Just when you thought you couldn't buy anything for just $1 these days, Samsung is taking a shot at poaching iPhone users for that amount, even as Apple (NASDAQ:AAPL) enjoys the highest customer loyalty in the smartphone industry. Samsung has announced a new promotion called the "Ultimate Test Drive," with which consumers can try one of Samsung's newest devices for 30 days for only $1.
There are no service contract obligations, although users are responsible for damages or lost phones. The device will come with an activated SIM card, so potential switchers don't need to worry about transferring service unless they're ready to switch altogether. The devices included are the new Galaxy S6 Edge, Galaxy S6 Edge+, and Galaxy Note 5.
Sounds tempting, but will it work?
Real phones have curves
This promotion doesn't apply to any smartphone user: It's very specifically targeted at Apple. Only iPhone users need apply. No surprises there, since the iPhone 6 ad 6 Plus have been eating into Samsung's premium phablet business over the past year, so the South Korean conglomerate wants to fight back. Oddly enough, the flagship Galaxy S6 is not included in the promotion. Samsung says it is already temporarily out of test-drive phones because of "overwhelming demand."
Samsung is betting big on curved displays as a potential differentiator, which could be why it's pushing the S6 Edge and S6 Edge+ so aggressively. Just this year, Samsung transitioned to higher-quality materials, at long last addressing ongoing criticisms about its historically plastic devices. Thanks to its deep vertical integration and high volumes, Samsung is one of the few vendors that can manufacture and produce a curved smartphone display at scale.
The Edge has no edge against the iPhone
However, the curved edge that Samsung is betting big on comes at a cost. For consumers, the S6 Edge comes in at a $100 premium compared with the regular S6. The S6 Edge+ costs even more, starting at $750 for a 32 GB model. Some reviewers also consider the unique shape to be a bit awkward. It seems that Samsung may have put form over function, especially since the software features aren't particularly compelling.
For what it's worth, IDC's market estimates suggested that the S6 and S6 Edge demand outstripped demand in the second quarter, even if the new devices "arrived with mixed results." Notably, Samsung is the only vendor of the top five that saw unit shipments stagnate last quarter while the broader market grew by 12%. When Samsung released earnings in July, mobile revenue fell by 7% while mobile operating profit sank by nearly 40%. Sequentially, Samsung said its product mix improved, which resulted in higher ASPs, but the longer-term trend here is still negative. The outsized drop in operating profit relative to sales suggests that Samsung is investing heavily, spending aggressively on promotions and discounts, or both. Either way, profitability is under considerable pressure.
For the past few quarters, Apple has noted high levels of Android switching. Without elaborating in too much detail, Tim Cook said last quarter that Apple enjoyed the "highest switcher rate from Android that we've ever measured." That presents a clear threat to Samsung, as it continues to tread water in the market. Desperate times call for desperate measures.
Evan Niu, CFA owns shares of Apple. The Motley Fool owns and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.