Best Buy and Sprint Offer $1,300 Off iPhone

Consumer Electronics

Published: May 14, 2015 6:40 am

One or more of the three companies involved in a $1,300 discount for an Apple Inc. (NASDAQ: AAPL) iPhone 6 sold by Best Buy Co. Inc. (NYSE: BBY) and tied to a Sprint Corp. (NYSE: S) lease is losing money. And it isn’t Apple. Best Buy and Sprint need customers and larger market share against their major competitors, and they are willing to go to great lengths to get them.

The deal appears simple at first glance, but is actually very complicated. Best Buy offers the iPhone 6 at a $1,300 discount when purchased through its “Best Buy One Plan.” The deal requires a two-year lease. Then, Sprint becomes part of the program. The battered wireless provider provides a plan for “unlimited high-speed data, talk and text.” The customer has to take a 20-month lease, and with that gets the iPhone 6 for $0 and no sales tax. The offer is only available for “well-qualified buyers.” Best Buy does not say who those qualified buyers are. The retailer does say that there are other monthly charges. The package taken all together costs $65 a month. Another part of the offer is “Sprint’s Lease Plan” and its “iPhone for Life.”

The offer has to be among the most complex ever offered by a retailer and wireless company together. And, taken altogether, it is too good to be true.

ALSO READ: Analyst Sees Wider Losses Coming at Sprint

Why is the offer so spectacular? Perhaps because Best Buy’s potential customers are being siphoned off by larger rivals, including Wal-Mart Stores Inc. (NYSE: WMT) and Amazon.com Inc. (NASDAQ: AMZN). In the case of Sprint, it continues to attempt to claw customers from its larger and more powerful competitors, AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ). Sprint is also in a battle against slightly smaller competitor T-Mobile US Inc. (NASDAQ: TMUS), whose loud-mouthed CEO John J. Legere continues to scratch to overcome Sprint for the number three spot among U.S. wireless carriers. His company offers a $0 down iPhone 6 as well.

The gamble, it would seem, taken by Sprint and Best Buy is that their extraordinary offer will bring in customers who will stay with them, or perhaps come back. Sprint likely does not make money unless it holds on to these customers for two years, or maybe more. Best Buy has yielded consumers to competitors, particularly Amazon, for years.

Financial results are one measure of how a company is doing. Sprint has had a hard time keeping subscribers. Best Buy has struggled with same-store sales.

In business schools, they probably would say that what Sprint and Best Buy are doing are “loss leaders,” which only work if the losses don’t keeping going on.

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