Why is Samsung in a mess in India despite being the number one smartphone brand?
Monday March 3, 2014, 3:39 PM
Samsung India’s management is currently under a lot of pressure from its Korean HQ for delivering results for its smartphone business unit, BGR India has learned. Even though Samsung is the country’s largest smartphone vendor according to shipments, the India unit has struggled in 2013 in both in the mid-level and high-end smartphone space.
Numbers rarely reveal the complete picture and that is especially true about Samsung’s performance in 2013. According to IDC, Samsung ended 2013 with 38 percent of smartphone market share and its smartphone shipment volumes grew 37 percent between Q3 and Q4 of 2013. But there’s a catch – about 50 percent of shipment volumes were of its low-end smartphones.
“Smartphones priced between Rs 6,000-Rs 13,000 accounted for almost 50 percent of Samsung’s shipments. Most of the shipments were of its Galaxy Star and Star Pro smartphones. In order to get in their numbers and beat local players, they brought down their average selling price,” Manasi Yadav, senior market analyst – mobile phones, IDC India, told BGR India.
In 2013, Samsung faced a unique problem in India where its low and mid-end smartphones were hit by local players like Micromax and Karbonn, and its high-end flagship Galaxy smartphones did not see much demand. In fact, its Galaxy S4 and Galaxy Note 3 smartphones failed to take off in India.
According to IDC’s Yadav, Apple’s iPhone 5S and iPhone 5C managed to do better than the Galaxy Note 3, despite Apple getting criticized for the high pricing of the new iPhones. Apple’s aggressive buyback schemes were too much for Samsung to match as Apple’s products retained their market operating prices while Samsung could only offer the schemes on its set prices, which were much higher than the actual street prices.
“Samsung was caught off guard with Apple’s aggressiveness in India. It was easier for Apple to take a hit on their margins in India as they compete only in one segment and are here to capture market share. For Samsung, it is more about retaining their market share and it is fighting competition across price segments,” a Samsung India executive told BGR India on condition of anonymity.
However, it is not just competition that is responsible for Samsung’s hardships in India. The company did not do itself a favor by having a huge portfolio of devices with many smartphones retaining their shelf life for almost two years, while the industry average is less than a year. Smart buyers, who did not want to show off the latest smartphone, picked up the Galaxy S3 and Galaxy Note II devices, over the latest Galaxy S4 and Galaxy Note 3, as the previous generation products were good enough and the price difference was over Rs 10,000.
With slowing Galaxy S4 sales and the impending Galaxy S5 launch, Samsung slashed the price of its Galaxy S4 smartphone by over Rs 10,000 this weekend. It is now available for less than Rs 30,000, a price drop of nearly 30 percent from its earlier price of approximately Rs 42,000. Samsung is repeating mistakes from last year and most buyers would find the Galaxy S4 to be good enough at Rs 30,000.
“Samsung’s product portfolio is very confusing for buyers. They have way too many products at similar price points and their product life cycle is also very long. They just discontinued the Galaxy S II sometime back,” says Yadav. The Galaxy S II was launched in 2011.
To a large extent, a lot of this can be attributed to the lack of stable leadership at Samsung India. In 2007, the company poached Sunil Dutt from Nokia to be its country head. Dutt was the director of sales at Nokia India and was instrumental at setting up Nokia’s network of exclusive retailers, called Nokia Priority Dealers (NPDs). After joining Samsung, Dutt managed to convert many (NPDs) to become Samsung exclusive retailers. It was a brilliant move at a time when Nokia was still the market leader and the local vendors were just about coming up.
However, the reign did not last long as Dutt left exactly two years later in November 2009 and joined HP. He then went on to become the country head of BlackBerry in India in 2011 and stayed there for 16 months.
Meanwhile, Samsung consolidated the IT and mobile businesses and appointed Ranjit Yadav to lead both the businesses. Yadav had joined Samsung in 2008 as the IT business head and had come from HP. But he too quit in September 2012, marking almost four years at Samsung and nearly three years heading its mobile division. Yadav joined Tata Motors as president of its passenger cars business.
Samsung did not have any country head for its mobile business for almost six months, which is a bit odd for the world’s largest smartphone vendor and also the market leader in India. It eventually hired Vineet Taneja as its new country head in March 2013. Taneja, a Hindustan Unilever Ltd veteran of 17 years, has the credentials having served as the head of go to market as well as marketing at Nokia India before joining Airtel as operations director at South India and Sri Lanka.
But here’s what’s odd – Samsung India had three different country heads for its smartphone business in three-and-a-half years between November 2009 and March 2013. This does not correspond to a brand that is considered to be doing extremely well and is the market leader. It is not a situation where Samsung is unable to retain talent from competition poaching its senior executives.
Company insiders and industry watchers paint a completely different picture of what’s going on inside Samsung India. The top leadership is under a lot of pressure to deliver numbers with bosses sitting in Seoul not being pleased. While Samsung has managed to push boxes to keep its shipment numbers ahead of competition, the sell-through is not happening according to set targets, especially for its flagship products.
With increased competition from local players and the entry of new Chinese players like Gionee, Oppo and whispers of Xiaomi coming as well, Samsung has its work cut out as these players will continue to undercut Samsung across price segments. What should be more worrying for Samsung is some of these players are able to seriously undercut its flagship Galaxy smartphones with devices featuring the latest Qualcomm chipsets and camera capabilities.
On the tier one brands, Apple is getting even more aggressive, having launched a “buy and try” scheme where customers can return an iPhone within two weeks of buying it if they are not satisfied with the product.
While Samsung is unlikely to end up with the same fate as Nokia just yet, which IDC now counts among “others” in the smartphone market share in India, there is a real possibility of it losing most of the lead it has over local players. At the end of 2013, the second largest smartphone player was Micromax with a 16 percent market share, according to IDC, less than half of Samsung’s 38 percent. Unless the company changes its practices drastically, Samsung would be happy to end 2014 with anything over 25 percent market share, with Micromax (or any other local player) breathing down its neck.