Market Analysis Samsung smartphone
Introduction
Samsung is a leading electronic company and has a large market share in the smartphone division. This paper analyses the Samsung’s smartphone market and performance in terms of demand, supply and sales of these products in the local and global markets. The analysis also involves the production analysis of the firm including its production costs, distribution and marketing of the smartphones. A review of the recall program for the firm’s faulty products is reviewed so as to determine its impact. The market structure analysis involves the type and nature of competition of the market in which the firm operates in. The analysis uses both the qualitative and quantitative methods to discuss the various aspects.
The market
Demand
The demand for smartphone is driven by various factors in the market which acts as its major driver. Factors such as product features, price, brand name and social life of the users have been driving the demand for smartphones in the industry especially among young adults with a growing purchasing power (Chen, Chen, & Lin, 2016). The demand for smartphones offered by Samsung Inc have also been influenced by such factors and the firms has been innovative in its products so that they meet the market needs. In the smartphone industry, social influence and brand name have a great impact on improving demand for products especially for the young market segments whose needs are dynamic. The Samsung brand name and its product features have played a big role in driving the demand for smartphone as consumers accept and adopt innovative use of the product enabled by such features.
The demand for the company’s smartphone is increasing each day and those who are loyal to the brand have stuck to it due to increased innovation (Chen, & Ann, 2016). The increasing demand for smartphone is making competition in the industry to intensify as consumers have access to a wide variety from which they can choose. This means that Samsung has had to design its product so that it suits the current trend, demand for operating systems, price and screen size. This has enabled the firm‘s smartphone to remain relevant in an era that is more customer-oriented, where quality of smartphone and related service are major aspects determining performance. The firm has been striving to make costumers feel its smartphones special value so as to improve their purchasing frequency and hence, improve sales and profitability. As aforementioned, the demand for Samsung smartphone has been driven by its features or components. For instance, the demand for NAND memory has been improving and providers of mobile devices have been incorporating higher memory density on these devices and cloud computing firms have been improving capacity for SSD on data centers and servers. Samsung seems to have remained ahead of the curve in terms of such a transition since the inclusion of 3D NAND in its smartphones has lead to improved demand in the global market.
The high demand for these products can be seen in the firm’s strategy to produce smartphones in countries with increasing demand. For instance, the manufacturing of smartphones in India has been driven by the exploding demand in this market. With an exploding Indian smartphone demand, importation has increased while local manufacturing has focused on high-end products, with the firm’s major priority being to meet the local demand (Sharma, 2015). In addition, the demand for the latest Galaxy Note 8 can be attributed to improved features of the product that meets the changing needs of customers in the global market. The heating up of smartphones demand has been a major contributor to positive earnings that Samsung has posted over the recent times. The demand for smartphone division is expected to continue boosting the firms’ revenue since such demand is projected to increase on seasonality. With increase competition posed by new smartphones from rivals will continue to inform more innovation as the Samsung strives to meet the changing need for new features and functionality of mobiles. While demand may be expected to improve in future, the seasonality will be a major determinant of customers’ choice. The increasing demand can be indicated by the growing number of users of smartphones with a projection that the number will increase to about 2.5 billion by 2019, from 2.1 billion observed in 2016 (Statista, 2017). In countries like China with huge populations, the growth in demand is expected to be higher given that number of users is forecast to rise to nearly 675million by 2019 from 563 million observed in 2016. For the United States, the number of expected to reach 247.5 million by the same year from 223 million users observed in 2016 (Statista, 2017). The growth in demand can be attributed to the report indicating that smartphones using Google’s Android are the most popular. Samsung smartphone uses this OS and therefore, demand can be expected to increase in the same period.
Fig.1 Samsungs market demand
Sales
As a leader in global smartphone market, Samsung has been experiencing a rise in sales in the past driven by rising demand for the product. Statistics shows that global shipment for smartphones have been increasing since 2010 first quarter even though sales have been seen to decrease at some points. The latest results shows that in 2017 second quarter, shipments of the firm’s smartphone have reached a high of 79.8 M units global which is an indication of increasing sales (Morris, 2017). Sales maximization seems to be the strategy employed by the firms given that pricing of its smartphones products such as Galaxy Note 8 have remained within the market range. Sales maximization majorly involves firms focusing on normal pricing or lower prices for profitability purposes rather than profit maximization. However, the sales of Samsung products have been rosy throughout given that in some periods; there have been decrease in the same. The global sales in 2016 stood at 311.4 million which represent a reduction of 3 percent year-over-year in comparison to sales of 320.9 million products in 2015(Statista, 2017). However, by close of 2016 period, the company controlled a 21.2 percent market share in comparison to 22.3 percent in 2015. The sales of these products have risen by 1.4 percent – 79.8 million in 2017 from 78.6 M in 2016 second quarter (Statista, 2017).
