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Samsung Mobile Phones’ International Marketing Strategy (Dec 2005)

Global marketing mix

Global marketing is becoming an important key term for the current marketplace. There are many different definitions of global marketing. Consider the following definition by De Mooij, an American Economist.

“Global marketing refers to the integration of the international and multinational marketing approaches, where the objective is to create the greatest value for customers and the greatest competitive advantage for the company”.

Today, this form of global marketing is referred to as the hybrid strategic approach, or “globalization.” The strategic intent is to use a centralized strategic “footprint” to build global brand identity, while allowing country-specific flexibility in the executive or tactical and communication mix decisions. When determining what the strategic implications are for global interactive advertising under this form of marketing, one finds that the concepts of global marketing and global interactive advertising are no longer utilizing an ethnocentric perspective. Instead, global marketing should be considered polycentric or geocentric (outward looking). Global marketing acknowledges and uses strategic intent to coordinate the combination of centralized corporate or brand directives with more localized adaptations in interactive advertising placement and executive decision-making. Thus, global marketing does suggest that reaching global consumers is a strategically intended outcome of a hybrid strategic approach. In more details, four main factors included in the above-mentioned approach are product, price, place, and promotion. In other words, when marketing their products, whether locally or globally, firms need to create a successful mix of:

  • the right product
  • sold at the right price
  • in the right place
  • using the most suitable promotion.

Product decisions

A product is defined as: “Anything that is capable of satisfying customer needs”. Then the product is the central point on which marketing energy must focus. Finding out how to make the product, setting up the production line, providing the finance and manufacturing the product are not the responsibility of the only marketing function. However, it is also concerned with what the product means to the customer. Marketing therefore plays a key role in determining such aspects as:

* the appearance of the product – in line with the requirements of the market

* the function of the product – products must address the needs of customers as identified through market research.

Businesses need to regularly develop new products and markets for future growth. A useful way of looking at growth opportunities is the Ansoff Growth Matrix which suggests that there are four main ways in which growth can be achieved through a product strategy:

(1) Market penetration – Increase sales of an existing product in an existing market

(2) Product development – Improve present products and/or develop new products for the current market

(3) Market development – Sell existing products into new markets (e.g. developing export sales)

(4) Diversification – Develop new products for new markets

One thing should be pointed out is how a product appears in relation to other products in the market, or how importance the brand of a product is. Brand is a mixture of tangible and intangible attributes symbolized in a trademark, which, if properly managed, permits a business to differentiate its products and services from those of its competitors, add extra value for consumers who value the brand and improve profitability.

Quality

Quality is a vital ingredient of a good brand. Remember the “core benefits” – the things consumers expect. These must be delivered well, consistently, etc… Research confirms that, statistically, higher quality brands achieve a higher market share and higher profitability than their inferior competitors.

Positioning

Positioning is about the position a brand occupies in a market in the minds of consumers. Strong brands have a clear, often unique position in the target market.

Positioning can be achieved through several means, including brand name, image, service standards, product guarantees, packaging and the way in which it is delivered. In fact, successful positioning usually requires a combination of these things.

Repositioning

Repositioning occurs when a brand tries to change its market position to reflect a change in consumer’s tastes. This is often required when a brand has become tired, perhaps because its original market has matured or has gone into decline.

Communications

Communications also play a key role in building a successful brand. We suggested that brand positioning is essentially about customer perceptions – with the objective to build a clearly defined position in the minds of the target audience. All elements of the promotional mix need to be used to develop and sustain customer perceptions. Initially, the challenge is to build awareness, then to develop the brand personality and reinforce the perception.

First-mover advantage

Business strategists often talk about first-mover advantage. In terms of brand development, by “first-mover” they mean that it is possible for the first successful brand in a market to create a clear positioning in the minds of target customers before the competition enters the market. There is plenty of evidence to support this. However, being first into a market does not necessarily guarantee long-term success. Competitors – drawn to the high growth and profit potential demonstrated by the “market-mover” – will enter the market and copy the best elements of the leader’s brand.

