Executive Summary
Samsung is facing challenges at sustaining its growth in mobile phone business and at the same time safeguarding its profitability, which in the past one year has witnessed a more than two-thirds plunge. The company is responding rapidly. It launched new lines of its Galaxy brand and it recently unveiled its flagship phone that has many characteristics that are a deviation from its past strategy. The new strategic moves are yet to reflect on the company’s bottom line. This report reviews the current structure of the company and its potential for growth in relation to market trends or other issue that rivals are bringing up as part of their competitive strategies. Samsung enjoyed a leading position in its market, but now has to act as a follower in trying to mimic the strategies by its competitors on the best way to provide its customers with a better phone product.
Rivals are embracing simpler and stunning designs and they are providing services that enrich the mobile phone experience of the user. However, many rivals are relying on low cost strategies; so, they are collaborating with existing service providers to bundle services with their product. In addition, they do it in a different way from what Samsung did with its software overlays on the Android OS running on Samsung phones. Samsung has a chance of recovery by following recommendations presented in this report, which include a streamlined focus and a focus on add-on services to improve user experience and value proposition of its mobile phone brand.
Current Samsung’s mission and analysis of its strategy
Samsung has progressively lost its mobile market share to rival companies that are making android smartphones and at the same time, market share for Windows and iOS devices has been growing marginally and it suffered severed profit drops in 2014 by about 76 percent (McKalin par. 2-3). One of the biggest emerging rivals for Samsung is Xiaomi that has access to an expansive Chinese market by virtue of it being its home country.
On its part, Samsung mobile has to embrace internationalization strategies to compete successfully with other manufacturers. Its other main rival, Apple that manufactures iPhones is based in the United States where it already enjoys remarkable success in a country where the purchasing power is very high. Although the Samsung mobile local market has also considerable high purchasing power, the market is also home other global giants in mobile computing like LG mobile. At the same time, the population of the country is low and these places Samsung at a difficult position should it decide to concentrate its efforts on its local market as much as its main rivals are doing in their respective markets before expanding globally.
Thus, Samsung’s strategy so far has been to introduce innovation in the hardware and software front to ensure that it is able to compete with its rivals in their home markets as well as in the international market. Some notable examples of the strategy include the development of the first curved display, and the manufacturing of large display phones. The company has also been improving the user experience of its phones by overlying its own software to improve the functionality and aesthetics of the android operating system.
In addition, Samsung mobile has collaborated with Microsoft and it intends to introduce prepackaged Microsoft software products for its phones in future. This value addition strategy should present better prospects for the products and the brand in the global market (Wilhem par. 1-3).
The current problem with Samsung’s mobile performance comes from brand identity, software simplicity and hardware sophistication, which are also the reasons for the remarkable success of its rivals. The company was first to unleash innovative designs in the past and even at the present, but technology has allowed its rivals to acquire the same or similar technologies, which makes the Samsung’s strategy no longer enough. Although the engineering capabilities of the firm are unmatched, it must fine-tune its innovation to correspond to market needs. The company delivers great products that lack a personality unlike those offered by Xiaomi or Apple (Ion 5-7).
The marketing campaigns of Samsung are not very iconic and they are unable to convince consumers to seek more about the company and its offerings of smartphones. Samsung concentrates too much on the hardware capabilities, and apart from its Note 4 device, it has done poorly to promote usability and everyday integration of its other flagship devices.
Consumers are likely to see Samsung as a very capable company, but are soon confused by its multiple strategies of having very many devices for different market segments and various software preloaded on its devices, which duplicate functionalities and create a chaotic experience for the user. The Samsung is responding to consumer concerns about its phone designs, which appear cheap even when they are premium models. The company has responded to that concern through its Galaxy Alpha line and its latest Galaxy S6 phone. However, the success of the new approach is still pending.
