If Samsung India Electronics is learning from the competition, it takes a long time and the risks multiply.
Starting in the fourth quarter of 2017, when Counterpoint Research signed the Chinese Xiaomi as the number one brand in India, Samsung had to settle for second place despite a much broader range of products on multiple price points.
Also OnePlus – with only one model every year in the Rs segment over 30,000 and the clever use of social media and online channels – has challenged the premium hegemony of Samsung.
For 24 quarters before the fourth quarter of 2017, Samsung was the undisputed leader. Mobile phones represent 62.9% of the Rs 59.370-crore business (in March 2018) in India. Another 14.14% comes from the sale of network equipment. The rest includes durable consumer goods, seen as less demanding and more stable than smartphones, where Samsung is losing ground. Apart from microwaves, for which there is not much to talk about in India, Samsung has faced brutal competition, particularly in the mass market segments: 40-inch televisions, 165-liter refrigerators, air conditioners. Air from 1.0-1.5 tons and so on above.
Samsung is as much a study of an early engine that finds itself caught in quicksand, like the conservative South Koreans against aggressive Chinese; online versus offline; make themselves relevant to millennials without losing the grip on "loyal" buyers – a portfolio that boasts a galaxy of products but where the stars become difficult to spot. Navkender Singh, director of research, IDC, says: "Samsung has so far rested on its laurels. And it felt that the aggression of Chinese brands is a flash of straw".
Samsung declined to comment on ET.
OSTRICH & THE HARE
For its merit, Samsung has profound capabilities: research and development (R & D), strength, innovation, solid offline network, business relationships with people like Croma, Vijay Sales, Reliance; deep pockets and ladders to ward off competition. But some of these strengths are becoming weaknesses. As one analyst says, "Samsung (and South Koreans in general) are too sensitive to profit and margin over their Chinese counterparts and therefore avoid price wars."
Furthermore, Samsung takes too long to react to market changes. For example, only in January 2019 the Galaxy M Series was launched in the medium-economic range to face the growing competition of Xiaomi Redmi models and other famous brands. Faisal Kawoosa, chief analyst at TechArc, says: "South Korean brands are more driven by research and development and think long-term. The Chinese are more ready to respond to market changes."
Pankaj Mohindroo, president of the Indian Cellular and Electronics Association (ICEA), says: "The Indian mobile phone market has undergone enormous consolidation. Samsung's market share of value has fallen from over 40-45% in 2013-14 , at the current levels of 20-25%. "
Dinkar Ayilavarapu, partner, Bain & Company, divides the space in which Samsung operates in two – experiential and functional. If in the first case, Samsung was slow to react, in the second, it tried to avoid an apparent downsizing that is an inevitable result of price competition. "There are two clear levels: one of the best western, Japanese or South Korean players and the other insurgent Chinese. Samsung fits into the top tier. Older players have the mark, while insurgents upload features but don't have necessarily the brand (again). Almost all categories have suffered a rapid decrease in prices, which is a result of the Chinese emergency, "he says.
Even his results were a challenge for Samsung. Although revenues have increased, actual achievements have suffered dramatically, says Anchal Agarwal, co-founder, Tofler, a business intelligence platform.
Samsung and Xiaomi command 52% of the Indian smartphone market. According to Counterpoint, between the fourth quarter of 2016 and 2018, Xiaomi increased the proportion of smartphone shipments from 9% to 27%, while Samsung fell from 24% to 20%. In the premium category (over 30,000 Rs), Samsung drove in 2018 with a 34% market share. But even here the competition is intensifying. Anshika Jain, research analyst, Counterpoint, says: "Word of mouth helped OnePlus. The social media strategy is working well for them."
Also in the market of used phones, where Samsung was once sought after, the hierarchical order is Xiaomi, Samsung, Apple, Vivo, Oppo. "Brand loyalty is the strength of Samsung, but users want a combination of better prices for the features in which the Chinese score," says the head of a re-commerce company (used devices).
With its Galaxy M series for millennial buyers, Samsung sells phones full of specifications at prices never before attempted. He then relaunched the Galaxy A series, targeting Millennials and GenZ, attempting to hit $ 4 billion in sales this year from this series.
Trade is exciting for this sudden aggression. "Samsung is going full steam ahead with good models selling faster than expected," said Subhasish Mohanty, president of Spice Hotspot, which operates cell phone stores in the north and east.
ONLINE, ON THE TRACK
Online accounts for about 36% of smartphone sales. The Chinese were the first to move online while Samsung watched from the ringside, relying on its large distribution network and retail partnerships. Samsung has now made its foray online but will not have the advantage of Xiaomi and OnePlus – the deep discounts that the new e-commerce policy has stopped.
Industry observers say that 2019 will be a decisive year for Samsung in India, as it can only regain its leadership in smartphones by improving its share in online sales. As with the pursuers, Xiaomi holds about 50% of smartphone sales online.
No wonder then, Samsung has decided that it will devote significant energy to the online business of India this year. Industry executives say that Samsung India has managed to convince Seoul headquarters that the brand will be ready to give up margins to make an aggressive price and gain market share.
