Bottoms up

Samsung’s New Smartphone Strategy Is to Work Up from the Middle

Last week, in an interview with CNBC, the head of Samsung’s mobile division, DJ Koh, said the company would now put more emphasis on mid-range smartphones, introducing new technologies on less-expensive devices instead of pouring all its capabilities into its flagship line.

Mr Koh explained that the strategic shift was an effort to attract younger consumers, particularly millennials, who might not be able to afford phones in Samsung’s top-of-the-line Galaxy and Galaxy Note ranges. Some of these premium smartphones are breaching the $1,000 mark, making them luxury products in some markets.

There’s clear recognition from Samsung that the global smartphone market has matured, showing little growth and rising competitive pressures from several Chinese companies that most people hardly knew about until just a few years ago. Device makers including Oppo, Vivo and Xiaomi are grabbing market share in Asia and will put an increasing amount of pressure on Samsung in Western markets.

Samsung will have to proceed with caution, finding the proper balance and protecting its brand value, device margins as well as average selling price. The company must be careful it doesn’t take sales away from its top-tier portfolio, and ensure its faithful Galaxy S and Note series fans remain loyal and don’t turn to other brands to stay ahead of the technology curve.

This high-level strategic declaration from Samsung was light on detail. In our view, it was a generalisation to explain its growing push of more-affordable products like its Galaxy A-series phones.

We believe Samsung’s decision to reinvigorate its mid-tier range is a laudable and essential move. The emphasis on flagship premium devices has done wonders for the Samsung brand (and margins), but it’s important to take consumers on a journey from the mid-tier. The company’s loss of focus in this area risked it losing consideration from customers being increasingly tempted by attractively priced and well-featured mid-range phones from rivals.

Samsung’s market leadership — in volume terms — puts it in a great position. The mobile phone business is certainly a game of scale these days, and this decision means that Samsung can compete keenly with all rivals. The company is also in a unique position, being a major component supplier to itself. It can decide to scale up fresh technologies immediately, accelerating a break-even point.

Mr Koh said he wants Samsung to “differentiate the mid-section” of the market with technologies trickling up from there. This is certainly possible as other new features such as bendable displays and 5G handsets will appear first in highly exclusive products as demonstrations of Samsung’s technological prowess. The company has been extremely adept over the past decade at building itself up as an elite brand, and boosting its mid-tier phone line-up at a time of intense competition from numerous ambitious rivals is a sensible direction to follow.