From being a mass-market player—a game where it has seen tremendous success—Samsung is now eyeing high-end segments in the various product categories it operates in. Shipra Arora has more details on this strategy and also analyses Samsung’s moves on this front, keeping in mind market conditions and the competition Samsung will face

Samsung’s meteoric rise in the Indian information technology product space is a well-documented story. But while Samsung has the pole position in many categories—a 52.5 percent share in monitors, 53 percent of the hard disk drive (HDD) market, and 65-70 percent of the optical drives market, Samsung Electronics India Information & Telecommunication (SEIIT) is largely seen as a mass-market player.

Being a mass-market player is not a bad thing in itself—and Samsung’s success story is a testament to that. The Korean giant’s Indian IT arm has gained a reputation for success, has achieved mass reach, great brand visibility and excellent revenues. But in the current market, a mass-market strategy does have its pitfalls. Sure, the consumer market is far from saturation point, but it is the increasingly dwindling margins in the Indian IT hardware industry that necessitates a question mark over any mass-market strategy. Further, driven by price wars, average selling prices have also been on a constant fall, thus making profitability an issue.

In effect, apart from brand visibility and its successful mass-market strategy, what Samsung needs today is a separate focus on the high-end business and a better high-end brand image to ensure higher margins and profitability.

Though Samsung has been a regular in terms of introducing products touching the higher brackets, a specific ‘high-end business focus’ had been lacking in the past. To correct this, the company has now initiated a conscious shift in its strategy, entailing a greater focus on high-margin businesses. Vivek Prakash, general manager, sales & marketing for SEIIT agrees, “Under the prevailing low-margin conditions there is a need to constantly upscale the business.” This strategic shift seems a great idea when you consider the competitive pressure from LG in the monitor market, where according to IDC the gap between the two has narrowed significantly in the last few quarters. And with HP and Seagate holding on to their ground in the printer and HDD markets respectively, there’s even more reason for Samsung to go for the high-end to bolster its success story in the mass market.

According to Moninder Jain, national marketing manager, SEIIT, the company is now trying to push in more and more high-end sales in the market. What could well evolve over the next one to two years is a two-pronged strategy—leveraging on low- and mid-range products to play the volume game, while playing the value and margins game with its high-end product range.

The products that fall under the purview of Samsung’s high-end business include monitors with larger screen sizes, TFT-LCD monitors, laser printers, multifunctional printers, combo drives, and high-capacity 80 GB and 120 GB hard disk drives. The product strategy roadmap being laid out by the company will focus on these lines. Laser printing is emerging as the star product line with the focus heavily skewed towards this segment, followed by TFT-LCD monitors. In fact the laser printer division is going to be branded the star division for Samsung worldwide by 2005.

The high-end business accounted for 12 percent of Samsung’s total business in 2001, and as a result of the new strategy that figure is estimated to grow to 35-40 percent by the year-end. That begs the question: How does Samsung plan to go about meeting this stiff target? While a Rs 10 crore investment has been laid out for laser printers over the next one year, the company will be spending another Rs 5 crore specifically on popularising TFT-LCDs over the next quarter itself. Apart from investments, Samsung has also recently appointed a national distributor exclusively for its high-end products.

Another fallout of the high-end focus has been an increased emphasis on the corporate segment, the most obvious market in this category. In order to strengthen its corporate presence Samsung has introduced a ‘SPEAR’ channel programme constituting around 100 channel partners dedicated towards targeting large SMEs and corporates. The products being routed through the SPEAR channel are laser printers, 17-inch monitors and TFT-LCD monitors.
Here’s how the scenario looks in the main segments that Samsung is targeting as part of its high-end focus:

By next year Samsung wants to establish 17-inch as its standard monitor size in India, says Moninder Jain

Monitors
Samsung has been the undisputed leader in the Indian colour monitor market with a 52.4 percent market share, according to IDC. As mentioned earlier, the only cause for worry for Samsung here is the reinvigorated LG in the last 2-3 quarters. According to IDC there has been a significant narrowing in the gap between these two players, thanks to LG’s regional distributor model showing great results.

Samsung, which was four times the size of LG in the monitor market during January-February-March (JFM 2002) quarter came down to being 2.5 times LG’s size during the April-May-June (AMJ) quarter. And according to feedback received by IDC, the gap has further narrowed down during the July-August-September (JAS) quarter, reveals an IDC source. “Of late, Samsung’s market share in this business has gone down on account of competition from LG. Though LG is still a distant No 2 to Samsung, it has come closer to the leader in the last few months,” adds the source. This narrowing of the gap isn’t because Samsung has stopped growing in this segment, as it is about LG’s rapid growth.

Samsung’s high-end focus is a perfect weapon to combat this challenge from LG. The high-end monitor market is the unchallenged forte of Samsung, according to IDC. In the high-end bracket (comprising of 19-inch, 21-inch and 21-inch flat), Samsung enjoys a virtual monopoly, with LG being pretty weak in these categories. Even the TFT-LCD monitor market is heavily in Samsung’s favour. According to IDC, Samsung scores a huge plus over LG when it comes to introduction of the latest high-end technologies. In fact Samsung was the first firm to introduce 19-inch flat and 21-inch flat monitors in the Indian market, and it is now bringing in 24-inch. The company can leverage on this technology leadership to create a niche for itself in the monitor market.

What Samsung needs to lay greater emphasis on is the creation of demand for these high-end monitors that can bring in higher margins. According to IDC, though high-end technologies like LCD, 17-inch monitors (and bigger sizes) are gaining greater momentum in the Indian market, it will still take a few years for these products to become part of the mainstream market.

