Samsung mobile's missed calls

Earlier the undisputed leader, the South Korean giant needs to listen to some warning bells

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Aircraft-grade metal encases the slim body of each of Samsung's new twin Galaxy S phones. Unveiled a week back, ahead of the Mobile World Congress, in Barcelona, the S6 and S6 edge sent Samsung Electronics' shares soaring in response - a boost after its first annual earnings dip in three years in 2014.

Its president and CEO, JK Shin, said, "Some companies have set themselves apart through design. Others through practicality. But people want both... Our goal was simple: The most beautiful smartphones in Samsung's history and the most advanced smartphones in the world. That's what comes next." Samsung needs to read the market right, for it is running up against challenges in its markets, as the incumbent mobile handset leader.

Till a few years ago, Samsung's reign over the smartphone market was undisputed both globally and in India. In India, it steadily displaced Nokia, by staying ahead of the innovation curve. Globally, its range reached a swathe of customers much larger than that of Apple's iPhone.

But of late, some estimates have put its volume lead under a cloud. While globally, certain estimates say that Apple overtook Samsung in the fourth quarter of 2014, in India, some estimates put indigenous players like Micromax and iBall ahead, in smartphones and tablets, respectively.

Samsung's dominance in the mobility space is not shaken, but a little stirred. In value, Indian handset makers, like Micromax, are nowhere close to what it earns. In 2013-14, the chaebol sold mobile phones worth Rs 27,912 crore, worth 60 per cent of India's Rs 45,000-crore mobile handset market. Micromax reported revenues of Rs 7,142 crore in the same financial year. Indian players and popular Chinese brands like Xiaomi peg their line-ups on low pricing.

But Samsung's volume gap with the second player is narrowing. Santosh Desai, MD & CEO at Futurebrands, says, "Samsung had put a lot of distance between itself and the rest. But that has narrowed, unlike Apple, which has managed to keep that distance. There is a clarity about Apple that is difficult for Samsung to have since it straddles a much wider product and price spectrum and, therefore, gets competition from many more players."

Asim Warsi, vice-president, marketing, mobile business, Samsung India Electronics, said earlier, citing GfK data on retail sales, "In the entire year 2014, we continued to lead the market. Our volume market share in smartphone in the year was 35.7 per cent, which is more than double that of the next player, while our value share was 40.2 per cent, which is more than four times the next player. The GfK data is based on actual retail sales in 50,000-plus population cities."

Samsung's volume market share in the October-December 2014 quarter was 34.3 per cent and the value market share was 35.8 per cent, according to the same data source.

The owner of a major electronics chain that sells Samsung's products, and who did not wish to go on record, says, "The demand for Samsung is still high. What we are seeing are warning signals."

Warning bells

Samsung distributors, industry insiders and brand experts point out factors that are setting off the warning bells. The retail chain promoter says one of them is looks: "Samsung has become a maker of a Rs 1,200 mobile right up to a Rs 60,000 mobile. Physically, many of the phones, irrespective of their price-points, look the same, robbing a customer of its higher-end phones the sense of distinction. That is a problem."

Overstretching its successful sub-brand, Galaxy, could be another area of concern for brand recall. Desai says, "The short-term volume goals and long-term brand fidelity can tend to compete with each other. Once something, such as brand Galaxy, has become successful, broadbasing it and extending it to other segments (it started as the premium flagship series, S) is the trap."

Samsung has also found itself in a bind over the activity in the low to mid range of smartphones, populated by Indian players and new-age Chinese manufacturers. At the top-end, it has Apple and HTC for competition.

The retailer says, "For less than Rs 20,000-phones, Karbonn, Micromax, Asus etc. have good phones that sell for 30-50 per cent less than Samsung's competing devices, and there is not much differentiation it brings by way of specs or looks." Desai says that the Indian players not only have become more technologically capable, but by dint of their visibility, have earned credibility in the eyes of the consumer.

Industry insiders say that Samsung has always launched devices at a high premium to ensure profitability only to drop the prices in a few months. On the other hand, its low-cost range powered by the in-house operating system, Tizen, drew flak for a lack of features to rival existing options.

Samsung cannot afford to ignore any of the segments. Desai says, "It is a challenge very similar to what the erstwhile Nokia faced. It is one faced by the player with mainstream market share lead, across segments. To protect each and every segment, to find a flagship product and lead with it, gets more difficult for a brand with a wider belly. Once you have those kind of ambitions of volumes, the sense of what is Samsung and therefore, the value of the brand gets diffused. First, it was Samsung, then the flagship was Galaxy, and now Galaxy has been stretched to a wide range."

The retailer points out that because it is the leader, any new brand that comes in would end up taking away an erstwhile Samsung customer. Some feel that Samsung could look at rechristening its top-end phones, starting from Rs 25,000 and above, while other say that making its portfolio leaner might work in its favour.

Change is ahead

Shin said, "By listening to our customers, and learning from both our success and missteps, we continuously push forward new technologies and ideas."

Samsung knows, only too well, the need to liven up its offerings. The last flagship launch in 2014, the Galaxy S5, got panned because of its plastic build, despite a hefty price tag, and took a toll on Samsung's smartphone profits.

But the twin launches encased in glass and metal, reviewers say, are avowedly the flagship pieces that buyers wanted from Samsung, exuding the premiumness that eluded the Korean phone maker so far. The phones have also improved on the S5 with better cameras and optimised pre-loaded software that would make them easier to use than the S5. It would have to be seen if the company can now rest easy, as well.