Samsung kicks off price war in premium phone segment

As makers struggle to retain market share, 5-10% price cuts are likely this year

Consumers looking to buy premium smartphones - priced at Rs 30,000 or more - are in for good times, as a price war seems to have erupted in the segment.

Last week, the largest smartphone maker in the world, Samsung, launched its flagship Galaxy S7 and S7 edge for Rs 48,900 and Rs 56,900, respectively.

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These are about two per cent lesser than the prices of models released last year. Both phones would be available in India from March 18.

Pricing of Galaxy S7 and S7 Edge was aimed at selling more devices and beating the growing competition, said Manu Sharma, director, product marketing, Samsung India.

Other companies, too, told Business Standard they could cut the prices of their premium smartphones by five to 10 per cent in the next few months, in response to Samsung.

This also indicates a shift of focus for phone makers from the non-premium smartphone segment to the premium one.

The battle over market share in the less-than-Rs 15,000-priced smartphone segment has rocked the sector in the past few quarters - forcing vendors to cut prices to remain competitive.

It has led to falling margins and declining revenue per unit.

Now, to continue sustaining sales growth, phone makers in the country are increasingly focusing on the premium segment.

The growth in sales of premium devices outpaces that of low-end products. However, mounting pressure from Apple's new offerings and Chinese smartphones with superior features in the affordable segment are pushing the sector towards a price war in the premium segment this year.

According to analysts, rationalisation in pricing of premium smartphones has been on the cards for the past few months, with a slew of launches in 2015.

"Nearly 20 new models were introduced in above-Rs 30,000 segment last year. This year the number may cross 25," said Neil Shah, director, Counterpoint Research. Samsung, Sony, HTC, Huawei, LG and Moto are fighting it out to sustain sales. Successful launches by Apple (iPhone 6S and 6S plus) between October and December put the cat among the pigeons in the already crowded market.

"While companies are struggling to maintain revenue growth because of pressure in the affordable (Rs 10,000-20,000) segment, the premium smartphone segment is the cash cow now," said Faisal Kawoosa, general manager, Telecom & SemiTronics, CyberMedia Research.

The scope of charging too much for high-end phones is now contracting.

Atul Jain, chief operating officer, Smart Electronics LeEco India, said prices of high-end smartphones are bound to come down. "The era of making [high] profits on superior hardware is a thing of the past."

Industry executives claim the brands are waiting for someone to blink. Samsung has; others will now follow, said an executive, who did not want to be named, adding that cutting prices by at least five-10 per cent on premium models was inevitable. Rationalisation of prices is the mood of the market.

"With increasing access that smartphone makers have to technology, there is actually no great price premium that brands can command at the higher end. The result is this rationalisation of price that one has begun to see," said S N Rai, the co-founder & director of Lava International.

Come summer, and the war could heat up. Apple is likely to launch iPhone 5SE this year.

Experts believe it could make situation worse for other players as a new model could again shift the focus towards i-phones. According to Y V Verma, a consumer electronics expert who was earlier with LG and Onida, price cuts were imminent as the segment had gained significant share and attention of smartphone makers of late. According to Taro Yamamoto, head, Xperia Business, Sony India, there will be "price erosion". "Chinese brands are offering good features (in the affordable category) but quality-conscious buyers will stick to established brands," he said, adding that Sony would keep its focus on the above-Rs 30,000 category, with two new launches this year.

Chinese smartphone major Xiaomi, which usually operates in the below-Rs 20,000 segment in India, is expected launch Mi Note this year, priced above Rs 25,000. Manu Kumar Jain, general manager and head of India operations, Xiaomi Corp. Said the company is working to bring new devices in India "as soon as possible".

BEFORE THE BATTLE
The share of premium smartphones (above Rs 30,000) went up to 3.7% in the last quarter (Q3 FY16) - from 1.5% two years ago. Now a price war seems imminent:

HEATING UP

• Quick growth: The premium segment of smartphones, with price above Rs 30,000, is growing 20% annually, with users often upgrading their devices
   
• Competition: Phones priced at Rs 10,000 to Rs 20,000. Companies might cut prices by 5-10% to retain market share
   
• Old fight: Continued price war in the low-end smartphone segment has forced vendors to look at the premium segment for revenue growth
   
• Hot summer: Apple iPhone 5SE's offbeat launch in the summer could worsen the situation for competitors
   
• Eye on future: With increasing demand and price rationalisation, premium smartphones could claim 8-10% of the market in the next two years