Samsungs Smart Phone Strategy - Case Study Example

Samsung’s Smart Phone Strategy Name Institution Table of Contents Executive Summary 3 Introduction ………………………………………………………………………………...........4 Strategic Analysis ………………………………………………………………………………..4 a. PESTLE Analysis …………………………………………………………………….......4 b. SWOT Analysis …………………………………………………………………………..5 Strategic Direction & Objectives ……………………………………………………………….7 Key Broad Business-Level and International Strategies ……………………………………...9 Strategic Implementation: General Perspective ……………………………………………..12 a. Product …………………………………………………………………………………..12 b. Promotion ………………………………………………………………………………..13 c. Price ……………………………………………………………………………………..13 d. Paradigm ………………………………………………………………………………...14 Key Strategic Implementation Issues …………………………………………………………14 Strategic Evaluation ……………………………………………………………………………15 Conclusion: Current and Future Prospects and Recommendations ……………………….16 References ………………………………………………………………………………………18 Executive Summary Samsung (originally called Samsung Sanhoe) was founded by Lee-Byung-Chull in 1983, originally starting as a small export business inside Korea and producing food and sugar. It was in the late 1960s that it started to shift its focus to the electronic industry, producing various electronic devices including radio systems, TVs, refrigerators and many more. Between 2000 and 2010, the company went through a pioneer digital age, marking a key revolutionary era. In that time, it made major innovation steps to produce competitive products. Today, it is leading the pack in, among other technologies, the smartphone market- owing to a sound strategy. Introduction The global marketplace today has become highly dynamic and competitive, owing to “acceleration and global distribution of knowledge production; market fragmentation and virtualization; emergence of active users; and development of social and technological infrastructure” (Chesbrough & Crowther, 2006, p.229). To enhance competitive advantage in the highly dynamic and competitive global tech marketplace today, organizations must seek to have sound overall strategy. Strategy should involve innovation in four key areas, what Chesbrough and Crowther (2006) refer to as the 4P framework: product innovation concerns the development of new or higher-quality products and/or services; process innovation focuses on changes in how organizations not only create, but also deliver products and services; position innovation concerns strategies to enter new markets and/or target new segments in the old markets; and paradigm innovation is about changes to the underlying mental models that frame and inform how the organization does things. This paper analyzes Samsung’s strategies and how these have contributed to its rise in the past, its position in the present and the future prospects. Strategic Analysis PESTLE Analysis For tech companies, PESTLE factors have considerable impact on their ability to pursue strategies consistent with the IT Mega Trends. There are four main categories of IT mega trends influencing the present and future of mobile phone market. New values concerns three main areas: valuable big data, progress in cloud services and IT consolidation. New threats include advanced cyber attacks and the use of patents as strategic weapons. New creativities include smart vehicles and contextual devices and service. Finally, new growths include rapid business development and re-visioning Green IT. Economically, the marketplace today remains volatile and uncertain. Global economic problems can force the company to readjust its strategies. Economic challenges might be an obstacle to customer spending and business development. Without the money, the pursuit of all strategies in line with the mega trends is affected. In relation to legal factors, Samsung has had to pay heavy penalties following accusation of infringing a number of patents, particularly in relation to Apple’s iPhone and iPad. These penalties are part of the reason the company is now looking to lead the way in innovation and not have to copy its competition. In relation to the environment, the factors of global and warming and climate change has led to the emergence of the environmentally sensitive and ethical consumer. This influences Samsung’s Corporate Social Responsibility (CSR) strategies, particularly in relation to Green IT. SWOT Analysis Strength: Samsung is currently the leading smartphone market player, accounting for 35.8 percent of the world’s market share. This is partly attributable to the fact that Samsung has sought to produce smartphones that operate with most Android Operating Systems, giving it a competitive dge over Apple. On one hand, iPhone 5, for instance, runs on iOS, which is restrictive in the app market. On the other hand, Android is flexible and easily customizable. Galaxy S4, according to Eadicicco (2013), is Samsung’s biggest strength