Samsung's Business Model And Growth Challenges Essay.

1. Where could/should the organisation head (Topic 2: Formulating Strategy)
2. How might it get there? (Topic 3: Implementing Strategy)
3. How might the organisation best measure success? (Topic 4: Evaluation and Control)

Introduction to the Concept of Business Model

Strategic Trajectory: Shaping an Alternative Future

The scholars working in the area of strategic management since three decades ago have discovered the concept of the business model. This innovative model represents the core logic that every firm needs to capture and create value. The model explains the mechanism underlying different logic. This innovative concept has aroused from the field of information technology and it is a new phenomenon for many business organizations (Morris et al., 2015). With the growth and advancement in the information and communication system, there is strong appeal for the diffusion of the business model in the mainstream operations of the business. In recent times, a growing popularity has been observed in this business model. Hence, there is a greater understanding and implementation of the model in the business. Among different scholars contributing to this area, the first one to introduce this model was John (2016). Following the introduction of the model John had put forward different questions for the organizations in relation to the development of the model. The five important questions were related to proposed company’s mission, the would be customers, the values of the customers, the results to be achieved and the plan of the organization to achieve these results. A company’s business model as per Choi & Park (2016) is the conceptual and architectural implementation of a strategy that is unique to the business process among various other systems. In conclusion, the author perceives the business model as the framework a value and proposition for developing business by setting a mission, network and customer relations.

Samsung is an electronic company, operates at different levels, and are mainly the visual display business. The Samsung’s market share of television, digital appliances like refrigerator and music system comprise of 37.2%. The company has market share of 16 % in the domain of printing solutions and health and medical equipments. Mostly Samsung has vertical communication businesses and the department of information technology and communications under it comprise of market share 30.5%. This domain includes selling of the tablets, smartphones, and other new smart technologies. The market share of the network business consist of 9.36$ which involves the selling of infrastructure and future generation solutions. Using the business model, Samsung have developed various products with a vertical memory that carries a market share of 42%. It includes mobile DRAM, mobile flash memory devices, and mobile storage. The market share of the company’s SLI business and the LED business are 72.1% and 10.2% respectively. The LED business involves modules, retrofit lamps and LED display lights (Chen et al., 2013).

Samsung's Market Share in Different Verticals

It is ensured by the company that all these products are catered to individual customers and the business houses within the electronic industry. The development of the retail outlet, Telecom Company has been added advantage for Samsung in its process of building strong customer base. It further attracts various customers by its strategy of participating in various national and international events and conducting electronic shows. For instance the 2012 European Olympics was sponsored by Samsung. These efforts led to the growth of the business model. Its strong customer loyalty was developed by branding the name of the company, which helps its gain more value. Branding of Samsung has led to creation of a strong market position. The brand value was enhanced by delivering high quality of products, which has also increased its market growth. Designing of innovative and quality products enables the company to stand distinguished from its competitors. By exercising the corporate social responsibility, the company has further strengthened its position in the electronic industry (Song, Lee & Khanna, 2016). The reports of 2012 showed that the company has made serious efforts in improving the efficiency of its products. By improvement in the energy efficiency of the product, it was able to reduce the carbon emission by 58.34 million tones. Using innovation as a tool the company has further developed with 12000 patents. It is indicative of the huge investment made by the company in the research and development. It is with this efforts that the company was able to make a special position among different other companies in the electronic industry. It is shown in the 2016 annual reports that the company could tally its investment figures despite quantum of patents. In order to ensure that the customers appreciate Samsung for its quality, durability and usability of products, the company has increased its marketing expenses in addition to investment in research and development (Truong et al., 2017).  

                                                                                   Table Below: Samsung’ Business Canvas

                                                                                              (Source: www.dhgate.com)

Strategies Employed by Samsung to Build Strong Market Position

Samsung has faced several challenges despite its tremendous growth. It has launched various new products in a very short span of time and it is the strength of the company. This wide range of portfolio has facilitated the company to adapt quickly to the range of customer’s demands, penetrate, and maintain its position in the market. The tremendous growth of the Samsung’s electronics portfolio has caused the company’s profit to sore high up over years as per the reports of Choi & Park, (2016). The major challenge for the company was the fall of the demand and preference for its new mobile product Samsung S7 (Turner, 2016). With this challenge, the company has suffered huge loss. In order to retain its previous sales the company has launched alternate new products. In the world electronic market it is ranked among the top 10 with the estimated brand value of USD 32.9 billion. The other strength of the company is the strategy of branding and marketing mix campaigns (Samsung, 2017).

The review of the various issues faced by the company showed that the company has high dependency on its IPad segment, mobile products and smart technologies. Hence, when it comes to the product mix the company has a lot of portfolios. Since, Samsung is highly relying on one single divion for its profits it involves various risks for the company. For intstance, there was a change in the high demand of Nokia and Balckberry to low demand. It is because the customer’s preferences, tastes and demands keeps chaging from time to time. Park & Gil, (2015) highlighted that the customers always have high demand for the segment of mobile electronics.  People tend to purchase mobiles which have set  new trend in the market with atatrctive applications, design and fearures. The company needs to maintain its balance sheet while frequently launching new products for the customers. This is the challenge for the company which it must handle with strategic methods (Song, Lee & Khanna, 2016).