Long-term perspective

This leads onto another important factor in brand-building: the need to invest in the brand over the long-term. Building customer awareness, communicating the brand’s message and creating customer loyalty takes time. This means that management must “invest” in a brand, perhaps at the expense of short-term profitability.

Internal marketing

Finally, management should ensure that the brand is marketed “internally” as well as externally. By this we mean that the whole business should understand the brand values and positioning. This is particularly important in service businesses where a critical part of the brand value is the type and quality of service that a customer receives.

Pricing decisions

Setting the right price is an important part of effective marketing. It is the only element of the marketing mix that generates revenue (product, place, and promotion are all about marketing costs). Put it simply, “Price is the amount of money for which a product is bought or sold”.

The factors that businesses must consider in determining pricing policy can be summarized in two categories – internal factors and external factors, in which the four most important elements are costs, competitors, customers and business objectives.

Costs

In order to make a profit, a business should ensure that its products are priced above their total average cost. In the short-term, it may be acceptable to price below total cost if this price exceeds the marginal cost of production – so that the sale still produces a positive contribution to fixed costs.

Competitors

If the business is a monopolist, then it can set any price. At the other extreme, if a firm operates under conditions of perfect competition, it has no choice and must accept the market price. The reality is usually somewhere in between. In such cases the chosen price needs to be very carefully considered relative to those of close competitors.

Customers

Consideration of customer expectations about price must be addressed. Ideally, a business should attempt to quantify its demand curve to estimate what volume of sales will be achieved at given prices

Business Objectives

Possible pricing objectives include:

* To maximize profits

* To achieve a target return on investment

* To achieve a target sales figure

* To achieve a target market share

* To match the competition, rather than lead the market

Distribution channels

Distribution (or Place) is the third element of the marketing mix. Most businesses use the third parties or intermediaries to bring their products to market. They select a distribution channel which can be defined as “All the organizations through which a product must pass between its point of production and consumption”.

Why does a business give the job of selling its products to intermediaries? After all, using intermediaries mean giving up some control over how products are sold and who they are sold to. The answer lies in efficiency of distribution costs. Intermediaries are specialists in selling. They have the contacts, experience and scale of operation which means that greater sales can be achieved than if the producing business tried to run a sales operation itself.

Functions of a Distribution Channel

The main function of a distribution channel is to provide a link between production and consumption. Organizations that form any particular distribution channel perform many key functions:

  • Information: Gathering and distributing market research and intelligence – important for marketing planning
  • Promotion: Developing and spreading communications about offers
  • Contact: Finding and communicating with prospective buyers
  • Matching: Adjusting the offer to fit a buyer’s needs, including grading, assembling and packaging
  • Negotiation: Reaching agreement on price and other terms of the offer
  • Physical distribution: Transporting and storing goods
  • Financing: Acquiring and using funds to cover the costs of the distribution channel
  • Risk taking: Assuming some commercial risks by operating the channel (e.g. holding stock)

All of the above functions need to be undertaken in any market. The question is – who performs them and how many levels there need to be in the distribution channel in order to make it cost effective.

The choice of distribution method depends on a variety of factors:

  • Influence: Comments
  • Market factors: An important market factor is “buyer behavior”; how do buyers want to purchase the product? Do they prefer to buy from retailers, locally, via mail order or perhaps over the Internet? Another important factor is buyer needs for product information, installation and servicing. Which channels are best served to provide the customer with the information they need before buying? Does the product need specific technical assistance either to install or service a product? Intermediaries are often best placed to provide servicing rather than the original producer – for example in the case of motor cars.

The willingness of channel intermediaries to market product is also a factor. Retailers in particular invest heavily in properties, shop fitting etc. They may decide not to support a particular product if it requires too much investment (e.g. training, display equipment, warehousing).

