Samsung adopts new strategy to ride-over slowdown in the smartphone market.
In order to check the slide in the smartphone market, Samsung electronics has taken the strategic decision to revise its production model and break from its current practice of choosing components for its smartphone.
Case in point: earlier Samsung weighed the pros and cons of selecting the specification of the camera for its flagship and deferred its choice upto the last minute. It preferred improved autofocus and better low-light performance over more pixels, which greatly contributed to the models success.
The strategy worked well for Samsung. More than half of the people in the U.S. who bought the S7, cited the phone’s camera quality as a key selling point compared to a third of all smartphone buyers in the first quarter, as per Kantar US Insights.
“We’ve now gotten to a point where we can secure a baseline profit even if the market stagnates, so long as we don’t make a bad mistake,” said Kim Gae-youn, vice president of Samsung’s smartphone product planning. “I’m confident we can hold our ground.”
The demand for smartphones had peaked in 2013 but the sharp drop in demand have made its profit margins vulnerable. Furthermore, increased offerings by the Chinese have made its budget phones feel overpriced. In the result, its 2014 version of the Galaxy S actually flopped.
The weakening demand, and the availability of cheap phones from Chinese manufacturers have stroked worries among investors whether Samsung will be able to recover from this blow, like Apple did. To make matters worse, with Samsung culling its offerings, Chinese brands such as Huawei and Xiaomi increased their market share.
To give its model strategic depth, Samsung has increasingly made use of metal frames and curved OLED screens thus giving its low and mid-tier phones high-end features, which banked on economies of scale.
Its approach of incremental upgrade although drew early criticism but the performance of the S7 phones have shut up the critics as it could very well set-off a new first-year sales record for Samsung. Many have attributed Samsung’s rebound due to Apple’s cost cutting and weak performance.
However, the South Korean giant must still convince investors of the sustainability of its recent performance and have a queue of innovative products lined up to generate further growth.
“I think they will try to imbue the Note (phone) with a more transformative change such as new technology under the new leadership, than the fine-tuning we saw with the Galaxy S7,” said Kim Hyun-su, fund manager at IBK Investment & Securities.
Another strategy that helped it beat the market slowdown was its decision to rationalize the availability of its numerous models. The revamped product line paid off and helped its recovery in big markets such as India.
“There was a feeling the sheer number of phones in the market was confusing for customers,” said a Samsung India executive, who declined to be identified as he was not authorized to speak with the media.
Despite putting up a solid first quarter performance, analysts have remained cautious on Samsung’s outlook, with market research firm Gartner predicting a slowdown in the global smartphone market by 7%.
Furthermore, Samsung has yet to recover lost grounds in China, where, according to Strategy Analytics, it has a 7% market share, well behind rivals including OPPO, Huawei, and Xiaomi.
But Samsung’s Kim is not targeting the cheap low and mid-segments where Chinese phones rule. Kim’s focus is on the premium high-end models that cost 600 and above. A segment that not all players have the financial muscle to compete in.
“There’s still room for growth in the market. This segment wants innovation, which has turned it into an area that requires huge capital equipment investments,” said Kim.
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