Stratagem: Can Samsung keep its edge in smartphones?

The South Korean player enjoys a clear lead over its Finnish rival in the smartphone sweepstakes currently but there are quite a few curveballs to come in the hyperactive mobile phone market before a clear winner can emerge. Until as recently as 2008, Nokia had an invincible lock on the mobile phone market in India. The Finnish giant was by far the strongest Richmond in the field, controlling a humongous 75% of the Indian mobile handset market by volume. 

But over the next couple of years, even as the handset market was going through a watershed technological change and churn, Nokia made the mistake of taking its eyes off the emerging market trends and has had to pay a heavy price for the lapse. By the time it realised its mistake, the South Korean major Samsung had already taken the market by storm, introducing a whole new dynamic to the Indian mobile phone market: smartphones, which have operating systems just like PCs (with Android being the most popular). 

The past two years have seen Samsung make hay and sunshine of the Indian handphone market while Nokia has been left to nurse a bloody nose in the smartphone sweepstakes. From the staggering peak of its market leadership four years ago, it has seen a heartbreaking fall with its current market share declining to 31%. In comparison, Samsung’s share in the volume game has moved up from 5% to 28% over the past two years alone, according to a research report by Cyber Media. The cardinal sin Nokia made was to forget that technology is ephemeral in nature. So when smarphones became the hottest flavour in the handset business, Nokia was caught napping. 

So far it had played the market on the strength of its feature phones and had nothing equivalent to offer in the sizzling smartphone category. Its Symbian platform looked antediluvian and anachronistic in comparison to Samsung’s offerings on Google’s Android. Unlike Nokia, Samsung had abandoned the Symbian OS early on and succeeded in developing leadingedge handsets using multiple operating systems. At the same time, it developed its own operating system – called Bada – to push smartphones into the mid-market and cannibalize the feature-phone segment. It was also quick to launch several attractive models on Google’s Android platform, which helped it gain global market leadership in the smartphone segment. 

The Korean tech giant with an estimated revenue of roughly $200 billion globally started its tech world ascendancy in late 1980s till’90s as a component manufacturer and supplier of DRAMs, and other flash memory chips for companies like GE and (its love/hate partner/foe) Apple Inc. In the ’90s, once it got the hang of basics like DRAMs, and LCD displays, it quickly scaled its electronics business, investing big sums to create economies of scale and outprice the competition. On the strength of its broad product portfolio, differentiated retail and multiplatform strategy Samsung has, in recent years, gone about breaking Nokia’s hegemony and its premium brand perception. Nokia’s fortunes have been in reverse gear as it’s two biggest markets – China and India – have gone on to lap up the feeding frenzy over smartphones. Today, Samsung has a clearly established lead in the lucrative and rapidly growing smartphone category with 43% market share as compared to Nokia’s 23%, according to a CyberMedia Research report. 

The saving grace for Nokia is that it’s still the overall market leader in the Indian mobile handset market with Rs.119.25 billion revenue and a 38% overall handset market share, compared to Samsung’s 25.3% share and Rs.78.90 billion in revenue. But there is no denying the fact that the tide has clearly turned Samsung’s way, as there’s no good alternative yet to its smartphone dominance in the Rs.312.15 billion Indian mobile handset market (some other industry estimates put it around Rs.550 billion). Clearly, Samsung’s ascension to the market throne and its emergence In the rapidly growing smartphone category, Samsung leads with 43% market share as compared to Nokia’s 23% as the biggest smartphone manufacturer globally is not a case of overnight success.There is a lot that it has done to differentiate itself from other handset players to claim the throne of the biggest smartphone manufacturer globally. 

Like Apple, Samsung has overlaid Android with a distinctive user interface, which offers consumers a delightful experience. From the beginning, Samsung has remained a pure-play touchscreen player in the smartphone category, which has burnished its premium brand image. “All our products have a simple DNA of innovation, differentiation and quality. Our products are designed with the aim to simplify technology and ease of use for consumers,” says Ranjit Yadav, Country Head, Mobile & IT, Samsung India. 

In the smartphone segment, Samusng has consistently offered global standards and innovative features. For instance, its latest launch S3 comes with retina scan and other such first-in-class features, making it a truly global product. At the same time it has also ensured that its lowend feature phones have good localised applications. Samsung’s strategy has been simple – waiting for the right moment to open up in the market and quicikly moving in to seize the opprtunity with both hands. Experts say Samsung’s success has come from spotting technology trends in the initial stages, in areas where the growth is rapid and development capital-intensive.