SWOT analysis
Strengths
Samsung has high capacity for engineering and product integration with existing software technologies as well as develop its own software technologies. This will be helpful for the mobile division of the company that faces heightened competition due to increase in number of rivals. At the same time, Samsung is already a major producer of mobile parts that are essential in high-end smartphones and tablets. In this regard, it has the power to shape future trends by creating flagship smartphones and tablets that breach the current barrier of consumer expectations and make its reputation soar positively in the global smartphone market.
Apart from innovation capabilities, the company focuses on the environment and at the same time, it has access to low cost manufacturing centers that can be essential in improving its competitive capabilities.
Weaknesses
Samsung phones have been subject of patent infringement in the past and they lack a persistent company-owned operating system that can allow the company to build a robust ecosystem to enrich the customer experience.
Opportunities
There is a growing market in emerging market countries, such as India and Brazil for Samsung phones. At the same time, the company has opportunities to acquire smaller rivals and other companies in its value chain to acquire better capabilities in the development and marketing of smartphones (Brownwell par. 3-4).
Threats
In developed countries, the smartphone market is already showing signs of saturation and this might influence Samsung’s growth negatively. The market also experiences rapid technological changes that can render flagship phone technologies common in a short time when there is no patent protection. In addition to the above threats, piracy threatens sales and reputation of the company.
Resource based view (VRIO Framework)
The following table summarizes the resource based view analysis of Samsung mobile.
Porter’s 5 forces analysis of Samsung mobile
The tabular analyses presented above show that Samsung mobile is in a favorable position for advancing its competitive strategies. However, the company has to remain on the lookout for rivals and changes in consumer perceptions of the brand and this indicates a marketing fault in the company’s mobile brand.
Strategic competitive advantage (SCA) and major problems facing Samsung
Although Samsung mobile is very innovative, it also has some exclusive manufacturing deals with some of its rivals, which exposes the company to various breaches of contract when it opts to pursue innovation that are similar to those offered by its rival products. As a result, Samsung mobile has found alternative ways of implementing same design and user functionalities in its mobile phones and avoid copyright infringements. To do this, the company requires additional funding for alternative research, which can take longer and make Samsung mobile less responsive to changes in its market.
Samsung must also deal with the fact that its margins on smartphone product are reducing. The company is now the largest smartphone manufacturers in the world, but its sales volume does not reflect its revenues. Samsung was first to follow its competitors, especially Apple, with various marketing strategies and product development strategies. It introduced products to the market fast and it became very aggressive in its international markets. The approach allowed Samsung to become dominate in a very short time, but it also left the company with a very large inventory in a difficult market position where it has to explain why it has too many products. The company appears to serve the low and medium end market while it professes to serve the high-end market.
Given that Samsung mobile is part of Samsung conglomerate, it was able to deliver phones quickly to copy rival’s strategies. At the same time, the company is able to use its existing distribution channels for other products to move its mobile products into various markets around the world. In this regard, it continues to enjoy an advantage over its rivals. However, the reliance on preformed channels also creates marketing shortcomings as phones, which have become important and personal to many consumers, are still sold as conventional consumer goods in some markets.
Samsung mobile enjoys more distributor partnerships with carriers and this allows consumers in many countries to get its products and retain their preferred contracts and service providers (Nisen par. 1-3). However, many analysts point out that the best days of Samsung mobile are now behind it. Smaller companies are able to use low cost marketing strategies to beat Samsung in various markets. Unfortunately, Samsung was a high sales and low profit margins business and as a result, it is suffering because a decrease in sales is having a significant impact on its overall mobile earnings. The company only relies on device sales and it does not sell add-on products such as mobile phone applications.
Cost cutting has been the greatest advantage that rivals use against Samsung and they are not just cutting on costs of manufacturing, but also on costs of design and marketing such that overall, they enjoy better margins, better products and a privileged market access to rival Samsung mobile.
