Telecom Equipment News
- Low-priced mobiles important in mature market
Date: 8-Feb-2007 Sources: (Xinhua Online)
As a fashionable mobile phone maker known for cute designs and innovative products, Samsung has had some heady days of high prices and healthy profits.
The company has announced it will now enter the low end of the market where phones are priced under 1,000 yuan which may disappoint its more fad-driven fans.
But in the eyes of industry experts it was inevitable.
Behind the move is the reality that the mobile phone market has entered a mature stage.
To market and sell a mature product, manufacturers must compete in three areas. One is improvement in products such as the quality and features shown on Sony Ericsson's music mobile and Philips phones with a super-long battery life.
The second is an improvement in the overall market, such as a growing user population or increasing frequency of use.
A third approach is an improvement in sales and marketing, including introducing innovation or increasing efficiency in pricing and promotion.
The reason that Samsung stood out was largely due to its product improvements. A sustained ability to launch fashionable models was once the core competence of Samsung.
Yet fashion aside, many users found that Samsung's phones did not perform significantly better than even Siemens, which eventually sold its mobile phone business to BenQ. The failure of Siemens can also be a good lesson to Samsung.
Product improvements can be easily copied and followed, and after efforts from other phone makers, Samsung has lost some of its edge.
In fact its lag behind second- ranked Motorola has actually widened and its No 3 position is facing a serious challenge from Sony Ericsson. Financial results in the second quarter for Nokia, Motorola, Samsung and Sony Ericsson showed Samsung was the only one to see a decline in profits.
Obviously, Samsung needs to find a way out other than solely product improvement.
A reform in marketing
Product sales charts resemble pyramids in which lower-end products usually have more customers. In a mature product, manufacturers must enter the low-cost segment if they want to expand their customer base.
To compete many phone makers have had to fight for market share using economies of scale. Some big players have released inexpensive models, with 50 U.S. dollars or 100 dollars phones popular throughout the world.
Statistics from market research agencies show that shipment of mobile phones costing less than 1,000 yuan rose from 37.8 percent in the second quarter of 2005 to 41.3 percent in the first quarter of 2006. Nokia saw 40 percent of its shipments made up by phones priced less than 1,000 yuan.
Low-priced phones do not mean low profits. Instead, they help bring more profit through a larger scale of production. Let's take Nokia as an example its mid- and low-price strategy has not eroded its margin and net profits have been growing steadily.
The strategy to enter rural markets further highlights the importance of inexpensive phones. Towns and rural markets outside metropolitan centers have a strong demand for lower-priced phones, while globally, emerging markets like Vietnam offer new territory for inexpensive mobiles.
As the rural market becomes a priority for Chinese telecoms, so phone makers want to win favor from operators with good price-to-performance.
In a mature market, phone makers also need to renew existing customers in large cities along with finding new buyers. Lower prices mean people change their phones more frequently. Currently, the replacement cycle in China is about 12 to 18 months and replacement already accounts for 70 percent of phone purchase.
Sales and marketing
In a mature market, sales and marketing combinations are usually effective weapons, but all players can not have significant innovations in channels and promotions.
Actually, low-price strategy is not something new to Samsung. When the company entered the earphone market in China last May, low pricing was a core part of its strategy to shake the dominance of Japanese and American companies.
But it is also worthy of note that Samsung can not sacrifice its brand image as a premium product provider. While Nokia may get 40 percent of sales from low-end phones, its higher priced 6 and 7 Series bring bounty profits as well as defend brand awareness for its place as the No 1 in the market.
If Samsung does likewise in the lower-priced segment, while keeping its traditional advantages, it still has the chance to surpass Motorola to become the second largest player, rather than falling behind Sony Ericsson, as predicted by some analysts.
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