The Market Share of Samsung Smartphones - Case Study Example

Report on Samsung The figure below shows the market share of Samsung Smartphones as compared to its competitors. Most of these sales can be attributed to the Samsung Galaxy range of phones, most notably the Galaxy S2 phone which has revolutionised the Smartphone industry both within Korea and in the world. Table 1: Top Five Smartphone vendors by market share (Whitney L, 2011), a) The demand factors that affect the profitability of Samsung are: 1) Income: The affordability factor plays a vital role in the growth of companies like Samsung. Samsung Galaxy S2 has been able to penetrate the market easily where Iphone or HTC were previously dominating. Consumers used the same income to buy Samsung Galaxy S2 since it appeared more stylish and gave them something different from its competitors. As the target market was same for Samsung Galaxy S2, it tapped on the income of the consumers and proved to be a phenomenal success even in developing countries like India. 2) Globalization: The globalization process has made communication a necessity and as people move their work from their desks towards their wireless devices, the demand for Samsung’s mobile devices rise. Samsung Galaxy S2 has been able to become the most successful phone because it provides a great way to link oneself with the entire social world. 3) Price of Related Products: the prices of substitutes also play an important role in the demand for Samsung phones. The nearest competitor Iphone 4 is priced higher than Samsung Galaxy S2 and thus a value conscious consumer would rather go for the lower and preferably better Galaxy S2 than Iphone 4. There are always diehard fans and Samsung is starting to gain those numbers very quickly through its range of Galaxy phones. 4) Tastes and preferences: Samsung products are innovative and meet the changing expectations of the customers in a much cost-effective way. This is true in the case of Samsung Galaxy S2, which broke sales records for any smartphone. The unique design, cutting edge technology and the high trend towards tech-savvy provided the environment for its growth. Providing great looking phones, along with durability and quality has enabled Samsung to capture the highest mobile phone market share. The supply factors that affect the sales and profitability of Samsung include: 1) Technology: Samsung uses hi-tech technological equipments to keep the cost of production under control. Limited wastage and superior quality products ensure reasonable prices. Furthermore, Samsung uses the six sigma technique for its supply chain process which cuts significantly into the cost by reducing time of the production cycle and wastage costs. The cutting edge technology used in Galaxy S2, can be looked by its hardware: 8MP camera, dual-core processor and the 4.3 SAMOLED screen. This only emphasizes the superiority the device held over its competitors. This was a sure shot formula for success and proved to be a winning combination for Samsung. 2) Raw materials: Samsung is a multinational company and tries to tap cheap resources from around the world to ensure uninterrupted supply. Samsung used it own raw materials from its existing resources through its well established network and parent company. S2 was a result of smart innovation and efficient use of existing resources. This benefit resulted in huge benefits for the company. b) The market structure for mobile phones in which Samsung operates is competitive market because: There are a number of buyers and sellers in the market (Sellers such as Nokia, Apple, Siemens, etc.) There is complete availability of information for the consumers therefore they go for the best product which gives them maximum value. This is the case for Samsung Galaxy S2. It is priced way below its competitor Iphone 4 and has comparable features to it. Therefore the consumers view it as a better choice. The products are differentiated (in terms of look and quality, as well as brand name) c) Samsung can continue to innovate and evolve its products to remain competitive in the market. However, it has chances of turning into a natural monopoly by reducing costs of production per unit and achieving economies of scale. If Samsung is able to serve the demand of the market at a much lower rate than its competitors, it can turn into a natural monopoly and attain higher sales and profitability. d) Samsung can study the various elasticity concepts to plan a profitable pricing strategy. It can focus on income elasticity, price elasticity of demand and cross-elasticity. Price Elasticity of Demand: consumers are very sensitive to the price of a product and there is an indirect relationship between the quantity demanded and the price. If elastic Samsung can increase its revenue by decreasing prices or if inelastic it can increase the prices of its products to raise the total revenue. Income Elasticity of Demand: As for