Competition Strategies Samsung

School of Business Management MBA (First Year) Trimester 1, 2013-14

Customer Acquisition & Retention Report on Study of Competition Strategies

Prepared by: Shekhar Aggarwal Tanvi Gupta Prateek Malhotra Lovish Puri Sirav Talwar

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CONTENTS 1. Introduction…………………………………………………………………………………………3 2. Major Markets……………………………………………………………………………………..4 3. Competition Strategies for Market Leaders…………………………………………. 8 3.1 Position Defence……………………………………………………………………………. 8 3.2 Flank Defence………………………………………………………………………………… 8 3.3 Counter Offensive Defence…………………………………………………………… .9 3.4 Pre-emptive Defence…………………………………………………………………… ..9 3.5 Contraction Defence……………………………………………………………………. 10 4. Competition Strategies for Competitors……………………………………………. 10 4.1 Frontal Attack………………………………………………………………………………  10 4.2 Encirclement Attack…………………………………………………………………….. 10 4.3 Bypass Attack………………………………………………………………………………. 11 4.4 Guerrilla Attack …………………………………………………………………………… 11

5. Conclusion………………………………………………………………………………………… .12

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INTRODUCTION Samsung Electronics Co. Ltd. is a South Korean  multinational electronics company headquartered in Suwon ,  South Korea. It is the flagship subsidiary of the Samsung Group and has been the world's

largest information technology company by revenues since 2009. Samsung Electronics has  assembly plants and sales networks in 88 countries and employs around 370,000 people. Samsung has previously been known for its position as a manufacturer of components such as lithium-ion batteries, semiconductors, chips, flash memory and hard drive devices for clients such as Apple, Sony, HTC and Nokia.  In recent years, Samsung Electronics has expanded upon its manufacturing roots and diversified into consumer markets leading to an ever increasing portfolio of products and revenue stream Samsung Electronics currently stands as one of the world's largest vendors in the  mobile

 phone and smartphone markets fuelled by the popularity of its  Samsung Galaxy line of devices. The company is also one of the largest vendors in the tablet computer market thanks to its Android-powered Samsung Galaxy Tab collection and is generally regarded as pioneering the phablet market through the Samsung Galaxy Note family of devices Samsung has been the world's largest maker of  LCD panels since 2002, the world's largest

television manufacturer since 2006, and world's largest manufacturer of mobile phones since 2011. Samsung Electronics displaced Apple Inc. as the world's largest technology company in 2011 and has been a major part of the Economy of South Korea .

The Mobile Business

Samsung Electronics launched its first mobile phone in 1988, in the South Korean market. Sales were initially poor and by the early 1990s Motorola held a market share of over 60  percent in the country's mobile phone market compared to just 10 percent for Samsung. Samsung's mobile phone division also struggled with poor quality and inferior  products until the mid-1990s and exit from the sector was a frequent topic of discussion within the company. In a change of strategy, the company shelved the production of many under-selling product lines and instead pursued a process of designing and manufacturing components and investing in new technologies for other companies. It was hoped in this way Samsung would gain an understanding of how products are made and give a technological lead sometime in the future. This patient vertical integration strategy of manufacturing components has borne fruit for Samsung in the late-2000s. Samsung had a number of technological breakthroughs particularly in the field of memory which are commonplace in most electrical products today. A deal to supply Apple for memory chips was struck in 2005 and Samsung remains a key supplier of Apple components. The company has benefited from the fact that it is more or less the only company which is capable of manufacturing an entire cellphone by itself, thus reducing costs, research-to production times as well as have an upper hand over its relationship with other mobile manufacturing companies as an OEM.

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Products The company launched its first flagship phone, the Galaxy S, which was considered a direct competitor of the original Apple iPhone. Originally launched in South East Asia, it hit the 1 million mark within 45 days of hitting the United States With the launch of the Galaxy series, the company partnered with Google to adopt Google’s native mobile operating system, Android, over its range of devices. Though, it did not stop working on its own OS systems like BADA and others such as  Symbian, Windows Phone, and Linux-based LiMo.  Partially owing to strong sales of the Samsung Galaxy range of smartphones, the company overtook Apple in worldwide smartphone sales during the third quarter 2011, with a total market share of 23.8 per cent, compared to Apple's 14.6-percent share. Samsung became the world's largest cell phone maker in 2012, with the sales of 95 million smart phones in the first quarter.

MAJOR MARKETS

India The India mobile phone market grew by 24% year over year (Year-on-Year) in 2013 Q1. According to the International Data Corporation (IDC) AP Quarterly Mobile Phone Tracker, vendors shipped 60.7 million units in 2013 Q1 compared to 48.8 million units in 2012 Q1. 