Another important factor is intermediary cost. Intermediaries typically charge a “mark-up” or “commission” for participating in the channel. This might be deemed unacceptably high for the ultimate producer business.

Producer factors:

A key question is whether the producer has the resources to perform the functions of the channel? For example a producer may not have the resources to recruit, train and equip a sales team. If so, the only option may be to use agents and/or other distributors.

Producers may also feel that they do not possess the customer-based skills to distribute their products. Many channel intermediaries focus heavily on the customer interface as a way of creating competitive advantage and cementing the relationship with their supplying producers.

Another factor is the extent to which producers want to maintain control over how, to whom and at what price a product is sold. If a manufacturer sells via a retailer, they effective lose control over the final consumer price, since the retailer sets the price and any relevant discounts or promotional offers. Similarly, there is no guarantee for a producer that their product/(s) are actually been stocked by the retailer. Direct distribution gives a producer much more control over these issues.

Product factors:

Large complex products are often supplied direct to customers (e.g. complex medical equipment sold to hospitals). By contrast perishable products (such as frozen food, meat, bread) require relatively short distribution channels – ideally suited to using intermediaries such as retailers.

Distribution Intensity There are three broad options – intensive, selective and exclusive distribution:

  1. Intensive distribution aims to provide saturation coverage of the market by using all available outlets. For many products, total sales are directly linked to the number of outlets used (e.g. cigarettes, beer). Intensive distribution is usually required where customers have a range of acceptable brands to choose from. In other words, if one brand is not available, a customer will simply choose another.
  2. Selective distribution involves a producer using a limited number of outlets in a geographical area to sell products. An advantage of this approach is that the producer can choose the most appropriate or best-performing outlets and focus effort (e.g. training) on them. Selective distribution works best when consumers are prepared to “shop around” – in other words – they have a preference for a particular brand or price and will search out the outlets that supply.
  3. Exclusive distribution is an extreme form of selective distribution in which only one wholesaler, retailer or distributor is used in a specific geographical area.

Promotion tools

It is not enough to have good products sold at attractive price in the right place. To generate sales and profits, the benefits of products have to be communicated to customers. Therefore, “Promotion is all about companies communicating with customers”.

A business’s total marketing communications program is called the promotional mix and consists of a blend of advertising, personal selling, sales promotion and public relations tools:

Advertising:

  • Good for building awareness
  • Effective at reaching a wide audience
  • Repetition of main brand and product positioning helps build customer trust
  • Impersonal – cannot answer all a customer’s questions
  • Not good at getting customers to make a final purchasing decision

Personal Selling:

  • Highly interactive – lots of communication between the buyer and seller
  • Excellent for communicating complex / detailed product information and features
  • Relationships can be built up – important if closing the sale made take a long time
  • Costly – employing a sales force has many hidden costs in addition to wages
  • Not suitable if there are thousands of important buyers

Sales Promotion:

  • Can stimulate quick increases in sales by targeting promotional incentives on particular products
  • Good short term tactical tool. If used over the long-term, customers may get used to the effect
  • Too much promotion may damage the brand image

Public Relation:

  • Often seen as more “credible” – since the message seems to be coming from a third party (e.g. magazine, newspaper)
  • Cheap way of reaching many customers – if the publicity is achieved through the right media Risk of losing control – cannot always control what other people write or say about your product

Each of the above components of the promotional mix has strengths and weaknesses. There are several factors that should be taken into account in deciding which, and how much of each tool to use in a promotional marketing campaign:

Resource availability and the cost of each promotional tool

Advertising (particularly on television and in the national newspapers can be very expensive). The overall resource budget for the promotional campaign will often determine which tools the business can afford to use.

Market size and concentration

If a market size is small and the number of potential buyers is small, then personal selling may be the most cost-effective promotional tool. A good example of this would be businesses selling software systems designed for supermarket retailers. On the other hand, where markets are geographically disperse or, where there are substantial numbers of potential customers, advertising is usually the most effective.