The other challnge faced by the company due to its dependence on one single divison in the business model is the eco system and the software used in the mobile technology (Hadjikhani et al., 2016).  The compnay has tie ups with Google for using its android software. The company has no software of its own since many years. Therefore, it is a strategic plan of the Samsung to use android software in its device due to which it has partnership with Google. However, not having its own software is added threat to the company considering the cost and increase in expenditure. There is also a growing threat to the company with the purchase of the Motorola phone division by the Google. As Motorola will also use the android software and its growing position in the market will require Samsung to have its own way (John, 2016). The company may also expereince many patent wars due to growing comptetion in the monile phone industry and deign of new features. The business segment may not be able to sustain the huge pressure by the big companies such as apple.

Samsung's Key Challenges in the Electronics Industry

Recently there has been a slow progress in the development or innovations in the smart phone technologies by Samsung. This is negatively impacting the company’s growth of revenue. The sales of the products have declined as per the reports of  2016 as shown below.

                                                                                                    (Source: Samsung, 2017)

As evident from the above graph, there is a 7% decrease in the revenue from the mobile segment of Samsung in the year 2015. The decrease was observed in each of the four quarters in this fiscal year. This decline in revenue can be justified by various challenges faced by the company. One of them was high expenditure spent by Samsung to strengthen the brand as it was a Korean won. It has also spent huge money on the production of the mobile with unique features. In addition, there was fierce competition from other Chinese handset makers that provides people with similar products at cheaper prices. The biggest challenge in this year was the unsuccessful launch of the product Galaxy S6. This high-end flagship product did not run well in the market and fail to generate enough revenue that was expected from it. Consequently, the company had to decrease its prices soon after three months of its release. Even in 2016, the sales were found low due to this loss (Aulakh, 2017).

As per the reports of the international Data Corporation, the shipment of the smartphones has increased in the year 2015 by 5.7% in four quarter of the year in all the parts of the world. The growth of Apple was found to be slowest with 0.4% and for Samsung the growth was found to be 14% in 2015 and 2016. It was a reasonable growth for Samsung although overall growth can be said to be slow for both the companies. Meanwhile other companies such as Lenovo and Huawei came out to be the strong competitor for Samsung from China. These strong players showed significant growth in the year 2015 and 2016 with 37% and 43% respectively (telegraph, 2017). It is a growing threat for the company because people are preferring mostly smartphones that are of cheaper price and yet serves the same purpose as Samsung. Hence, the demand is shifting away from expensive smartphones. The future of Samsung is worrisome with companies like Qualcom tying up with Chinese smartphone makers who ranks on the top five list. Qualcom is a leading mobile phone chipmaker was found to sign agreements with Lenovo and Huawei (McDermott, 2013).  Therefore, Samsung have to design alternate methods to overcome such fierce competition and sustain its position in the market.

Decline in Samsung's Mobile Segment Revenue

I order to address this challenges Samsung have been devising alternate strategic methods. Therefore, it started to invest in the research and development of the products that will be affordable by majority of the people. It will help Samsung to sustain the competition from other newly emerging companies in the market. If a popular brand launches a product at a low price then people may not purchase the same from other brands that offers same price. This was the success measure for Samsung when it comes to streamlining its smartphone portfolio of different products. It led to its growth in the digital margin.  The other strategic action taken by the Smartphone was to capitalize the low-end smartphone demand. It helped Samsung to overcome the competition by offering other products using smart phone technologies and by offering new type of software devices, hardwares. The company hopes to boost its sales with its new product S8 (Turner, 2016). In addition to the above challenges, there is a need of strategic measures to address other challenges. Samsung take good care of the customer complaints by its excellent customer support services. It has maintained an excellent quality control and technical department to support the customers with their complaint and ensure that no other issues arise with the products. The role of the management team in the quality control is to upgrade the software and features of the devices and eliminate any bugs.

The table Below shows a customer satisfaction model for Samsung-

                                                                                                    (Source: Samsung, 2017)

In the field of mobile phone and electronic equipment, Samsung was a global leader for years.  However, mobile phone being a main niche for the growth and development of Samsung, it has suffered many setbacks. In recent times, the company was found to be put in very vulnerable situations in terms of the fierce competition it was facing from other big and small companies. It has also faced many issues related to software and the content services that are important to keep the customers loyal. Hence, it was a need for Samsung to focus on other software products other than its mobile phones to retain its customers and their loyalty. Therefore, it must put more efforts on the products such as “own custom made software” for its customers to fight its rivals (Park & Gil, 2015). Samsung can use the strategy of Apple Inc in its business for improving customer loyalty. For instance, Apple offers its customers with wide range of unique features such as downloadable programs. Apple offers iTunes music and app store for downloading programs. The same feature may not be available in other smart phone products. These features are accessible through only Apple manufactured devices. Hence, this strategy is effective in binding customers to Apple and not any other manufacturers who may offer similar phones at cheaper prices. This strategy if adopted by Samsung will give similar results to it and improve the customer loyalty (Choi & Park, 2016).  