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Samsung rose to the top spot in the Indian mobile phone market and the rise can largely be attributed to its gains in the smartphone market over the past two years Samsung, Micromax and Karbonn controlling almost half of the Indian Smartphone market, however the market remained driven by low cost devices.

Company

Market Share

Market Share by

Volume (%)

Samsung Apple Sony Nokia Micromax Karbonn Others

33.2 4.7 9.8 8.8 12.8 10.9 19.8

by

Revenue

(%)

38.8 15.6 9.4 7.3 6.5 5.1 17.3

Source: IDC Asia Pacific Mobile Phone Tracker, 2013 Q1

Samsung maintained the smartphone leadership position and did excellent shipment volume for the first quarter of 2013. The expansion of the Galaxy portfolio with the launch of Galaxy Grand coupled with compelling offers such as zero per cent interest on EMIs, cash back Page | 4

schemes for new and old smartphones propelled the sales higher for them in 2013 Q1. Also their product portfolio remains the most diverse among international vendors panning across  price points, processor speeds and other specifications.

Micromax, Karbonn and Nokia are Samsung’s major competitors in both feature phone as well as smartphone markets in India. While Nokia has come out with the Asha series and cheaper versions for its Windows based OS, Karbonn and Micromax are betting big on more features for cheap strategy. In the premium segment, Apple is its main competitor with the cheapest version available for Rs 24000/-. Apple, of late, has seen a tremendous jump in sales by improving its distribution network and by offering attractive EMI based schemes. Other niche players include HTC which despite a formidable line-up of devices, have fail ed to garner sales. For the Indian market, thus, Samsung is undoubtedly the market leader given its plethora of devices spread across a wide breadth of price range. The company thus adopts multiple defence strategies to fend off attacks from competitors and followers in the market. Given Apple’s current jump in sales, Samsung does get into the attacking mode, though infrequently.

Products Spread We surveyed the online retail website to check the variety of products offered by various mobile companies in India and the results corroborate our findings that India is the market leader in the cellular sector.

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Following were some interpretations of the results: 

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Apple has products only in the high end range, still manages to garner almost 15% of the market by revenue. High prices cover up for the low volumes Samsung has a device positioned in every price range, catering to demands from various quarters. Micromax caters to only the customer who desires products with full features but are not willing to pay premium prices for the same. We see a gradual shift from feature phones to cheaper smartphones by each company. This can be attributed to the aspirational needs of the consumer.

United States Considered the bastion of its home-grown company Apple, the United States proved to be a tough market to crack for Samsung when it first launched its mobile devices in the country. But when it launched the Galaxy S in the US in 2010, it sold a whopping 1 million units within 45 days, which was unheard of at that time. Since then, Samsung has seen an unprecedented growth in the country with the help of devices which rival Apple in every aspect and are even ahead under some parameters. Still, US customers prefer Apple over any other company productfor their affiliation to quality and  perceived ease of use. Apple still leads with a 39.9 percent share, but Samsung is slowly inching closer as its growth was higher than what Apple was able to achieve in the same period. With Samsung’s Galaxy Note III almost at the arrival gates, Samsung’s share should see a comfortable increase in the next few months, but for now the Korean manufacturer will have to play second fiddle to Apple.

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Market Share in the US

Company

Market Share in the World

Market

Share

in

US(%)

Apple Samsung HTC Motorola LG Others

World

Market

Share (%)

39.9 23.7 8.5 7.2 6.6 14.1

13.1 30.4 5.1 4.7 4.2 42.4

If the global market share numbers are studied, we see that Samsung is the undisputed leader if number of shipments is the measured parameter. The sheer number of devices which Samsung produces in a year to cater to its wide ranging portfolio, it is without a doubt a leader, and has effectively pipped Apple and once-supreme Nokia, at their own game.

Market Dynamics Given the slew of new improved products and devices which the companies come out with, their uniqueness and novelty play a significant role in placing the companies on that top spot  pedestal. Samsung, also, thus keeps hopping between playing the smug leader to the paranoid competitor. In the promising Indian market, it has established itself as a market leader, but faces stiff competition from home grown brands Micromax and Karbonn. Similarly, it has traditionally been a competitor in the US but it may take only one smashing device to turn the tables on Apple. Apple’s approach of launching products too few and far  between, is both a boon and bane for Apple and its competitors.