in the smartphone products market and has led that rise to market domination. Weaknesses: Since it does not produce necessarily innovative products, the company has sought to produce as many differentiated products as possible, aimed at accommodating various price needs. While this means winning more customers, it also means that the products are highly fragmented. Ultimately, “this might send mixed messages to the investors who may find that streamlined products offering would better in the long term” (Ramstad, 2009, p.1). Opportunities: There are a number of Samsung’s innovations that it can utilize to develop better phones. For example, it can transfer its high definition technology in its televisions into the phone’s screens. Third, the company has a strategic partnership with Google, which can make it a leader in the electronic market. Fourth, the emergence of mobile advertising provides an advertising platform for Samsung’s devices. Fifth, Samsung has a competitive edge over its competitors as the only major manufacturer of smartphone and tablet applicators processors. Threats: Competition is the biggest threat to Samsung’s domination, with Apple leading the way. Apple’s budget iPhone 5C is likely to enter markets that have mainly belonged to Samsung, especially emerging markets like India. Moreover, Samsung’s low gross margin from its lower-pricing strategy means competitors can adopt the same approach. With Samsung traditionally lagging behind in innovation, the rapid change in technology poses another major technology. Strategic Direction & Objectives According to Viardot (2004), the mission statement marks the starting point for all organizational strategies and plans. The mission statement in this regard seeks to provide answers as to “what our business is and what it should be” (Viardot, 2004, p.17). But in formulating the mission statement, the organization must five key elements: what the business is; who are the customers; what the customers value most; the business’ current position; and what it plans to be in the future. Ultimately, mission statements are completed in the articulation of the organization’s vision and strategic intent; that is, the organization’s aspirations in the long-term. Samsung still trails Apple in innovation and must undertake a paradigm shift through innovation; change from innovation followers to innovation leaders (O’Brien, 2013). To rise above its competitors, Samsung leaders believe, the company must fundamentally transform its culture and accompanying strategies. In this regard, Samsung’s current mission statement is “Inspire the world, create the future”, described within the framework of its ‘Vision 2020’ plan. This vision expresses Samsung’s commitment to its various stakeholders by utilizing its key strengths, including new technology, innovative products and creative solutions, even as it continues to promote novel values for its core network (See Figure 1 and 2). In line with this vision and mission, the company plans to reach revenue of $400 billion by 2020, ranking among the world’s five leading brands (O’Brien, 2013). Figure 1: Vision 2020 Source: Samsung (2013) In pursuit of this vision and mission, the company has adopted 3 strategic approaches: creativity; partnership; and talent. Therefore, the company hopes that a focus on these three key areas will place it a leader in new markets, including emerging markets. Through Research and Development efforts, both in-house and through strategic partnerships, it can control its own destiny. Figure 1: Samsung’s Key Strengths and Core Networks Source: Samsung (2013) Previously, Samsung has been known to watch other companies lead the way in innovation. For instance, Samsung has since lost a high profile case against Apple. Apple had accused Samsung of violating a number of patents related to the iPhone in the design of its S2 smartphone (Ramstad, 2009). Figure 2: Stakeholder Management Stakeholder Stakeholder Expectations, Needs Demands Strategic Objectives to Meet Customers Value for their money; that is, high quality products and services -Dissemination and protection of relevant (including customer) information -consistent products and service Communities -Protection of the environment -Social and economic welfare programs -Creation of community support programs -Environmental protection programs -Programs for financial inclusion for rural and underprivileged communities -Social contribution activities Employees -Conducive working conditions, including work satisfaction, promotion, etc. -Healthy work-life balance -Employee training and benefit programs -Self-development support -Encourage healthy work-life balance Government Bodies -Respect of government policies and directives on licensing, taxation performance, employee rights, ethical business behaviors, etc. -Transparency in management performance -Compliance with all government