There was some friction, including sales director Prashant Mani, South & West India sales director Deepak Nakra, product manager Sumit Walia, head of the distribution channel Vikas Jain and head of the Bipin Raina division, in the last 18 months.
Samsung has entrusted the challenge online to the corporate vice president Asim Warsi (responsible for the online smartphone business) and to the head of consumer electronics Raju Pullan (also online business for televisions and appliances).
The last quarter saw sales of nearly 2 million units of the Galaxy M series, "but it's still hot," says an expert who wished not to be named.
An industry observer believes Samsung "lacks a differentiated strategy. For Samsung, the product is the core but the market is lacking". For example, Xiaomi, RealMe and Oppo have "digital stars" like Manu Jain, Madhav Sheth or Tasleem Arif which represent them and an active presence on social media. The Millennials appreciate this. Data from the last few quarters show that consumers are ready to experiment with the latest and cheapest brands that promise more bang for buck.
However, Pulkit Baid, director of the Great Eastern Retail store chain, believes that "Samsung still has a higher score for brand-conscious customers, unlike many other large MNC brands, such as the rubbing effect of its smartphones".
THE CONSUMER IS THE KING
But it is in consumer durables that Samsung is really riding customer expectations of a better product, with aspects such as energy efficiency, value for money and technological innovations.
Here too, Samsung faces intense competition from old masters and new players – IFB and Whirlpool in washing machines, Daikin, Lloyds, Voltas and LG in medium-low level AC, Xiaomi and TCL in televisions and Midea and Voltas Beko in microwave.
"Samsung's strengths include technology, innovation, channel financing and institutional sales. But it is too driven by the head office. Sales teams do not have enough power to offer discounts, are late in reacting, lack flexibility and they have a high-cost structure, "says an analyst who does not want to be identified.
In home appliances, Samsung is at number 2, with South Korean rival LG India dominating in categories such as refrigerators and washing machines. Among the air conditioners, the Tata-owned Voltas is the leader, with 23% share and LG is in second place, with 16%, in January 2019, says the GfK tracker. Samsung has progressively lost share since it was number 2 in the AC market at around 4.5% now, with brands like Lloyd, Hitachi, Daikin and Blue Star exceeding it.
The South Korean company, however, has become the market leader in the microwave oven sector in 2016, recording over 32% of sales in terms of volumes per volume, as per Gfk. The advantage continued in 2017 and extended to 33-34% last year.
Vishal Mewani, director of the Kohinoor Electronics retailer in Mumbai, says that online launches will also help the market and Samsung, since the brand will now have a deeper relationship with e-commerce. "The random online discount, which was affecting Samsung's offline business, will stop. However, it is also true that the top three TV producers – Samsung, LG and Sony – have been cornered in the entry segment, or in the TV from 32 ", from aggressive online brands to prices," he adds. According to industry estimates, 32 inches represent half of total TV sales by volume and 35% in value.
"Price competition is even lower in the larger screen segments and Samsung wants to consolidate its share over there. Despite strong online competition in televisions, Samsung has maintained its position and there has been no decline in its TV market share. If nothing else, it should improve this year, "says Mewani.
Industry veteran CM Singh, who has now started his own CMS Electronic Junction retail business, believes that Samsung is even more conveniently positioned among the biggies in the industry. "Several brands are facing a difficult time in categories such as LED TVs from online, but Samsung is planning various programs for consumers and distributors and in recent months has also cut a price cut to combat this challenge," he says.
Singh, who has held leadership roles in LG, TCL and Videocon, said that Samsung is facing every segment of the market that is working for them. "However, without a doubt online brands are giving strong competition to big brands and it remains to be seen if Samsung will maintain its share," he says.
Over the years, Samsung has seen players come and go – the disappearance of Nokia (it was pre-smartphone), the rise and fall of Indian players Micromax, Lava, Karbonn and even some Chinese like Gionee. But the current crop of Chinese competitors seems to be here to stay.
FLEXING MNC MUSCLE
Beyond profits and losses, Samsung has also become a multinational at the forefront of lobbying with the government and on its agenda. For example, at the beginning of this year, Samsung successfully pushed the government to extend Make's deadline for India – for components such as displays and touch panels – by threatening to block the production of phones in India, including top models. This despite the company has invested almost 5,000 crores of Rs in a new plant last year, which would become the largest in the world.
Samsung also shut down its television plant in Chennai last year and started importing from Vietnam to take advantage of the zero tax advantages of the Free Trade Agreement (FTA). Although the Center has requested the company several times to restart local production, it has refused to carry out a revision unless the import duties on the television panels were cut down. Samsung has even moved the production of high-end AC to Vietnam after a duty has been imposed on the compressors to promote Make in India. "Some of these decisions are of vital importance to Samsung as they can therefore transfer tax savings in the form of aggressive prices. It is not that they enjoy the savings as a margin. For them, it is to bridge the price gap with the Chinese brigade" , says an industry executive who does not want to be named.
2019 should be a turning point. "The missing piece in Samsung's strategy is the lack of tactical moves. For a long time, it looked from the sidelines its threatened market leadership and even took it away. To succeed, Samsung must abandon its ostrich position," he jokes a mobile phone expert who prefers to remain anonymous.