Fig.2 . Samsungs sales and market share
The pricing for the smartphone was within $200 -$300 range, a normal pricing in the market and an indication that the firm did not pursue the profit maximization given the nature of competitive market. The strategy to maximize sales was driven by more innovation especially in the company’s premium Galaxy Note 8 whose features aligned with the changing customer needs (Morris, 2017). In fact, in 2016 Galaxy Note 7’s demand in the global market resulted to supply constraints which is an indication of demand outpacing the supply. This could be attributed to delayed introduction of the premium product in some markets as production could not meet the initial demand for the phone. The features of the product including a waterproof, curved and iris-scanning design were obtaining positive reviews especially in South Korean and US markets (Morris, 2017).
Supply
Supply is a basic concept in economics that refers to total amount of products in the market and can relate to quantities available at a given price or quantities available for arrange of products prices (Ghose & Han, 2014). The supply for Samsung smartphone can be related to demand for the products especially the premium Galaxy Note 8 and S7 which have seen great performance in the global market. The supply for some of these products has in the past been below the market demand especially due to lack of competition for the premium products (Jung-a, 2016). The low supply can also be attributed to production problems that have been experienced by the firm in the past, and the failure of the firm to capitalize on the initial demand that is too strong. Production issues have lead to disappointing sales in the past especially for Galaxy S6 while Note 8 experienced such low supply due to increased that could not be met by the level of production at the time (Jung-a, 2016). The low supply of the product could also be attributed to the constant high price kin the market as lack of competition meant that customers had few options or substitutes.
Production analysis
Production costs
This refers to the cost a firm incurs in manufacturing its products or in services provision and includes various expenses such as raw materials, labor and general overheads. The primary aim of output production is profit maximization but production costs minimize the profits made by a firm. The cost –profit relationship is important in determining how much output the firm can produce (Carbaugh, 2013). The smartphones manufactured by Samsung have generally involved large costs of production which have threatened to reduce profits by a big margin. The past devices including S6 and S6 Edge were more complicated to produce and hence led to less profit generation. In fact, due to the large costs, the firm has eliminated its standard device and turned to manufacturing of products that only have curved edge. In addition, production cost for Galaxy S7 was $ 271.20 and the cost increased in the production of Galaxy S8 to $ 307.50 each unit (Morris, 2017). The increase in cost makes Samsung S8 the most expense in the market which has an effect on price and even profitability. The S8 smartphone is charged at $720, and this leaves around $420 as possible revenue for every sale. Other costs related to sales are also expected such as shipping costs, marketing and even Research and Development costs (Morris, 2017). The high production cost for this product reduces the profit margin in a big way and the firm will have to sell large quantities of units so as to remain highly profitable. The firm will also to reduce on its marginal cost so as to achieve the desired profitability within an acceptable production cost.
Distribution
The distribution of Samsungs products can be understand from the firms supply chain through which smartphones reach the market and intended customer. The supply chain refers to the strategy employed by firms to ensure that products reach the intended customers in the market regardless of their location (Chae & Olson, 2013). The distribution of Samsung smartphones involves various established channels through which all the consumer electronic products for the firm are distributed into the market. These channels are critical to the success of the company. Distribution channels refer to various independent organizations that are involved in providing a product to be used or consumed by the intended customer. The strategy used by Samsung involves a distribution network formed in conjunction with existing businesses. This provides great value for the company since it does not require much in terms of resources, to provide smartphones to the traditional and new markets around the world (Chae & Olson, 2013).
The firm has many suppliers around the globe who forms part of the firm’s supply chain including more than 2700 suppliers located in different industries. Most of these suppliers are located in Asia, Americas and Europe which forms the largest part of Samsung’s market. The firm also has various logistics firms that acts as subsidiaries such as Samsung Electronics Logitec (Chae & Olson, 2013). These suppliers enable the distribution of the company’s smartphones by ensuring that they are delivered to various retailers that provide the products to customers in the market. The suppliers’ forms part of the company’s distribution channels which ensure that smartphones are delivered to all the customers in the local and international markets.