Customer information needs

Some potential customers need to be provided with detailed, complex information to help them evaluate a purchase (e.g. buyers of equipment for nuclear power stations, or health service managers investing in the latest medical technology). In this situation, personal selling is almost always required – often using selling teams rather than just one individual. By contrast, few consumers need much information about products such as baked beans or bread. Promotional tools such as brand advertising and sales promotion are much more effective in this case.

Samsung’s changing position in the global

The worldwide market for mobile phones slowed slightly recently due to expected seasonal effects, but still managed to post impressive growth year-on-year, according to IDC’s Worldwide Mobile Phone QView. Worldwide mobile phone shipments decreased sequentially by 5.9 percent in 1Q04 and increased by 29.3 percent year-over-year to 152.7 million units. Additionally, the nascent market for converged mobile devices, or “smartphones,” posted a sequential decrease of 5.5 percent but a year-over-year increase of 85.8 percent.

Among the top vendors, Nokia experienced the sharpest sequential drop with a decrease of 19.2 percent resulting largely from a lack of mid-range handsets. As carriers looked for alternative sources to fill consumer demand, vendors such as Motorola and Samsung were able to gain significant market share at Nokia’s expense. However, despite the loss in market share, Nokia remains firmly positioned as the market leader in both the mobile phone market and the converged mobile device market.

“Despite the anticipated seasonal effects of the post-holiday first quarter, worldwide mobile phone manufacturers were able to produce significant year-on-year growth on the strength of mid-range handsets featuring color screens and cameras,” said David Linsalata, analyst in IDC’s Mobile Devices program. “Additionally, the market for converged mobile devices, or ‘smartphones,” demonstrated strong growth potential as both enterprises and consumers continue to show interest in improved devices combining data and telephony capabilities.”

With 1.5 billion wireless subscribers expected worldwide by the end of the year, IDC expects the worldwide mobile phone market to surpass 595 million units shipped in 2004. Through 2008, the market will continue to expand until it reaches nearly an all-replacement sales scenario towards the end of the decade with over 800 million mobile phones shipping annually. According to IDC’s Worldwide Mobile Phone 2004-2008 Forecast and Analysis (IDC #31080, April 2004), sales of 2.5G mobile phones will drive market growth for the next several years with sales of 3G mobile phones finally surpassing the 100 million annual unit mark in 2007. The converged mobile device market, surpassing 20 million units shipped worldwide in 2004, will be dominated throughout the decade by Symbian-powered devices – Microsoft and PalmSource are expected to mount a long-term challenge, but will have greater difficulty gaining exposure to mainstream mobile phone market volume.

“A compelling case for 3G adoption by consumers has yet to be made. Simply put, there are very few reasons to drive the vast majority of consumers to buy a new 3G mobile phone,” said Alex Slawsby, senior analyst in IDC’s Mobile Devices program. “As a result, we expect converged mobile devices, powered by Symbian and Microsoft, as well as 2.5G color screen and camera phones to be the core of the overall market for several years.”

Vendor Highlights

Nokia – Although Nokia was able to post 17.2 percent year-over-year growth, shipments dropped 19.2 percent sequentially, resulting in a drop in market share of 4.8 percent to 29.3 percent. The decrease came as a result of a product mix weighted towards entry-level phones and lacking in midrange color and camera phones, areas that proved to be growth catalysts for other companies. Nokia plans to regain its market share through a combination of price discounts and the launch of approximately 40 new handsets this year.

Motorola – Motorola posted record shipments in 1Q04, bringing its formerly slumping market share up 2.7 percent to 16.6 percent in 1Q04. On the strength of a 51.5 percent year-over-year shipment increase driven by sales of GSM camera phones, Motorola boosted its market share to 16.6 percent of the worldwide mobile phone market. Going forward, the company hopes to extend its recent momentum with a range of new mobile phones focusing on mobile music, broadband, and productivity, scheduled to come to market this year.