Samsung, with a rise in income, the consumers will move to superior substitutes like Apple. Samsung products are attractive to the customers because of their affordability factor and are therefore income elastic. Thus, a decrease in price will further increase sales and profitability for Samsung. Such is the case with Samsung Galaxy y and Gio, which are targeted towards lower end consumers. In markets where demand is inelastic, such as the developed countries, Samsung Galaxy S2 is still selling in record numbers. Cross- price elasticity of Demand: If a substitute brand, for example, Nokia reduces the price of its products, consumers are likely to buy Nokia due to the reduction in process. This means that the cross price elasticity is positive. Samsung should keep a closer look at the prices of its competitors to be able to continue to capture the highest market share. There are no complements to the mobile industry as such and therefore, Samsung does not have to worry about the pricing of any complements. e) Samsung is using its resources quite efficiently as it is able to provide consumers with innovative products at lower prices than its competitors. It is also one of the leading Companies and captures the highest market share for smartphones. Furthermore, being a multinational, it does not have to face limitations in terms of raw material or labour and has availability of resources. This availability of resources reduces the price of the inputs and makes the final product affordable for the consumers. Even the production processes used by Samsung are world-renowned and highly cost-effective. MACROECONOMIC ANALYSIS 1) Economic Growth: If there is an increase in economic growth, there will be a rise in the demand for Samsung’s phones. However, Samsung will have to employ more workers and resources to meet this demand and prices are likely to rise. The rise in prices will have a negative effect, causing demand for Samsung mobiles to fall. The US growth rate of 2% in 2011 is an indication that things are improving and as consumer purchasing power is increasing the sales for Samsung Galaxy S2 and other related products is likely to rise in the near future. (Schnurr, 2011) 2) Unemployment: This results in higher cost of production and thus higher prices of the final goods. The unemployment rate for 2011 was 8.7%, which was mostly an effect of the recent recession. (CIA World Factbook, 2012) Consumers are a bit conscious on buying Samsung Galaxy S2 phone, but as new models become available, the existing prices fall, enabling rise in sales. Thus, both high unemployment and low unemployment will have negative effects on Samsung and its profitability. 3) Inflation: Higher prices would result in lower sales owing to the price elasticity of the smartphone industry. Therefore, the developing countries where inflation stood at around 5.6% in 2011 provide a barrier to growth or results in slow growth. Consequently, Samsung has launched low price Galaxy products which are proving to be highly successful in such markets. As the recession subsides and inflation gets under control it will only bring it positive growth for the company. (CIA World Factbook, 2012) 4) Balance of Payments: multinationals like Samsung import huge amounts of capital to set up businesses in different areas. This surplus on the capital account creates a deficit on the current account. This buying and selling of currency may have serious repercussions for small countries and their exchange rates may be subject to fluctuations due to the activities of multinationals (Sloman, 1999). 5) Business Cycle: A contractionary period will cause unemployment to rise and thus a decrease in the demand for Samsung’s products and an expansionary period will raise the prices of Samsung’s products and thus, cause a fall in demand. (Vergos K, 2010). The company is well established now in the smartphone industry and has experienced immense growth. The sales are still rising as it continues to eat up market share of companies like Nokia and Blackberry. The company will move from a growth stage to the maturity stage given that measures are taken to sustain its growth in the industry. REFERENCES: Schnurr, Leah, 2011. U.S. economic growth seen brighter into 2012, Reuters [Online] Available at: http://www.reuters.com/article/2011/12/14/us-economy-usa-poll-idUSTRE7BD16420111214 [Accessed 14 March 2012] Whitney, L. (November 4, 2011). Samsung outshines Apple in smartphone shipments, market share. Available: http://news.cnet.com/8301-13579_3-57318644-37/samsung-outshines-apple-in-smartphone Vergos K. (2010). The Business Cycle, Aggregate Demand and Aggregate Supply. Available: http://www.colorado.edu/Economics/courses/econ2020/section7/section7-main.html. Last accessed 13th March 2012. CIA World Factbook, 2012. Available: https://www.cia.gov/library/publications/the-world-factbook/ Sloman, J. (1999). Economics. Oxford University Press. APPENDIX: Read More