India’s smartphone scene is playing out like a drama with two very different acts. The once-thriving budget smartphone market is taking a nosedive, with people moving away from entry-level options faster than anyone expected. But while one door closes, another opens wide—premium smartphones are flying off the shelves, luring customers with sleek designs, powerful features, and the promise of 5G. It’s a surprising twist changing the game in ways we didn’t see coming just a few years ago.

The Fall of Entry-Level Smartphones

Once the backbone of India's smartphone revolution, entry-level devices- those priced below $100 or ₹8,300 are witnessing a steep decline. According to IDC, shipments in this segment fell by a staggering 36% year-on-year in the second quarter of 2024. What was once a dominant 40% share of the market in pre-COVID years has now dwindled to a mere 14%.

This trend highlights a profound shift in consumer behaviour. Once driven by necessity, the purchase of an entry-level smartphone was often a stepping stone into the digital world. Now, however, even first-time buyers are skipping the basic models, instead opting for either second-hand premium phones or mid-range devices with financing options. The Canalys survey revealed that half of the consumers transitioning from feature phones are bypassing entry-level smartphones altogether. The era of the ₹5,000 smartphone is rapidly fading into memory.

But what’s causing this sudden abandonment of entry-level devices? A combination of factors, including evolving consumer expectations, increased disposable income, and the rise of financing options, has led to this dramatic shift. Today’s consumers no longer see smartphones as mere communication tools; they view them as gateways to entertainment, payments, productivity, and social connection. With this broader view, the bare-bones feature of entry-level devices simply don’t cut it anymore.

The Rise of Premiumization

On the flip side, the premium smartphone market is experiencing a renaissance. Consumers are flocking to devices that offer not just functionality but an elevated experience. The super-premium segment (priced above $800 or ₹66,000) saw a 22% year-on-year increase in sales during the same period, with Apple's iPhones leading the charge. Apple alone accounted for 83% of shipments in this segment, with Samsung coming in second at 11%.

What’s driving this hunger for premium devices? One word: experience. The modern Indian consumer wants more from their smartphone than just a calling and texting device. They want a powerful camera to capture life’s moments, a fast processor for seamless multitasking, and of course, the latest 5G connectivity to ensure they’re ready for the future. In a world where social media presence, gaming, and content creation have become mainstream activities, smartphones are no longer just tools—they’re lifestyle choices.

Furthermore, the rise of easy financing options has made premium devices more accessible than ever. A ₹1 lakh iPhone is no longer a distant dream for many, thanks to instalment plans, cashback offers, and buy-now-pay-later schemes. Combine this with a growing middle class that’s more willing to splurge on luxury, and you have a recipe for the booming premium market.

A Market in Transition: What’s Next?

This dual narrative of decline and ascent is creating unique challenges and opportunities for smartphone brands. For manufacturers like Xiaomi, Realme, and Vivo, which built their fortunes on affordable devices, this shift presents a critical dilemma. Should they continue to push budget devices in a shrinking market, or should they pivot to compete with premium giants like Apple and Samsung?

Xiaomi’s recent efforts to enter the premium market with flagship models reflect this tension. While the brand continues to dominate the budget segment, breaking into the high-end market is proving to be a complex task. Competing on price alone isn’t enough in the premium space; success here requires innovation, brand prestige, and customer loyalty—qualities that companies like Apple have spent decades cultivating.

On the other side, premium brands face their own set of challenges. The rapid pace of innovation means that staying ahead of the curve requires constant investment in research and development. As consumers become more discerning, simply offering a premium device isn’t enough—it needs to be the best on the market. For brands like Apple and Samsung, this means continuing to innovate with cutting-edge features, from advanced AI-powered cameras to foldable screens.

The Entry-Level Paradox

Interestingly, even as the entry-level market shrinks, there’s still some interest in reviving it—albeit cautiously. Qualcomm’s launch of an affordable 5G chipset sparked hope that budget 5G devices might rejuvenate the segment. However, even brands like Xiaomi, which initially capitalized on this segment, are hesitant to jump back in. An executive at Qualcomm’s launch event noted that there are “few takers for these handsets” as brands have largely shifted focus to higher price tiers.

The paradox here is clear: While the need for affordable connectivity in a country with over a billion people is undeniable, the expectations of even the most budget-conscious consumers have risen. Today’s entry-level buyers don’t just want a phone—they want a smartphone that can handle social media, video streaming, and gaming. But at this price point, compromises on hardware are inevitable, making it difficult for brands to deliver an experience that satisfies these demands.

The Road Ahead? A Market of Extremes

The polarization in the smartphone market is forcing brands to rethink their strategies, as the days of simply catering to a large base of budget-conscious consumers are fading.

For brands that want to succeed in this evolving landscape, the key will be adaptability. Whether it’s innovating in the premium space or finding new ways to make entry-level devices appealing, success in India’s smartphone market will require a deep understanding of changing consumer needs and the ability to pivot quickly.

The future of the Indian smartphone market will likely continue to be a story of extremes. As technology advances and consumer expectations rise, the gap between the low-end and high-end segments will only grow wider.