Samsung – Samsung continued its steady march to overtake Motorola with a year-on-year shipment increase of 88 percent in 1Q04, increasing Samsung’s market share to 13.1 percent. Samsung’s rise came on volume sales of its premium products such as its camera phones and camcorder phones.

Siemens – Despite a year-over-year shipment increase of 60 percent, Siemens fell 16 percent sequentially, resulting in a 1 percent drop in market share to 8.4 percent.

Sony Ericsson – After two quarters at the number 6 position, Sony Ericsson re-entered the top 5 with a 63 percent year-over-year shipment increase on increasing momentum from its mid and entry level products. However, Sony Ericsson beat LG Electronics by only 250,000 units, and LG’s increasing focus on GSM phones may threaten Sony Ericsson’s stay in the top 5.

In 2004, Samsung sold 22.98 mln phones to consumers in Q3 2004, giving it a 13.8% market share, compared with sales of 22.39 mln cell phones by Motorola, which was 13.4% of the market. The market share of the world’s biggest handset maker Nokia recovered to 30.9%, from 29.7% in Q2. Fourth-placed Siemens ended at 7.6%, up from 6.9%, despite a recall of its new 65 range of models which pushed the business into a loss in the quarter. LG climbed to a 6.7% market share, up from 6% in Q2, while Sony Ericsson slipped slightly to 6.4% in Q3 from 6.6%.

Also in this year, Samsung Electronics Co. Ltd (005930.SE) gained market share at Sweden’s largest independent mobile phone retailer. Samsung had three of the top 10 selling models at The Phone House.

Analysis of Samsung handsets’ global marketing strategy

As previously mentioned, the global handset market has experienced rapid growth over the past few years. Undeniably this is a tremendous growth, and this growth has created a fierce competition among handset manufacturers as an inevitable and parallel tendency. The next parts of this analysis describe how Samsung’s marketing strategy drive the company’s actions in response to such competition to be recognized as one of the leading global player in the handset industry.

Positioning its handsets as expensive phones with high quality

With increasing competition, subscription prices and airtime charges are both decreasing. The figure below describes the scope of rate reduction in the global wire telecommunications in general and the handset industry in particular throughout the late 1990s and the early 2000s.

Availability of Samsung in the global market

How to select an efficient distribution channel is a very important decision to businesses in general and handset industry in particular. The below chart presents the proportion of Samsung handset sales volume sold by different channels in 2002 (data by June 2002).

There are mainly 3 categories of distribution channels operating in the handset market:

(1) Conventional handset distribution channels

This category covers the first tier distributors, including handset retailers, specialist handset distributors, and specialist handset agents and operators outlets. They are acting as main forces of handset distribution, amounting to total 82% of sales in 2002. Most agents or distributors often handle more than one handset brand.

(2) Conventional IT (Information Technology) distribution channels

This category refers to the IT product distributors, who distribute all kind of IT products, such as computers, printers, scanners, etc. These kinds of distributors have their systematic distribution channels.

(3) Household appliances chains

This category, which has wide geographical coverage, can hold large stock, operate flexibility, enjoy direct interface with end-users, and make flexible pricings. Thus they have been the emerging force in handset distribution.

We can see that the handset retailers account for the largest shares (34%) followed by specialist handset agents and specialist handset distributors. Household appliances chains only account for 4%. However, the trend is now changing and these chains are taking an important role in the distribution business.

Aggressive advertising and sponsorship strategy.

Samsung had one of the largest advertising budgets. It is corporate identity of the company, related not only to handset products but to all products made by Samsung. Handsets attracted primary attention due to large advertising campaigns. They are well-known on the market. Unique functions, mostly sound possibilities and color screens, available in Samsung are also very important. Moreover, how to drive the buyer behaviors to be interested in the company’s products among other existing similar products offered by a number of strong competitors and then make them choose Samsung products is much more important. It’s the company aggressive advertising policy of transforming itself into the global brand that makes the difference.