It has invested heavily in such areas to make it harder for rivals to keep up. For example only when LCD displays got to 40 inches did Samsung move in to turn them into televisions around 2001. It’s a ‘quick follower’ (less of an innovator like Apple), and has great execution skills. That remains the hallmark of its continuing success over the years. Today, Samsung accounts for almost 13% of South Korea’s exports. Believing in the philosophy of constant ‘change’, as envisioned by its founder, Samsung now has set its ambition to become a $400-billion company by 2020. 

It will invest into still nascent but fast emerging techChange of guard: P. Balaji, the new Nokia India MD, comes in from the erstwhile Sony Ericsson; Can he propel Nokia to become the frontrunner in the smartphone business by taking on Samsung on its strong turf? “The market is fast evolving in the digital communication devices space and no player can afford to be content about its products and their positioning” amandeep kalsi, direc- tor, protiviti india Samsung vs Nokia September 2012 83 nologies related to the healthcare and environment space like medical equipment, LED lighting, solar panels et al.

In India, Samsung has succeeded by becoming a full range smartphone player. It has 19 smartphone models available across varied OS platforms – across Android, Windows and Bada. The company has flooded the market with phones at every price point conceivable, making it easier for aspiring young consumers to jump to their next level of technology experience, as per their needs and affordability. It has priced its products extremely competitively, thus outsmarting the competition. 

Katyayan Gupta, analyst with Forrester Research, says, “Samsung has won because of both its hardware as well as software innovations. It introduced multiple smartphones at quick intervals and varying price-points.” So we have a Samsung Star and Champ models starting around Rs.6,000 to S3 and Note at Rs.35,000. “Samsung offers consumers choices and value for money. It ensures a smooth path for consumers to jump to the next level of smartphones by having products at almost every price point. Nokia phones don’t have so much variety,” adds Gupta. 

Besides, the company hasn’t ignored the feature phone category, which has helped it increase its penetration and build brand awareness in tier 2 and tier 3 towns among consumers, who would become future smartphone users. Though Nokia is still the overall leader in the Indian mobile phone market and has a formidable presence with close to 200,000 service outlets, Samsung has ensured that the brand enjoys strong visibility albeit with lesser number of outlets. With 100,000 distribution centres that cover most parts of the country, Samsung is focused on better control on service quality and maintaining a ‘premium brand’ edge over Nokia. 

So even in smaller cities it runs better designed and illuminated outlets. This ensures that the Samsung brand isn’t just a metro phenomenon like an Top smartphone OS’s shipments & market share, Q2 2012 units Android is ahead by miles, while Windows (expected to grow steadily) lags majorly Source: IDC report HTC, BlackBerry or Sony Ericsson. To cement its long-term trust and relationship with consumers, the company has invested heavily in setting up a strong after-sales service network with trained professionals and responsive call centres, which ensure customers have a good experience. 

These measures have helped Samsung gain strong ‘word of mouth’ publicity and get repeat buys from older customers, who feel the brand cares for them. It has also ensured that Samsung, which started in India as a consumer electronics players at a distant No.2 to LG, has not only emerged as a strong and credible challenger to global tech giants like Apple and Nokia but also become capable enough to beat them at their own game. 

The success of its handset business has ensured that almost 55% of its India revenues of over Rs.200 billion comes from the mobile phone division. In contrast to Samsung’s steady march in India, Nokia’s biggest problem has been its lack of a strong smartphone range in its portfolio. To make amends for its shortcoming, Nokia has, over the past year, started moving (rather late though) aggressively by teaming up with Microsoft to offer Windows OS-based ‘Lumia’ range of smartphones. It has announced slowly phasing out its Symbian phones and would focus on pushing its Lumia and Asha-series range of smartphones in the country. The response so far has been encouraging but not enthusiastic enough.

 On the other hand Samsung, though still on a strong wicket, has come up against legal troubles that have the potential to upset its smartphone business. The past month has been a particularly bad one for the company, which has been asked by a US district court to pay $1.05 billion as damages to Apple in a patent infringement and copyright related lawsuit. The court held that many of Samsung’s Google Android-based phones infringed Apple’s patents. The indictment comes as a dampner as it can dent Samsung’s image as an innovator company. To ensure that its brand image remains intact, Samsung will have to focus on creating a strong future product line-up as well as ensure that it doesn’t get caught in more such high-profile legal contretemps.