Another contributing factor to the current Samsung downfall is the expensiveness of its flagship phones. Unlike Apple, which has an ecosystem build around iOS and therefore enjoys a virtual monopoly, Samsung mobile has to compete with dozens of other companies that are delivering the Android OS bundled with their devices. Moreover, the best products from Samsung such as the Note 5 and the Galaxy S6 are very expensive. Thus, for many consumers, making a choice for a rival product is very easy because they deliver the same or better experience, and they are cheaper in many cases than what the Samsung phones offer (Kovach par. 2-3).
Strategic alternatives and recommendations
There is an increase in the energy demand to sustain manufacturing capabilities of the Samsung mobile division, which combines with an increase in overall growth of the industry. Most manufacturing centers are losing their low cost status because of growing per capita incomes and increased cost of input such as electricity. Therefore, Samsung mobile has to find new locations for manufacturing or find ways to absorb costs without affecting the bottom line financial position of the company. This would be a way to ensure that the company significantly cuts its costs and returns its business to profitability. Otherwise, its rivals will continue eating into its market share in the medium term because they have better options for cost cutting.
Samsung needs to take a streamlined approach for its smartphone business and mimic its closes rival. The company needs to cut down on the number of devices that it developed in a year and instead have only a few, like two, for the three major market segments. It can then market these few products sufficiently, redirecting additional manufacturing costs into marketing.
At the same time, it must continue to lead in innovation and use marketing strategies to prepare consumers for the upgrade process so that they stay within its product platform and avoid going to rival products when they are making upgrades. Samsung will have to collaborate with institutions that provide devices for their employees to make its lock-in strategy effective. It must also find better solutions at keeping customers loyal to its brand. It may not have to come up with a new operating system, but it really needs to find intricate ways to increase its brand power (Keller par. 1-3).
Recently, the company received good press reports and market reactions when it launched its Galaxy Alpha line. It should have proceeded to cut its other galaxy lines and continued with the Alpha line to sustain the momentum (Tibken par. 4). At the same time, Samsung is concentrating much on its global and national partners in distributing its products. It is relying on carriers to push its products to consumers. Meanwhile, its rivals are opening up new channels by working with small-scale business and using online platforms. They are taking over viral marketing channels, both online and offline.
This allows them to have a high impact on the market with limited budgets. In addition, the use of local businesses is allowing the rival companies to understand markets better and to respond to the intelligent information with products that match consumer demand (Tibken par. 2-5). Samsung is already ingrained in its current practices and therefore needs to find a hybrid approach of being global and at the same time responding to local marketing and consumer needs.
Samsung needs a single focus for its business and a streamlined goal. This will help it offer differentiated experiences to consumers. The mimicking strategy that allowed it to become the second biggest phone manufacturer in the world is not causing it to retain that position because its resources are now spread too thin and its profit margin is suffering. A good way to achieve that would be to break apart its business so that there is a brand for low-end markets and a brand for the high-end market with no close resemblance. This way it can easily retain its focus on different markets and be able to know where its success or failures are emanating from. Differentiation is a key strategy for surviving in a market with very many capable rivals and a well-informed consumer (Tibken par. 1-3).
Justification of strategic recommendation
The company needs to keep its overall strategy for its mobile division in line with changes in the overall conglomerate strategy as this will allow the mobile division to gain insights and benefit from funding alignment for its own marketing or research and development needs. Perhaps going with a deeper integration will have Samsung integrate its mobile division with other closely related division because that is the global trend that was set by its close rival, Apple with is moving consumers towards a common ecosystem for all their products.
In this regard, merging or aligning Samsung’s mobile division needs with those of the television division would be a step in the right direction because it increases the avenues of consumer use of Samsung mobile products, and therefore improves the overall consumer experience of Samsung mobile consumers. On their part, consumers are keen to get the best value for their money, despite their location in the world or their status in the market segmentation strategy made by Samsung.
Already Samsung is facing decline in its mobile division earnings and it can attribute some of that drop to the isolation of the division that make it almost impossible for managers and division heads to strategically use resources presented by the parent company. Already, the company has a huge budget for its consumer electronics business. Much of the funding goes to advertising and related marketing campaigns. As a result, there is a considerable market awareness of its other products that the company can leverage with its mobile division (Bergen par. 4).