Samsung had tried using the strategy where it has come up with the similar product like Apple. However, it ended in great disappointment. It failed to appeal its customers. Samsung has launched latest version of Music Hub (Chen et al. 2013). With this service, one can combine the streaming and downloading of the music. However, it was not accessible by all the customers of the Samsung. Such privileges were available only for users of S8 and S7. It was a limitation for those who are not high end users and affordability was a barrier. However, it is recommended that this privilege should be available in its range of Smartphone models. As per the company, this feature is made available in three dozen countries. However, it would not suffice the public demand and satisfaction if its available only in the  models S8 and  S7 (Turner, 2016). For its future benefits, Samsung must make these features available in computers, television, and Ipad.

By using the open  platform, provided by Google, Samsung has been using the android services in its operating system. This system has enabled it to create facilities such as drop box to transfer files between two different devices. It is recommended to Samsung that it should come up with service that it is not required to be downloaded or enabled by means of third party. It must develop its own operating system similar to or better than the Android services such that it don not have to depend on the Google services (Yang et al., 2014). It means that the company must make more investment in the research and development. It must develop its own features that need not to retrieve from other sources. Samsung has achieved its milestone by launching its own operating system in the year 2010. The app store tool wooed the developers and the users. Bada was able to increase the customer base however, it did not account for the same amount of the users as Android. In the same line, the former was responsible for 3% of the shipped device. On the other hand, around two third of the Samsung users where holding the Android accounts (McDermott, 2013).  With the greater focus on the hardware sales the efforts to make Bada more popular was pulled back. Samsung has been emphasizing more on the Android even in its new smartphones launches. Therefore, it can be expected that the company would meet the customer’s needs of new version of applications (Kanonov & Wool, 2016).

Recently, it was found that there is a more focus by Samsung on its new Android devices instead of Bada ones. The company initiated its plan to merge with Tizen in November 2011. Intel corp. promoted the open source platform of Tizen with which Samsung wants to merge its operating system. Intel Corp is the chipmaker company of Samsung. These trends indicate lesser efforts put forward by Samsung in retaining its customers using innovation. It can be supported with other data found from survey conducted in United States and Europe. It was found from the survey that a very less percentage of the customers prefer to replace their telephone brand with Samsung. Some of the participants who are already the customers of Samsung refused to shift or purchase other Samsung brands (Wee, 2017). This represents a low level of loyalty among Samsung users. The reports showed that Samsung was in high demand in terms of other segments such as television, refrigerators but not in high demand in its mobile segment. Samsung was involved in intense marketing of its smart phones after the unsuccessful launch of S7 to increase the customer support (Hadjikhani, et al., 2016). It was presumed by Samsung that its popularity in other segment and products would increase the popularity of its smart phones as well. However, it failed to receive the desired results in the segment of smart phones although it attained great success in other sections of electronics.  Further, a lot of questions were raised in terms of the ecosystem development of Samsung. There is a need for the company to focus on other business products such as internet-enabled televisions that can run applications, smart TVs that can function like computers and can interact with other devices (Choi & Park, 2016). In this regards Samsung remained way behind in generating attraction of customers towards its products.  It failed to prevent its buyers from jumping to other brands. In other strategy used by Samsung in countries like Singapore, customers had the facility to return their products in one of the Samsung centre. For repairing the defects, the company would in turn a loan unit. This strategy too is not sustainable. However, if a new version of this strategy can be developed than the customer loyalty may increase in all the segments of the business models (Truong et al., 2017).  

The operations of Samsung have been found to have managerial implications. The business have multiple segments to focus on therefore, it is difficult to control its operations. It is a difficult situation with the cost of operations increasing every year. There was a 20% increase in the cost in 2016 (Aulakh, 2017). There is a greater focus required by the company on marketing of many other electronics and appliances of Smsung (Samsung, 2017) such as LED panels, camcorders, and LCD televisions in order to increase the market share. There is a need for the company to develop short-term goals and ways to increase profitability.

Conclusion

Conclusively, Samsung needs to overcome its challenges by using strong market strategy. It must launch products with both low and high-end technologies.  It needs to maintain a good corporate philosophy to maintain its present success. Since, customer’s preferences keep on changing there is a need for the company to engage intense rebinding and improving all the products of the brand.  In respect to the mobile segment, the company still has most preferred Smartphone. It is the strength of the company, which it must use to concentrate its audience and prevent them from moving to alternate brands for similar phones. It will help the company to increase its return on investment. While marketing the company must focus on each product and its unique features. The distinctive features should be informed to public in a manner that the customers should feels that they may receive unique benefit from this brand only. Therefore, the marketing should be in a manner that it should be able to shape the public perception about the brand.  The company should be able to identify the strength and weaknesses of every product to develop strategy that is more effective and it should be monitored periodically.

References

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