Says Amandeep Kalsi, Director, Protiviti India, “The market is fast evolving in the digital communication devices space and no player can afford to be content about its products and their positioning. Market positions are up for grabs every couple of years and so be it Apple, Samsung, BlackBerry or Nokia, none can afford to take it easy.” While it’s true that nobody can predict how the tech scene will unfold in the future, a wrong move by Samsung at this stage or a right strategic push by Nokia now can yet again reconfigure their stakes in a rapidly changing market. Though there’s no strong alternative for Samsung at the moment, multiple scenarios have begun to emerge, especially in the aftermath of the US court verdict against Samsung. 

More and more smartphone makers may turn increasingly to Windows devices because of the legal uncertainty surrounding Android phones. Right now, Nokia is the primary manufacturer designing for Windows phone. But Samsung may actively now weigh in big time in favour of Windows. It has already surprised the market by unveiling a new Windows phone, called ATIV S. 

The move seems like pre-emptive action on the part of Samsung and designed to steal a march over Nokia whose own Lumia line of smartphones using Windows Phone 8 is slated for release in New York on September 5. Nokia expects its services bundled with the Lumia, such as Nokia City Lens, Transport, for public transport information, and Nokia Music with Mix Radio, a free mobile music streaming and offline listening apps, to be a big hit with consumers. So even though Samsung enjoys the whip hand in the smartphone market currently, the future is not without upside possibilities for Nokia. The brand continues to retain a huge fund of goodwill and trust among Indian consumers and enjoys an enviable reputation. Millions of Indians who continue to use Nokia feature phones could be potential customers for its superior smartphones.

But in a hyperactive market that demands constant innovation, the player that is more innovative and can play the pied piper to the consumer will win the game. With the smartphone market set to grow to 30% by 2015 from 11% currently, the fight for the smartphone market pie is still largely open and the player whose offerings best meet the market pulse and satisfy customer expectations will get to hit the home run. 

Interview:

Ranjit Yadav, Country Head, Mobile & IT, Samsung India,

He talks about the reasons for the success of its smartphones and the strategy for the future. 

                                “55% of our India revenue comes from mobiles”

B&E: Samsung has had a meteoric growth in India in the smartphone segment. What are you doing to create more traction for your products in the future?

Ranjit Yadav (RY): Samsung is a full range player in India offering products for all kinds of consumers, with products starting at Rs.1200 for a basic phone and going up to around Rs.40,000 for some of our latest smartphones and tablets. We are a fully committed player in the Indian market and have over 2500 service centres all over the country. All our products have a simple DNA of innovation, differentiation and quality. Design too is one of our key product differentiations. Look at the design and ergonomics in the S3, which (we say) is ‘designed for humans, inspired by nature’. 

B&E: What’s in the S3 that is different from other smartphones? RY: It offers a great user experience and is probably the best smartphone around. It goes much beyond simple performance and specifications; it’s about simplicity in technology. It’s intuitive, and very easy to use. B&E: What’s your marketing strategy for smartphones? 

RY: It’s based on creating the right consumer experience. We will be very strong in digital and experience-based marketing. Like for our S3 range, you can experience the product in-store and outside as well, to demonstrate what the product can do for you. We believe consumers are available across the country for our higher range phones and not just in the metros. So we will take our marketing campaign across the country, rather than limit it only to top cities.

B&E: What has been the impact of the current economic slowdown on your smartphone business? 

RY: Slowdown is a risk that we all have to face. In the mobile phone industry sales are flat and volumes are not growing any more. Going forward there’s a risk of growth dropping off. Though, we have been growing even during the current slump, the key is to differentiate and we are good at that. 

B&E: What is Samsung’s share of the smartphone market in India? 

RY: I can’t give you an exact number but we are already over 26% in volume sales in the overall handset market, and above 40% share in the smartphone segment. We dominate the smartphone market. Today the mobile division contributes more than 50% of Samsung India’s annual revenue. 

B&E: How do you look at the competition from players like Nokia, Sony, et al? 

RY: We only focus on our products, through which we try and simplify technology and ease of use for consumers. We don’t focus much on what the competition is doing. 

LINK OF THE STORY ONLINE:

{http://www.protiviti.co.in/India-en/Documents/can-samsung-keep-its-edge-in-smartphones.pdf}