tax laws -Fair trade practices Shareholders & Investors -Value for their money -Sound Corporate Governance -Global and market expansion Financial Consultants -Compensation for services rendered -Compensation geared toward performance - Competency building programs Key Broad Business-Level and International Strategies Ansoff’s Matrix Samsung has used market penetration, product development, market development and diversification strategies depending on which its target market. For example, it has used (and continues to use) market penetration strategy in India. In its effort to reach the Indian market deeper and wider, the company has tempted the consumers with products that are technologically advanced and are specially tailored to their unique needs, and at cheaper prices. The ultimate goal in this regard is to increase market share (Jin, 2013). In relation to product development, Samsung has made great leaps in the design of its smartphones. The Galaxy series, Android-based, for instance, has won many customers across various segments. Generation ‘S’ (Super Smart) was for flagship purposes; generation ‘R’ (Refined/Royal) series combined power, performance and productivity; the ‘W’ (Wonder) generation combined style and performance; and the ‘Y’ (Young) generation was for those mostly the young who are sensitive to price (O’Brien, 2013). Samsung has also used diversification as a strategy. The company’s smartphones are varied as the company targets different markets. The Galaxy series phones, as the example above shows, have evolved as the company seeks to attract different customer segments. The company continues to produce lower-end smartphones to penetrate deeper and wider into emerging markets (such as India). Porter’s Generic Strategy Figure 3: Porter’s Generic Strategy Source: Porter (2008) Indeed, Samsung has combined lower cost, differentiation, broad and narrow targeting. For insance, the company availed S4 as unlocked devices on key carrier websites (such as eBay) at the cost of &589.99, as well as at $199.99 accompanied by contract extension in mobile retailers. Samsung’s product differentiation is evident in is Galaxy S series, in both physical and non-physical terms. The physical aspects include the design of the phones, colors offered and the possibilities of customization. There are also front and back camera features. Non-physical features include the software features in the phones. The different S series phones are not only differentiated on the basis of features and prices, but are also used to target different market segments. Segmentation focuses on the demand; that is, what different types of customers there are, what they emphasize most when making purchase decisions. As Hamper (2013) puts it, market segmentation focuses on customer groups and their unique needs. The company can choose to target the whole market or a specific group. The former targeting depends on whether a market is viewed as homogenous and the latter whether the market is viewed as heterogenous. Samsung views the market as heterogenous, with different preferences for style, performance and prices, among others. The earlier and newer Galaxy versions are targeting both higher and middle classes. The S4 was more high-end, targeting business personalities, among other professionals. International Strategy Samsung’s success is partly attributed to its international strategy. Overall, the company exercises a vertically integrated structure in creating consumer electronics. In this regard, the company produces most of the actual components and/or software that it uses in its various devices. It makes its own CPUs and screens for tablets and smartphones. In other words, the company does not have to depend on outside manufactures to third-party sources for hardware or key components. Essentially, vertical integration is more effective in reducing frictions that result from competing with suppliers and customers. In this regard, Samsung requires each of its business units to “account for its own profitability, pay for its own capital needs and negotiate with each other on the same terms as outside firms” (Ramstad, 2009, p.1). David Steel, the company’s senior vice president and marketing strategist explains that this strategy is based on a portfolio of consumer-product and component businesses. Strategic Implementation: General Perspective This is synonymous with some of the challenges the company is likely to face in the process of implementing its strategy. Samsung has risen to become one of the largest tech companies in the world. However, the company’s swelling size has also come with new challenges. First, it may seem that the company is now confused about what specific direction it should now take, divided “between its interests and those of other electronics makers to which it sells key parts like memory chips and display screens” (Ramstad, 