Samsung has adopted a holistic approach to global brand communications, implementing several independent regional strategies that are guided by a unified brand image. The dramatic growth in Samsung’s brand reflects the company’s continuing record investment in integrated global advertising and marketing initiatives, including its continued partnership with the Olympic Games.

Certainly making a more appealing quality product is one way to change perception, but Samsung has coupled this with a consistent and highly visible marketing and PR effort across many channels of communication. Kyung Suh, a manager at Samsung, emphasizes what he refers to as a “holistic brand campaign” strategy to reposition the brand in consumers’ minds. Samsung’s mission is to associate its brand in consumers’ minds with products that are beautiful, avant-garde and user-friendly.

Suh also cites Samsung’s commitment to a single global advertising agency, which allows it to control consistency and continuity in its communications across all markets. The brand owners have also made good use of Internet advertising on heavily visited sites, sponsorship and product placement in movies such as the The Matrix: Reloaded, sponsorship of popular sporting events such as the Olympics, and new sponsor of Chelsea Football Club. The attention to entertainment marketing, especially the Hollywood penetration is seen as a way to “enhance brand familiarity”.

Obviously, Samsung has marketed itself much more efficiently. They are reaping the benefits of having set up a proper global marketing organization. All those years they have spent much more and the visibility of Samsung is much bigger now. Two years ago they sponsored the Sydney Olympics; they are in the movies. All those things help to push the brand forward. Samsung intends to concentrate on maximizing sponsorship of the Olympics in Athens 2004 to continue the global association with popular quality events.

Employing the latest news on Samsung homepage, Chelsea have completed the biggest club sponsorship deal in English football as they announced a five-year contract with electronics firm Samsung worth just over $50million. Under the deal, the logo “Samsung Mobile” will appear on shirts for the club’s centenary season. With Chelsea’s recently incredible success, Samsung can foresee an increase in its sales volume in England, where Vodafone is popularity.

What is really impressive is the Samsung’s aggressive penetration into Hollywood. Understanding the tremendous influences shaped by Hollywood celebrities on the young generation life (i.e. heavy targeted customers of the company), Samsung intended to market itself throughout Hollywood is a crucial road to success, and without any doubt, The Matrix: Reloaded has marked the starting point of Samsung ambitious plan’s sponsorship for Hollywood movies.

Conclusion

Earlier this year, Interbrand declared Samsung as the world’s “fastest growing brand” for the second year in a row, ranking it as the 25th largest brand, up from 42nd place in 2001. The continuously strong rise of Samsung’s brand value reflects the company’s commitment to invest in its brand on a global scale and make brand value a key corporate target throughout the organization from including the CEO and all employees. Samsung has successfully made brand building the key focus of its marketing strategy including product development, selection of distribution channels, channel marketing as well as external and internal communications. Jan Lindemann, Global Managing Director of Interbrand said that “Samsung’s key success factor is management’s ambition and determination to make Samsung the leading brand in its field and to put the required investments and organization behind the brand.”

References:

De Mooij, M. (1994), Advertising Worldwide: Concepts, Theories and Practice of International, Multinational and Global Advertising (2nd Ed), Prentice Hall International (UF) Ltd.: Redwood Books, Trowbrige, Wiltshire, Great Britain.

Kotler, P. and Armstrong G. (2001), Principles of Marketing (9th Ed), Prentice Hall International, Upper Saddle River, New Jersey, USA.

http://www.AsiaPacificRearchGroup/Vietnam_Mobile_Wireless_ Telecommunications_Research_Market_Korea.htm

http://www.interbrand.com

http://www.businessweek.com

http://www.Mobile-review.com

http://www.samsunggroup.com

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  1. […] Global marketing mix Global marketing is becoming an important key term for the current marketplace. There are many different definitions of global marketing. Consider the following definition by De Mooij, an American …  […]