Till a few months ago, 17-inch and above monitors only accounted for one-sixth of the total monitor market, with 15-inch monitors accounting for almost half of the total market. However, as IDC further points out, there is a definite shift happening from 15-inch to 17-inch monitors in the Indian market, assisted by the fall in prices of 17-inch monitors during the last year. The price differential between 15-inch and entry-level 17-inch monitors has come down to Rs 2,000, as compared to Rs 7,000 earlier.

Samsung’s strategy on this front is to graduate home and SOHO customers to 17-inch monitors. The key issue here is the speed at which the company is able to do so in order to gain the early-mover advantage. Samsung’s strategy includes innovative promotions and schemes (for instance, bundling Lexmark inkjet printers with its 17-inch monitors). According to Jain, by next year Samsung wants to establish 17-inch as its standard monitor size in India. The company’s track record does indicate that this is no idle boast. Numbers, which are the best indicator of the truth of any claim, clearly show that the contribution of 17-inch monitors to Samsung’s overall monitor revenues have grown to 22 percent by May this year, up from less than 14 percent last year. Thus, revenues from 17-inch monitors are expected to overtake 15-inch revenues by mid-2003.

However, some industry experts point out that even 17-inch is no longer a high-margin business, considering the fall in prices, and therefore might not play a significant role in the company’s quest for a high-margin focus.

Nevertheless, Samsung seems to be smartly laying the foundation for the high-end in the otherwise difficult home market by initiating their first steps towards the high-end market. It’s easier to sell a 17-inch TFT-LCD monitor (undisputedly a premium product) to a user who already understands the benefits of using a 17-inch monitor by using one, as compared to a user who’s still using a 15-inch monitor.

Once this market has been created Samsung could leverage it later as it matures even further. Besides, Samsung is also focusing on corporates and large SMEs for deriving great margins, and further pushing in high-end products. According to IDC, the corporate market is a tough nut to crack considering that it is largely a branded PC market. But Samsung’s already powerful presence in the corporate assembled PC market can be effectively leveraged to push its high-end offerings, though it will take some time for significant numbers to pour in.

Under the prevailing low-margin conditions there is a need to constantly upscale the business, says Vivek Prakash

Laser printers
The other high-end business where Samsung is looking to establish itself in terms of volumes as well is laser printers. The inkjet market is more or less stagnant, but the laser market is growing at 20 percent, according to IDC, thus explaining why Samsung is focusing on lasers. The company is in fact relying heavily on this business segment to lead its high-end brigade. According to Prakash Vaswani, senior analyst, peripherals research at IDC India, the entry-level and mid-range laser printer market is predominantly HP’s forte with Samsung coming in second. During the AMJ quarter of 2002 HP accounted for 65 percent market share in terms of units, with Samsung at 22.5 percent. Samsung says that its market share has grown to 35 percent for the quarter ending July 2002, with a 600 percent growth over the last quarter.

With the huge gap between HP and itself Samsung might still be far from toppling HP from its pole position in this space-especially considering HP’s inkjet advantage too—but considering Samsung’s growth record, HP can’t afford to take the challenge from Samsung lightly. According to Vaswani, considering the fact that Samsung has been there in this business for only about a year-and-a-half, it has made significant growth strides. “For more than five to six years HP commanded over 90 percent of the laser printer market, which has now come down to 65 percent. And it is Samsung that been the biggest gobbler of HP’s share,” he adds. The reason for this is that most of the growth in the laser printer market has been at the entry-level and HP and Samsung are the only significant players in this segment.

While the spectacular growth seen in the last 1.5 years has built up a strong foundation for Samsung’s challenge, success in the long term will depend largely on Samsung getting its strategies right. According to IDC, the company’s strategy vis-à-vis HP revolves largely around price points and pushing in freebies. Along with Wipro, Samsung has been at the leading edge of the price war, bringing down the entry-level price to around Rs 12,500 early this year, down from the Rs 16,000 to Rs 20,000 prices seen last year. HP has been a slow mover in this regard, bringing its entry-level price down to Rs 15,000 only. Samsung has been more proactive in terms of schemes and offers as well, being the first one to offer a free laser toner, an offer later followed by HP. Other offers have included a free scanner and additional warranty. According to Vaswani, going by the speed at which Samsung is moving, prices of entry-level laser printers are likely to drop further.

But while this price strategy has been fruitful in garnering early market share it cannot remain a viable long-term strategy. Vaswani clearly states that working on pricing alone can be a dangerous strategy to follow. “Laser printers are targeted at corporates where brand image plays a more decisive role than attractive pricing. What Samsung lacks today vis-à-vis HP, is a high-end brand image and stronger brand presence,” he adds. Hence, what is needed is a shift in its strategy from a volume-led approach to a more value-led approach in the laser printer business.

What Samsung perhaps needs to do today in order to gain an edge over HP is an aggressive brand-building exercise as it has done earlier in the HDD market against Seagate. With the company set to launch its high-end colour laser printers by next year, branding and image will have to be looked at all the more seriously because the pricing factor is not so important in this segment. Wipro’s aggressive launch of a sub-Rs 1 lakh high-end laser printer was hardly able to dent HP’s similar offering at Rs 1.5 lakh. Samsung seems to have taken the cue in this regard, having outlined a Rs 10 crore marketing investment for laser printers.

Another area where HP has an advantage is in channel strengths in this segment. Samsung has a relatively new channel set-up for laser printers, versus HP’s set channel base. This is another area, where IDC believes Samsung will have to work on through forging greater relationship building exercises.