The mobile phone landscape competition now concentrates on software and services (Stone par. 1-4). Samsung and many other mobile manufacturing companies realize that their hardware parts of their devices are easily mimicked by competition because the existing knowledge of research easily spreads. To retain customers, firms have to offer consumers better experiences and they can do so by merging the hardware and software to create a seamless experience.
Consumers have to interact with the devices they buy on a daily basis, and remarkable materials are not enough to keep them loyal to a brand. Apple already demonstrated that a software and services strategy is good. Samsung has embraced this strategy in the past, but the company has been reluctant to push it evenly across all its products. It needs to make a comprehensive move towards building an excellent user experience and this does not entail its current strategy of placing duplicate-functioning applications to its phones, which ends up annoying users.
Samsung seems to be panicking with the negative performance of its mobile division as is trying to implement too many strategies to catch up. However, the company would survive best by protecting its current market share before it starts to grow it again. One of its rivals, the Blackberry was able to survey the market by concentrating on market share survival instead of growth (Arthur par. 1-4).
Fall-out and summary
Samsung mobile enjoyed success in the last part of the last decade and early years of this decade by in the last few years, the company faced challenges in market growth. The company responded by coming up with many phone models to cannibalize the market. It attacked the premium end market with the same might it used in the lower end and middle end markets. Unfortunately, the strategies employed by Samsung are not enough to make it enjoy an overall distinctive and sustainable competitive advantage. This report began with an overview of the company’s strategy and a brief analysis of what the strategy brought to the company in terms of success.
It proceeded to use business analysis tools such as SWOT analysis, Porter’s 5 forces analysis and resource based view analysis to find out the current and possible future strategic position of the company. The analysis reveals that Samsung has considerable advantages that make it better placed to take on the mobile phone market. Its rivals are relying or a combination of similar and differentiated strategies to compete with Samsung. However, they are winning because they are able to access low cost manufacturing and marketing opportunities.
This makes them offer superior quality products at lower prices. Meanwhile consumers in many marketing are waking up to the fact that phones are more than just tools; instead, they are windows of opportunities to experience the world. As a result, the demand for a rich experience continue to increase. Therefore, this report summarizes the recommendations to Samsung mobile as a streamline of its overall product line, and a pursuit for a single goal. In addition, Samsung should emphasize its strategy on the development of services to improve functionality and appeal of its products.
Works Cited
Arthur, Charles. “Samsung Slump Echoes Demise of Rivals Blackberry and Nokia.” 2014. The Guardian. Web.
Bergen, Marc. “Samsung Restructures U.S. Marketing Team as Mobile Division Falters.” 2014. Web.
Brownwell, Clare. “Blackberry Ltd Still Being Pursued By Samsung: Anatomy of A Deal.” 2015. Financial Post. Web.
Ion, Florence. “These Are the 3 Smartphone Strategies Samsung Should Borrow From Apple.” 2015. Greenbot. Web.
Keller, Kevin. “Xiaomi: China’s Threat to Apple and Samsung.” 2013. Time. Web.
Kovach, Steve. “Samsung’s Best days are Behind It.” 2015. Business Insider. Web.
McKalin, Vamien. “The Fall of a Giant: Samsung Aiming to Boost Smartphone Profits with Cheaper Low-End Devices.” 2014. Techtimes. Web.
Nisen, Max. “Samsung Has a Totally Different Strategy from Apple and it is Working Great.” 2013. Business Insider. Web.
Stone, Brad. “Xiaomi’s Phones Have Conquered China. Now it’s Aiming for the Rest of the World.” 2014. Bloomberg Business. Web.
Tibken, Shara. “Five Ways Samsung Can Overhaul Its Ailing Smartphone Business.” 2014. CNET. Web.
Wilhem, Alex. “Microsoft Signs 11 Agreements With OEMs To Bring Office To More Android Handsets And Tablets.” 2015. TechCrunch. Web.