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COMPETITION STRATEGIES FOR A MARKET LEADER Position defence Galaxy was positioned against the herding weakness in iPhones ‘Popularity’. Galaxy was  positioned as a phone for ‘cool’  people: people who look for a reason for their actions and those who consider themselves as different than the crowd. To build on the heavily advertised S4 brand, the company plans to widen it s product line. The London event will feature new Samsung Galaxy (Android-based) and ATIV (Windows based) devices. The presentation is rumoured to feature a Samsung S4 Zoom  –   an advanced Android camera phone and a Galaxy S4 Active in a tough case. On the tablet side, Samsung continues to storm Apple's stronghold by rapidly growing its own presence. While Apple still controls 39.6% of the market (according to th e IDC report on the first quarter of 2013), Samsung managed to increase its shipments nearly fourfold year-over-year, grabbing 17.9% of the market  –   compared to 11.2% in the same quarter last year. The company has just announced  two new Galaxy Tab 3 tablets  being added to its already rich family of tablet devices. Samsung -- the mammoth global vendor -- is now able to produce most of the components for its devices in-house. That fact, coupled with its massive financial power and global ambitions, spells trouble for the company's rivals, namely Apple in smartphones and tablets, and Nokia (NYSE:NOK) in mobile phones. According to IDC, Samsung has just outsold Nokia on its home turf -- the Finnish market -in the first quarter. To secure its position within the land of its fiercest rival, Samsung announced plans to open an R&D center in Finland this June.

Flank Defence Samsung’s latest handset could be one of the most disruptive moves yet by the South Korean company. The four java based handsets will be sold under the ‘Rex’ brand name, with screens between 2.8 and 3.5 inches, and cameras up to 3.2 megapixels. Who has the most to lose from this news? There’s no doubt in my mind that it is Nokia. The Asha range of devices is one of Nokia’s most popular range of handsets. While not as fully featured as the current Windows Phone handsets, they are a cut above a regular phone, including a web browser, email client, and social media applications. Nokia’s strategic  planning assumes that the Asha handsets will continue to be best-sellers. While the plan does not assume their competition will do nothing, the news that Samsung are looking towards the same market, but from a far stronger position in the high-end smartphone market, will make for some uncomfortable moments in the Nokia boardroom. After all, this is Samsung, who took Nokia’s crown in terms of overall mobile phones shipped in 2012; who has taken the smartphone crown with the Galaxy range of devices; who is currently seen as the number one manufacturer in the world. Page | 8

Counter Offensive Defence In a counteroffensive, the market leader can meet the attacker frontally and hit its flank, or launch a pincer movement so it will have to pull back to defend itself. For example, While Apple had offered cash-back of Rs 7,000 on old smartphones for the iPhone 4, as well as EMI schemes for six, nine or twelve months, a down-payment was involved. Later, it increased the cash-back amount a tad for students. Owing to the cash-back of fer, Apple’s sales reportedly jumped about 400 per cent in India. Soon, Samsung announced for purchases of the Samsung Galaxy Note II, it would offer Rs 10,000 as cash-back in exchange for any old smartphone.  Buyers of Samsung Galaxy Note II could opt to pay in instalments of Rs 4,584 a month for six months, with no down-payment, interest or processing fee. Perhaps being a bit too tongue-in-cheek, Samsung tied up with the same bank (besides one other bank) for the cash-back scheme as Apple, giving customers of those banks an alternative smartphone. Secondly, while Apple offers a maximum of 5 per cent cash back on credit card purchases, Samsung is giving potential customers a whopping 15 per cent back. And where Apple’s offer expires in the next three days, Samsung’s continues till April 30th.

Pre-emptive defence It involves achieving broad market envelopment that signals competitors not to attack. Another pre-emptive defence is to introduce a stream of new products and announce them in advance. Such preannouncement will signal the competitors that they will need to fight to gain the market share. Also, the smaller firms may choose to concentrate their development efforts in other directions to avoid head-to-head competition. Broad market envelopment

Samsung is the market leader and it has a broad market envelopment in the sense that it offers  phones with cost as low as Rs 1000 (like Samsung Guru Series) to as high as over Rs. 40000 (Galaxy S4). Thus, it signals its competitors not to attack. It provides competition to low cost manufacturers such as Karbonn and Nokia as well as high cost manufacturers such as Apple. For example Samsung introduced Samsung Galaxy S4 to give competition to Apple’s IPhone 5 Galaxy Star to counter Nokia’s Asha series. Pre-announcement

Samsung believes in announcing about its products beforehand which might mean signalling the competitors that they need to fight to gain market share. For example it announced information about its product, Samsung galaxy S4 a few months before the launch, giving an idea of the features the phone will have. In this way it challenged Apple by providing superior features in S4 such as 13 MP camera and larger screen size than IPhone 5. Vapor Marketing

Samsung indulges in Vapor Marketing. There is a lot of hoopla created around the launch of its new product like before the launch of S4, it was rumoured that first S4 mini will come out. But that did not happen.

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Contraction defence In planned contraction (also called strategic withdrawal) companies reassign resources from weaker markets to stronger ones as they can no longer defend all their territories. Samsung has also adopted contraction defence strategy to some extent. Samsung has always quickly discontinued the phones which were not successful. Examples are Samsung Focus series which had windows phone as the OS, Samsung galaxy R, Samsung captivate etc. These phones didn’t find many buyers and thus they were quickly taken off the s helves. It has helped Samsung keep the product line updated and avoid wasteful expenditure in non profitable products directing it towards profitable products.

