned before, the fact that you don't see different prices for the same phones makes me think that it's not so simple as stated.  Maybe Barto's link gives insight but if it's over his head, then I'd imagine over mine.  A bit busy at work today but I am curious to at least give it a read when I get a chance.

[ariich]

The current business model. A bit over my head, honestly.

https://www.bloomberg.com/news/articles/2015-04-30/t-mobile-changes-iphones-from-loss-leaders-to-source-of-finance

As I understand it, that's a different scenario where you get the phone (for a heavily reduced cost or even nothing) as part of a fixed term contract because the margins are so huge on the contract. I don't know about the US, but in the UK, it generally works out cheaper to buy a phone outright and get a SIM-only deal/contract instead, so you're not actually getting the phone cheaper or free on a package contract, you're just paying for it over the contract period.

That's different to selling the phone outright, which the OP was about.

[El Barto]

The current business model. A bit over my head, honestly.

https://www.bloomberg.com/news/articles/2015-04-30/t-mobile-changes-iphones-from-loss-leaders-to-source-of-finance

As I understand it, that's a different scenario where you get the phone (for a heavily reduced cost or even nothing) as part of a fixed term contract because the margins are so huge on the contract. I don't know about the US, but in the UK, it generally works out cheaper to buy a phone outright and get a SIM-only deal/contract instead, so you're not actually getting the phone cheaper or free on a package contract, you're just paying for it over the contract period.

That's different to selling the phone outright, which the OP was about.

I think that what you were describing was the earlier model, where the phone was a loss-leader to sell stupidly expensive service. That's changed in that now they're selling you the phone for the full $650 over 24 payments. They're just monetizing the purchaser's debt, which is where my understanding drops off.