Netflix has launched its own online shop to sell clothing, toys, and other merchandise from shows such as Eden and Lupin. The streaming giant announced the launch…
On its relatively speedy ascent to the position as the world’s biggest phone maker, Samsung has crushed practically every incumbent and all new comers.
It’s dethroned (and crushed) Nokia — which managed to actually hold that position for about a decade. It’s decimated LG, HTC, Motorola and — to some extent — BlackBerry too.
And it hasn’t done so just because it’s vertically integrated (it owns the semi-conductor fabrication plants and makes acres of LCD panels). Samsung has become king by out-Nokiaing Nokia. Its global distribution (on a broader electronics backbone that was built on its TV — and washing machine and fridge — empire) has no rivals.
It’s backed this up with (pure) advertising spend that is bigger than Coca-Cola — more than US$4-billion last year! And it extends beyond the blanket TV ads and sponsorships that we’re exposed to every day. The ‘marketing’ portion of Samsung’s total SG&A (sales, general and administrative) expenses topped US$16-billion last year. More than US$5bn of that is classified as ‘sales promotion’ expenses, in other words: commissions and subsidies. Its commission and incentive structures to encourage sales assistants to recommend Samsung phones over those of rivals are (very) aggressive.
And what if you take that amount and divide it by the number of Samsung phones shipped last year (roughly 400-million)? That’s a cost of US$40 a phone (on average)! Obviously it’ll be skewed to the high-end Galaxy products and will probably work out to about US$100 on those and perhaps US$10-20 on the low-end devices.
It is going to be difficult for anybody to replicate this global reach and marketing muscle in the short to medium term. So how does Samsung start losing momentum?
Its Galaxy S3 user-base comes up for contract renewal in the coming months… And given the indifferent upgrade that the S4 offers, it’s no wonder why Samsung is considering moving the S5 launch forward to January.
There’s no real lock-in to the Samsung ecosystem. It’s (obviously) trying with carbon-copy versions of core services (app store, mail, chat, browser, etc). Apple obviously has the App Store/iTunes lock-in, but you could easily move from a Samsung phone to a different device, as long as it runs Android. We’re going to see just how strong the loyalty to Samsung is in the next 12 months.
That’s at a broader/macro level. But where Samsung’s lunch is being eaten is on the low-end. (Cheap) Chinese Android devices are probably close to half the size of the global Android market — and as these OEMs move outside of mainland China, Samsung is under more and more pressure.
And that’s not to mention more premium Chinese brands — OEMs like Huawei, ZTE and Xiaomi.
The brands list on GSMArena is telling:
A decade or so ago, this was dominated by European and Japanese electronic and telecoms brands. Today, the bottom half of that list would be unrecognisable to most consumers outside of specific Asian markets. The real threat to Samsung is from these single-country or regional competitors.
Take India, for example. Samsung leads with about a quarter of the market. But two brands — Karbonn and Micromax — have half the Indian market between them. This is where Samsung is particularly vulnerable. It’s a relatively trivial process to build out a mobile phone business using off-the-shelf chipsets and LCD panels and contract manufacturers in China or Taiwan. Outside of the sub-continent, very few people would’ve seen or heard about these brands. But they command massive market shares (relative to their size) in their home markets.
And this is not unique to India. It’s happening in every region: south-east Asia, the Pacific Rim, Latin America, South America, Africa, the Middle East (even Europe where operators like Vodafone have fulfilled this role to some extent).
As the biggest in the world, the competition Samsung faces is unrelenting and complex. Sustaining its leadership position is going to be tough. And it’s very likely being the ‘leader’ is going to translate as something different to outright domination in the near term. Expect the avalanche of models and variants to continue from Samsung. In fact, expect the snowball to accelerate. Samsung’s business model depends on it.