2009, p.1). In 2009, for instance, the company announced its plan to launch its own software OS for its smartphones, which wuld be called ‘bada’ (meaning ‘sea’ in Korean). The move was aimed to challenge Apple, one of its major customers for screens and flash memory chips, and even Microsoft and Google. The Executive Vice President, Lee Ho-soo, said the company needed to own a phone platform like Apple. But at the same ime, the company would still build its smartphone sbased on the Andorid and Microstf Windows Mobile OSs. Ho-soo explained, “We feel we need to be multiplatform in smart phones and cannot just focus on one” (quoted in Ramstad, 2009, p.1). But this emphasis on the use of multiplatform is in itself a flaw. For example, all of Samsung’s competitors- except Apple- also have their devices (mobile phones and tablets) running on Android OS. Although has tried “to add value to Android on its devices through its own UI layer and additional security features” (Bajarin, 2013, p.1), it still relies on Google for any core innovations on the OS- just like its competitors. Moreover, while ‘multiplatform’ may be seen as differentiation, it may also send mixed messages to the customers. The point here is that Samsung has been hesitant to take certain risks. For instance, the company has been slow to settle on a particular strategy for its smartphones. The executives admit this, but explain that this is because the company has to juggle the competing demands from the various carriers. Such hesitancy may be another obstacle. Another major obstacle is the fact that Samsung does not have control over the profits from any of its Android ads and apps. According to Bajarin (2013), Googles takes nearly 90 percent of the profits made from ads sold on Samsung’s Android devices. The implications of this lack of complete control over its profitability, at least as far as Android-based apps and ads are concerned, cannot be underestimated. Samsung’s growth in recent years has been linked to its swelling revenue. Ramstad (2009), for instance, points out that this revenue has made it possible for the company to “cope with the profit squeeze that all electronics makers face as a result of constant downward price pressure of the chips at the heart of their products” (p.1). Therefore, not being able to optimize on its profits- the ultimate goal if anything- is to an extent a major issue. The success of Samsung’s implementation of its strategies will depend on how well it handles these issues, including PESTLE factors and Porter’s factors of strategy. Key Strategic Implementation Issues Samsung has adopted a strategic marketing mix strategy in its effort towards the smartphone market domination. According to Hutchison (2009), marketing mix refers to a “blend of product, pricing, promotion distribution strategies made to produce a mutual satisfying exchange with the target market” (p.23). Samsung’s marketing differentiation has focused on four main elements: product; promotion; price; and place. If this strategy works to meet the needs of the consumer, this should lead to higher sales and, ultimately, higher profits (McDonald, 2013). According to Young (2011), organizations should understand their attributes that their customers value most and customize these to their needs to enhance competitive advantage. Samsung has indeed shown elements of these. In its new strategy, the company has taken up a number of initiatives. To develop new products, the company has since hired a new crop of young designers to create innovative and stylish products to target high-end market. It has also since abandoned low-end distributors and are working with specialty retailers. But one of the problems is that Samsung spends a lot of time in product development. According to Wardhana, Min and Hong (2012), the company insists on having their products have the ‘wow’ factor and if does not it has to be sent back to the studio. It is understandable that the company will not less in this new era. Besides, it has the money to do this. Still, it does not excuse high investment costs that come with this pursuit for the ‘wow’. These costs are likely to be compounded by the fact that new products take awhile to have string footing in the market. In other words, the introduction is likely to take time and the growth of sale will be slow at first. Add that to promotion and distribution expenses even as sales are still low, there are likely to be financial losses incurred. Besides, attracting distributors and building inventories takes a lot of time. But these are challenges that all companies face. Otherwise, the company has a strong brand name and will not suffer as heavily as would a new company. The company is likely to regain its good footing in the growth and maturity stages, which fortunately last longer. Moreover, the company’s insistence on interactivity as a strategy will constitute