Thursday, January 26, 2012

Why is Amazon Able to sell Phones Cheap?

I have people ask about why Amazon is able to sell phones like the LG Spectrum and the Galaxy SII at prices much lower than they are sold at carriers for. Phone carriers already subsidize phones when you purchase them with a contract, but many times you will notice places like Amazon and Wirefly sell these phone $50-$100 less than what the carrier subsidized price is at their corporate stores. The answer is a referral fee.

When you buy through Amazon the carrier pays Amazon or Wirefly a referral fee for signing you up on a  contract. This is evidently quite large as many phones get significant discounts, and you know these places aren't taking a loss, but the carriers are. The carriers already take a loss on your phone sale and when you buy it from someone like Amazon costs them even more (if that tells you how much they make on your plan). The only stipulation the carriers give somewhere like Amazon is that the customer must keep the account in good standings for 6 months to get payment. This is why these stores have stipulations to you that if your account is marked as not in good standing you could be charged for the rest of the phone price. I'm sure they also get the phones discounted as well for buying volume, but there isn't nothing wrong with the phones they are still brand new, the carrier is essentially paying Amazon to lure you in so they can make money off the phone plan your going to have to pay for. Hit the source to see how Wirefly explains it which is the same process as what allows Amazon to sell them cheaply.


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