Samsung has got its act together in mobile handsets. The journey forward could be tough.
Here’s some inside information: Mobile handsets contributed 35 per cent of Samsung India’s turnover of over Rs 9,000 crore in 2009; consumer electronics was around 60 per cent, information technology hardware made up the rest. In 2008, mobile handsets were 26 per cent of turnover (Rs 7,600 crore). The question on everybody’s mind is how long will it take for the mobile handset business to catch up with consumer electronics?
Samsung launched its mobile handsets way back in 1999. The first few years were indifferent. The business began to pick up some two years ago. The last one year, in fact, has been a dream run for Samsung. In November 2008, its share of the GSM mobile handset market was 7.8 per cent — no great shakes. Exactly a year later, it stood at 16.3 per cent. This has catapulted Samsung to the second spot after Nokia (70.1 per cent in November 2009) and way ahead of arch rival LG (5.9 per cent). In the CDMA mobile handset market, which is around a fifth of GSM, Samsung has a share of over a quarter.
With monthly sales of around 12 million, India is undoubtedly the world’s biggest market for mobile handsets. Guesstimates suggest its turnover crossed Rs 20,000 crore in 2009. But it is also the world’s most competitive. Every handset maker worth its ringtone is here, buyers are price-sensitive and local brands have begun to nibble at the bottom end of the market. What does the Samsung survival guide for India say?
Phones for all
“We want to be relevant to consumers,” says Samsung India Director (mobile and information technology) Ranjit Yadav. Samsung’s strategy is to bundle more features than rivals at various price points. Thus, in the entry-level “essential” segment of below Rs 3,000, the Samsung Guru comes with the Hindu calendar, tracker for misplaced handsets, Bluetooth (in some models), clamshell design and solar recharge facility (Solar Guru).
In the multimedia segment, which is priced between Rs 3,500 and Rs 8,000, Samsung offers in the Metro features like camera, pre-loaded social networking sites (not all models) and a card for data storage. For small businessmen who travel to remote parts and rural consumers who are straddled with low connectivity, there is the dual-SIM handset. For young adventure-seekers, there is the “planet-proof” Marine which they can drop in water or put under a motorcycle and still hope to use it. The company expects to sell good numbers in rain-wrecked Mumbai, though some reviewers have questioned its sound quality.
Then there is the world of touch-screen phones, which start at Rs 7,600 and goes up to Rs 33,900. This really is Samsung’s forte. There are the Star and Corby at the entry level (the Corby has been launched with the youth in mind; it has youthful looks and comes loaded with social networking sites, the current rage amongst youngsters), the Pixon which has a powerful camera, the Jet with high processor speed of 800 MHz, Omnia business phones and the Galaxy on the Android platform. A third of all launches in 2009 were in the touch-screen category. The company claims it has 31 per cent share of the touch-screen market.
All told, Samsung came out with 44 new models in 2009 (42 in 2008; the plan for 2010 is no less ambitious). It has about 50 handsets in the market at present, which means almost the entire line is less than a year old. “This business is all about change. The go-to-market time is extremely important,” says Yadav. All high-volume models of up to Rs 15,000 are made in the company’s facility at Noida, which can produce up to a million phones a month. The rest are all imported from South Korea (not China). To give the brand a high-tech image, Samsung in March 2008 launched a mass-media campaign with Amir Khan and the tagline, “Next is what?”
Observers and telecom experts say this segmentation has worked in Samsung’s favour. “Samsung is very focused on specific segments. Its target is the youth. The company is conscious of the latest trends, new features as well as attractiveness of the models,” says telecommunications expert Mahesh Uppal.
Retail therapy
Apart from the consumer’s mind, the battle has to be fought at the retail level. Mobile handsets are sold through multi-brand outlets. How do you make sure that the retailer pushes your product and not your rival’s? This is where, according to Yadav, Samsung has put in a lot of efforts. “The margins we offer to retailers are the best in the industry. We guarantee 30 per cent return of investment on Samsung merchandise to retailers,” says he.
There are in India some 120,000 dealers of mobile handsets. Samsung reaches about half of them. Since the trade has a long tail, Yadav thinks this covers over 80 per cent handset sales in the country. Most large retail shops have Samsung agents to sell its handsets. Yadav has a team of 30 which looks at channel development, and another team of 30 to work with retailers to make their business viable. In information technology, Samsung has put its dealers in three categories: Silver, gold and platinum. Such a reward scheme could be worked out for mobile handsets as well in future.
CDMA revives
CDMA from day one got stamped the poor man’s service. Some time back, large players like Reliance Communications and Tata Teleservices decided to also seek their fortune in GSM. But the entry of new players like Virgin and MTS has revived the market. Contrary to projections, the CDMA handset market did not contract in 2009, though it didn’t grow either. Analysts say it could grow 10-15 per cent in 2010.
The problem was also that the handset was always tied to the operator. Retail sales therefore were simply not there. Samsung in 2008 came out with the Mpower series of handsets which could be used for all CDMA services — Reliance Mobile, Tata Indicom and Virgin Mobile. This opened retail possibilities in CDMA. In September 2009, it used the OMH chip developed by CDMA technology provider Qualcomm for the Mpower 699 which offers full flexibility between service operators.
With this technological breakthrough, Samsung has for the last two years begun to focus on the retail segment of the CDMA handset market. It has close to 10,000 dealers now, up from 3,000 a year ago. The company gets almost 35 per cent of its volumes from retail. It has 15 models in its line, priced between Rs 3,200 and Rs 12,500, including a CDMA Corby and a dual-SIM handset for CDMA as well as GSM services. As a result, its share in CDMA handsets has improved from 16 per cent at the end of 2008 to 25.4 per cent a year later.
All is well?
For all the work it has done, Samsung has not been able to cause any dent to Nokia — it still rules the market with a share of over 70 per cent. In no other product category does the leader have such a large share. Samsung’s growth, insist industry insiders, has come at the cost of lesser rivals like Motorola and Sony Ericsson. Meanwhile, local businessmen with a sound distribution network and cheap imports from China have attacked the market from the bottom with brands like Karbonn, Lava and Micromax. (The phase-out of unbranded Chinese handsets without a key security number has helped their cause.)
Doubts have also been raised on the buoyancy of the handset market in the days to come. How long will the growth story continue? Aren’t markets like the metros saturated? New customers from rural markets, who are now driving the industry’s growth, are too cost-conscious, which reflects in their low usage of mobile services. Won’t this drive the market down?
Yadav does not look too perturbed at the moment. “Low usage in rural markets,” says he, “is good for handset makers.” This, he argues, will make rural consumers go for better handsets. Rural buyers, according to him, do not necessarily go for the cheapest handset, and are as tech-savvy as their urban counterparts. Also, the replacement market has begun to fire big time in urban markets. “It is almost 25 per cent of the market now,” says Yadav. “Indians have begun to upgrade their handsets in two to three years. Elsewhere in the world, it happens in one year.” The upside, in other words, is huge.