a vital part of its marketing (Wardhana, Min & Hong, 2012). Strategic Evaluation A few years back, Motorola and Nokia ruled the phone market. However, Blackberry introduced the smartphone and led the market for a while. However, in less than a decade, Samsung has risen from a low profile company in the mobile phone market with distinct products and low cost product portfolio to a market leader in the smartphone market. In fact, Samsung is currently Europe’s leading smartphone manufacturer and is also leading in smartphone sales, accounting for a larger market share since 2012. This rise is attributable to the company’s sound strategies, such as the use of an effective segmentation strategy; the availability of applications and easy-to-use interface; the flexibility of the Android OS; and strategic pricing, among others (Ramstad, 2009; Bajarin, 2013; O’Brien, 2013). On this basis, it is safe to say Samsung’s strategies have been sound and effective. However, the strategies that have since seen Samsung rise to this stage have mainly been the result of Samsung imitating other companies (the innovators). It is this that the company is trying to change now, trying to be an innovator on its own terms. With the company planning to push into new areas, including home energy and health care products, such goals are hard to achieve with organizational growth. In other words, the company may have to utilize acquisitions. It is still important to note, though, than strategy must be based on solid foundation. Currently, Samsung has a strong revenue base on which it can now build its future, the new strategy. Its string finance can now facilitate extensive R&D efforts without hurting much of its other efforts. Most importantly, the company has a string brand name and a strong market presence. The question is whether the company can utilize these appropriately to lead the way in innovation. At least the strategy sounds good so far. Conclusion: Current and Future Prospects and Recommendations But if Samsung is to extend that dominance, it must start creating novel products for its customers. So far, the company seems headed in the right direction. The R&D efforts the company is taking, accompanied by the innovation centers the company continues to open seem to promise a better future. However, time is of utmost essence in this case. If Samsung is to be taken seriously, these efforts must start to show results sooner rather than later. For example, Bajarin (2013) asserts that Samsung must own and run its OS to become more powerful and acquire an even bigger market share. Already, the company has expressed its intentions to try a new OS, a blend of its own OS (bada) and Tizen in its smartphones. Tizen is a full open-source and arguably powerful mobile OS based on mobile linux core. The next step would then be to call on the Android community to write apps for Tizan. These are questions that Samsung must grapple with in the process of implementing its new strategy towards vision 2020. It will not be easy and it never is- but at least the company knows what it should do and has a plan and the money to it. References Bajarin, T. (2013). The Flaw in Samsung’s Mobile Strategy, The PC Magazine, April 08. Retrieved 09 August 2014, http://www.pcmag.com/article2/0,2817,2417468,00.asp Chesbrough, H. & Crowther, K. (2006). Beyond High Tech: Early Adopters of Open Innovation in other Industries. R&D Management , 36(3), 229-236 Eadicicco L. 2013, Samsung Galaxy S4 review (T-Mobile) Review, LAPTOP Magazine, July 05. Retrieved 09 August 2014, http://www.laptopmag.com/reviews/smartphones/samsung-galaxy-s4-t-mobile Hamper, R. (2013). The Ultimate Guide to Strategic Marketing: Real World Methods for Developing Successful, Long-term Marketing Plans. New York: McGraw Hill Hutchison, T., Allen, P. & Macy, A. (2009). Record Label Marketing, 2nd Edition. Boston: Berklee Press Jin, H. (2013). Samsung Market Share to Expand in 2013, Increasing Competition with the iPhone: Strategy Analytics, Huff Post: Tech, 03 Jan. Retrieved 11 August 2014, http://www.huffingtonpost.com/2013/01/04/samsung-market-share-iphone_n_2406515.html McDonald, M.,] & Meldrum, M. (2013). The Complete Marketer: 60 Essential Concepts of Marketing Excellence. New York: Kogan Page O’Brien, C. (2013). Samsung Embarking on an Aggressive Expansion in Silicon Valley, The Los Angeles Times, 18 Feb. Retrieved 09 August 2014, http://articles.latimes.com/2013/feb/18/business/la-fi-samsung-silicon-valley-20130218 Porter E. M., 2008, The Five Competitive Forces That Shape Strategy. Harvard Business Review, no. R0801E, 1-18 Ramstad, E. (2009). Samsung’s Swelling Size Brings New Challenges, The Wall Street Journal, Nov. 11. Retrieved 09 August 2014, http://online.wsj.com/news/articles/SB10001424052748704402404574529522795269450 Shaw, H.E. & Goodrich, K. (2005). 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