When one speaks of competitors in the smartphone arena, Samsung and Apple immediately come to mind. Both companies are extremely proud of their accomplishments and are not afraid to tell us so…just watch their commercials. They are legendary for their courtroom battles as well as their verbal battles in the news and via commercials. Nowhere else will you find a more loyal bunch of users – they either love or hate Apple or Samsung and they are not afraid to tell you just how they feel. It should also come as no surprise that both companies might ‘borrow’ from one another, whether it be in the physical design or marketing ideas.
Apple has always taken the attitude – ‘If we build it, they will buy it…no matter how much we charge for the device.’ They also like to use buzzwords, such as “Retina Display,” without really defining what they mean, but it really sounds awesome and must be the best, because Apple is selling it. Apple also does not like to discuss specifications to make it more difficult to compare the iPhone against its competition – not even the size of the battery! This type of attitude and marketing allows Apple to follow their premium price and product differentiation strategy. Steve Jobs’ strategy for Apple had four pillars, which Tim Cook has followed to this day: Offer a small number of products – Focus on the high end – Give priority to profits over market share – Create a halo effect that makes people starve for new Apple products.
Samsung, on the other hand, tries to be all things to all people – high-end, mid-range and low-end – and up until last year, this strategy seemed to be working for them. Just a couple of years ago, smartphones were still exploding on the scene and competition was small as younger companies struggled to compete. Then, startup companies rose up in China at a meteoric rate and started to sell smartphones that are well built, with great specifications and rock bottom pricing – pushing Samsung and Apple out of the tops spots. India, one of the fastest growing smartphone markets in the world, is not only selling devices from China, but also from their own homegrown companies. Again, Samsung lost out of sales from these lower priced devices.
In the US, Samsung had a poor financial year in 2014 that started with disappointing sales of their Galaxy S5 model. They made a small comeback with a redesigned Galaxy Note 4 with a metal frame and faux leather backing, then experimented with a Galaxy Alpha model and worked their way up to a total redesign of the Galaxy S6, where they took a page from Apple’s handbook. The Galaxy S6 had an aircraft aluminum frame and Gorilla Glass 4 on the front and the back – a real premium look and feel. They even offered a Galaxy S6 Edge model with curved edges on both sides of the display…with a premium price, of course. It turns out that even with their higher pricing, analysts are predicting a record number of 50+ million Galaxy S6 and S6 Edge will be sold by the end of 2015.
Samsung is set to see their first profit gain in six quarters and according to financial analysts, Samsung is poised to continue gains as the year goes by. Samsung is hoping that their new designs will keep existing customers from switching and win back customers from Apple. The new Galaxy S6 models with do exactly what the iPhone does for Apple – allow Samsung to increase profits through higher margins because people are willing to buy them and pay a premium price. Couple that with a high sales volume and you have a perfect recipe for financial success.
Lee Seung Woo, an analyst at IBK said, “Samsung will make a killing from a significant rise in margins from the pricier S6 Edge. Profit at its mobile business may nearly double in the second quarter.” The buzz about the new Galaxy S6 and Galaxy S6 Edge has helped rally Samsung’s market share and boost their value by about $16 billion since March 1. Stock prices are rising and their operating margins rose 12.6-percent in the first quarter – the highest in a year. Most of this extra profit or margins are coming from their high-end devices, although Samsung did not provide a breakdown, but that will come later. Greg Roh, a Seoul-based analyst at HMC Investment said, “We are going back to a time where Samsung’s strong sales of smartphones will help boost profits at its component businesses. Second-quarter results will be a lot higher, largely helped by S6 smartphones.”
Apple attempts to increase market share through product differentiation – making their products appear unique and attractive to customers and then creating a demand for their products and selling them at a higher price. This sets up an ‘artificial barrier’ for its competitors…Samsung is fighting hard to overcome this barrier by offering their own premium product that people are willing to purchase at a higher price. The Samsung Galaxy S6 was the model that Samsung expected to outsell the Galaxy S6 Edge – but now the tables are turned and the S6 Edge is selling so well, they may need to backorder sales until they can produce enough curved displays – a nice problem to have. Samsung also followed iPhone’s lead with no microSD card expansion and instead selling 32GB, 64GB and 128GB models and adding $100 per upgrade – more high profit margins. Not only will the Galaxy S6 and S6 Edge help differentiate Samsung from Apple, but also it will cause further differentiation between Samsung and other Android devices…which might be exactly what Samsung is hoping to achieve.