Everybody loves a bargain, right? Especially when it comes to smartphones, it doesn’t get much better than inexpensive handsets — or does it? From the consumer’s perspective, low-priced hardware can be seen two ways: either it represents a good deal or, sometimes, simply a cheap and low-quality product.

Certain brands go out of their way to avoid the appearance of being cheap and mass market, even if it means lower sales on higher margins: think Nokia sub-brand Vertu. Other companies, however, embrace the low-cost model, hoping to make their money on volume — although perhaps at the expense of brand cachet. After reading that the Samsung Focus 2 was launched today by AT&T for just $50 on contract, it struck me that perhaps Windows Phone has become this second type of brand: one which is attempting to compete almost soley on price.

That’s not to say that the phones or operating system themselves are chintzy, as WP handsets often rate very high in consumer satisfaction. Nor does it appear that Windows Phones have higher failure and/or repair rates than other platforms. What should be troubling to Microsoft and its partners, however, is the trend of moving WinPho downmarket, with the majority of phones retailing for under $100 on contract after a generous subsidy. Bucking this trend somewhat are the Samsung Focus S and, curiously, both generations of the HTC Titan, with all of those devices retailing for $200 (but not the $250 or $300 commanded by the top Android phones.)

Competing solely on price can be a dangerous game: competition quickly pushes prices down to nearly free-on-contract, with even the flagship Nokia Lumia 900 fetching only $100 just weeks after its release. Carriers will tell you that the dollar differences between high and low end phones are mostly obviated by the expensive, data-rich contracts required to purchase the latest phones, but it’s important to extrapolate some of the other effects of low prices on competitive and even superior hardware.

While it’s certainly not a hard and fast rule, people shopping based on price alone will most likely tend to sign less lucrative contracts — perhaps even entry-level agreements with small buckets of minutes and megabytes. More important to Microsoft itself is the seemingly lower output that bargain shoppers would tend to spend on apps in the Marketplace; it would be interesting to see an actual breakdown of average dollars spent by device.

Bear in mind that in some respects, Windows Phones absolutely need to be priced low in order to move any significant volumes. Even though they perform as well or even better than competing handsets, they still lag in perhaps the most important area: their spec sheets. Until Windows Phone 8 Apollo rolls out with its support for higher resolutions and multi-core processors, the current generation of devices simply pales in comparison to the quad-core, 720p Android beasts hitting the market today.

Fortunately for Microsoft, WP8 is due out this year, and should allow OEMs to price their wares significantly higher. That will be a good thing for the platform as a whole, because while it’s great that WinPho has become so affordable for entry-level consumers, brands that want to compete in the full gamut of ranges will always need higher-priced items for shoppers to aspire to.

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