COMPETITION STRATEGIES FOR A MARKET COMPETITOR Frontal Attack In a pure frontal attack, the attacker matches its opponent’s product, advertising, price, and distribution. In a modified frontal attack, the attacker adopts ways like cutting product prices that shows the market that its product is equal to the leader’s product. 

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Samsung entered the smartphone market in 2010 with Galaxy S. It was way after Apple’s iPhone and HTC Evo. Though it came out with a similar product as Apple iPhone but it was offered at a price lower than the iPhone. Apple introduced iPad on 3 rd  April, 2010. Samsung was quick enough to launch its own version of iPad in the form of Galaxy Tab on 2 nd September, 2010 In U.S. in the tablet market, Samsung has a market share of almost 13% as compared to Apple’s 50%. To counter this Samsung has announced 30% price cuts in the price of tablet to increase its market share. Samsung has introduced Galaxy Tab 3 to counter Apple’s iPad Mini in the 8 inch screen segment.

Encirclement Attack Encirclement attack is a competitive strategy used by a strong challenger to attack the market leader; the market challenger launches an attack on several fronts at once in an attempt to  break the leader's grip on the market. 

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Samsung found soft spot to enter Apple’s territory. Samsung realized that between two launches of Apple’s products there is a huge time difference. Samsung capitalized on the larger time gap between Apple’s product launches and flooded the market with devices in every price range, with latest OS versions. Samsung is involved in lawsuits and anti-infringement appeals against Apple in all major markets. By August 2011, Apple and Samsung were litigating 19 ongoing cases Page | 10

in nine countries; by October, the legal disputes expanded to ten countries. By July 2012, the two companies were still embroiled in more than 50 lawsuits around the globe, with billions of dollars in damages claimed between them. While Apple won a ruling in its favour in the U.S., Samsung won rulings in South Korea, Japan, and the UK. On June 4, 2013, Samsung won a limited ban from the U.S. International Trade Commission on sales of certain Apple products after the commission found Apple had violated a Samsung patent, but this was vetoed by U.S. Trade Representative Michael Froman.

Bypass Attack Bypass attack is a strategy used by market challenger against market leader. The challenger attacks easier markets to broaden one’s resource base. This strategy offers three lines of approach: diversifying into unrelated product, diversifying into new geographic markets, leapfrogging into new technologies to replace existing products. Samsung created a new product category Samsung created an altogether new product category by introducing the “Phablet” –  a combination of Phone and tablet. It targeted the Asian market, where most people would not prefer spending money on buying both a phone and t ablet separately. So many consumers in these regions are the ones who like a small tablet and are OK with it also  being a smartphone, too. Samsung sold 10 million Galaxy Notes in 2012 and is expected to sell around 20 million in 2013. 

Samsung diversified in India, which Apple considered unimportant Until recently, Apple did not see India as a mature market to aggressively sell its  products. IT was more of a also-exists market. Samsung, on the other hand, marketed aggressively in India and launched most products in sync and at the same time as their international launch dates. 

Guerrilla Attack  Guerrilla challenger uses both conventional and unconventional means of attack. These include selective price cuts, intense promotional blitzes, and occasional legal action. Samsung and Apple are engaged in a constant advertising face-off. Samsung came out with the set of ads ‘The Next Big Thing’ that targete d Apple. It also mocked the new Apple Maps in a set of advertisement. Samsung at a recent music festival in Chicago, offered all Galaxy device owners a fre e  battery replacement, all for a tweet that included a particular hashtag. They allowed all those who tweeted to swap their old battery in Galaxy device for a brand new one. This left people with charged phones and they could again engage in tweeting and sharing pictures. This was a very smart move as Apple who offers irreplaceable batteries cannot come up with such a campaign.

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CONCLUSION In today’s time, where everything changes radically in a very short span of time, these competition strategies hold true value. For a leader to defend its bastion, as well as for a competitor or a follower to aim for the pole position, these ideas form a chunk of strategic decisions. When consumers’ admiration and loyalty is the net result of only your last product out, companies cannot afford to lower their guard. But only innovation or good prices cannot guarantee a healthy market share for the company. If you are into R&D, your rival could be two steps ahead of you at any given point of time. It takes sound decision making skills as well a good amount of foresight to avoid being attacked and effectively defend yourself. Samsung is, somehow, notorious for being finicky and paranoid about its market share all the time. So much so, its own CEO is quoted as saying that all those products which have guaranteed the company’s success in the past 4 years will be obsolete in the coming 10 years. It is this paranoia and an unsettling feeling which keeps them, and their rivals motivated, and the market a happening place to be in.

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