Marketing
The marketing of Samsung’s smartphones involves a marketing strategy based on various principles. The first principle involves placing much emphasis on the features of a product and the marketing mix element. The firm uses its R&D centers and production bases around the globe to ensure a continuous process of innovative smartphone production with superior capabilities and features. Secondly, the firm employs a positioning strategy and segmentation targeting, which incorporates positioning tactics and use of much market segmentation (PUTRA & Havranek, 2014). The Galaxy Note 8 and S 7 are targeted to certain markets around the world which are segmented for easier recognition and meeting their needs (Morris, 2017). The other principle involves a communication strategy during the marketing process and which comprises of two stages with each having separate roles. The legal review is essential aspect of the communication process and is present in the two steps, execution and production. The neglect of legal impacts linked to the creation of messages involved in marketing communication and their delivery can result to significant harm to the image of the brand and in turn results to considerable financial implications (PUTRA & Havranek, 2014).
Samsung’s marketing mix forms one of the strongest points for the company in an environment that is highly competitive. The pricing for the smartphones involves a skimming price where the firm tries to obtain high value for new smartphones before the rivals can catch up. The place in the firm’s marketing mix involves the various channels comprising of distributors, dealers and retailers. The firm employs different forms of promotion for its smartphones with an aim of capturing more customers through sales tactics like exploiting festive seasons (PUTRA & Havranek, 2014). The highly innovative products with highly performance and functionality ensures that they serve the customer needs while after sales services help in rectifying the faulty ones.
Recall
Despite the innovative smartphones performing well in the market, some have been found to be faulty by a customer, which has lead to establishment of a recall program by Samsung. The recall program has been informed by the need to salvage the firm’s bran image after some of its smartphones have been found to have flaws, and thus eliciting complaints from customers. The Note 7 Refund and Exchange program in US was aimed at recalling of the Note 7 devices that had been found to be faulty since they could overheat and hence posed safety risk to users (Samsung, 2016). The customers who bought the smartphone were to switch it off and participate in the program or even be issued with a refund for the same. The expansion of the program was intended to ensure that all the affected customers would be given the option for replacement of the faulty product or refund for the same. The full impact of such faulty products and even the recall was that it negatively affected the profitability of the firm. In 2016, the profit of the company reduced by 16.8 percent to $ 4.0 billion, which was disastrous for the firm’s performance in the smartphone division (Cheng & Joeng, 2016).
Market structure
Samsung operates in a market where there a few dominant firms in smartphone industry including Nokia, Apple, Blackberry and HTC that competes with it. The other smaller firms do not present a big threat to the operations and performance of Samsung in this industry since it has a competitive edge over them. The market can be viewed as oligopoly since few firms control the largest share of the smartphone market. In many cases of oligopoly structure, the market has higher entry barriers especially because the dominant firms – Apple and Samsung- have strong brands or there is high-scale production (Giachetti & Dagnino, 2014). The introduction of Android OS helped in decreasing the entry barriers, since it provided a platform for other companies to establish their operations in the market. However, despite the lowered entry barriers, there is high competition among the large firms as they try to outdo one another in terms of innovative products and improved features (Giachetti & Dagnino, 2014). The smaller firms such as Tecno have been unable to compete fairly in major markets since the larger firms have already attained economies of scale and established brand loyalty and market recognition.
A major aspect in oligopoly is the interdependence, and the few dominant firms’ takes notice of any actions taken by competitors so as to avoid any surprises that may affect their market outcomes in terms of market share (Carbaugh, 2013). The structure of this market involve a case where the two major firms – Samsung and Apple – engage in fierce competition since an action taken by one results to reaction from the other. The competitive tactic leads to collusions where some products are charged almost the same prices for smartphones with the same features. In this scenario, the firms can be said to be acting like a monopoly so that they become price setters, and abnormal profits shared according to each firm’s market share. When in its best performance, Samsung can achieve abnormal profits especially on its premium products (Giachetti & Dagnino, 2014). This is because in an oligopoly market, there are few firms that it will compete against, and hence the major firms are able to obtain abnormal profits.
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