Samsung (SSNGY.OB) has become the biggest mobile phone seller in the world displacing Nokia (NOK) as the No.1 player in the global market. Samsung has also established itself as the leader in smartphone shipments selling a large number of smartphone models covering almost all price points.The company is the only vertically integrated producer of smartphones manufacturing almost all components such as memory, display, processors etc.
Why India has become Ground Zero for Smartphone Companies
India is one of the most important smartphone markets in the word showing rapid growth in smartphone shipments (48% growth in 2012). The reason is that smartphone penetration is quite low in the country compared to other developing countries like China. Apple (AAPL) has ramped up its marketing division in the country and the company is expected to double its sales to more than $1 billion in the current fiscal year. Nokia is also bolstering its product offering, by launching a number of Lumia phones based on Microsoft’s new WP 8 operating system. Apple recently became more aggressive in India by giving a ~25% discount on its older iPhone 4 model through a phone exchange scheme. This is the first time that Apple has started a major discount scheme and it also shows the importance of the fast growing Indian market for the AAPL management. Samsung has reacted quickly to this new “cashback” war started by Apple. Samsung has started a very aggressive marketing strategy to counter both Apple and Nokia.
Samsung is spending millions of dollars to advertise its 15% discount on key Samsung smartphone, cameras and tablets. Samsung has bought the front page of India’s leading newspaper “Times of India” repeatedly, to promote its discount scheme. Digital media is also being swamped by Samsung advertisements. Leading e-commerce retailers like “Flipkart” and “Snapdeal” are also prominently advertizing Samsung’s “cashback” scheme. Top mobile phone retailers like eZone and MobileStore have separate Samsung sections where the products are being aggressively sold by salesmen. There is no such aggressive selling of Nokia or Apple products. I suspect that Samsung is giving much higher dealer commissions to these stores, as compared to other mobile phone sellers.
Key elements of Samsung’s strategy
To counter Apple’s strategy, Samsung has made its Samsung “Grand” smartphone the focus of its marketing strategy. The phone which used to be sold for Rs ~21,000 is now being offered at Rs ~17,000, after the 15% discount scheme. Besides the discount Samsung is also offering an EMI scheme with 0% interest charges, in partnership with top banks like ICICI and Standard Chartered. The company is also giving other freebies like a case cover, a free Dropbox account, free data plans etc. Samsung is pulling out all stops to reduce the counter iPhone 4 surge, by offering the “Grand” at a lower price.
The key elements are:
- 15% Discount on key products like Galaxy and Note range of tablets and smartphones
- EMI scheme with 0% interest and 0% processing charges
- Advertisement blitzkrieg with TV, print and digital media being swamped by Samsung marketing
- Offering freebies like case covers, data plans, online storage options
- Paying higher commissions to distributors and retailers.
What is Nokia doing
Nokia recently launched the Nokia 520, 620,720 and d 820 Lumina phones in the 3rd week of April. These smartphones have been getting great reviews due to excellent features being offered at very competitive prices. Nokia has a great brand reputation in India as it used to offer quality phones with excellent after sales service. The lack of new products in recent times has seen its market share decline.
Nokia is also giving attractive EMI schemes on its mobile phones as well as giving freebies like a Sandisk (SNDK) memory card along with its smartphones.
Apple’s iPhone 4 Sales surge leads to “out of stock”
Apple is giving Rs 7,000 discount on the Rs 26,500 iPhone 4, which brings the effective cost to below Rs 20,000. There are not many Indian customers who can buy smartphones costing more than Rs 20,000. With the cheapest iPhone costing Rs 26,500, Apple is losing out on a huge chunk of potential Indian customers. The iPhone 4S at Rs ~34,000 and iPhone 5 at Rs ~45,000 are the other Apple smartphones being sold in the market today. To increase its customer base, the Apple management has come out with this clever strategy of giving a discount through exchange of old phones. The retailers and distributors are responsible for buying the old smartphones and selling them in the secondary market. Apple gives Rs 5,000 debit note, which means that the retailers have to raise just Rs 2,000 by selling the older smartphone. This has led to a huge surge in iPhone 4 sales and most retailers are reporting that the model has become “out of stock”.
The war to become the No.1 player in the Indian smartphone market will be a long and hard one. Nokia, Apple and Samsung remain the top contenders in my opinion, given the breadth and depth of their offerings. Apple lacks smart phones at lower price points, but makes up by being the “status symbol” everyone aspires for. Samsung has the best marketing machine as well the biggest portfolio of products that cover every price point. Nokia has an excellent brand reputation and is making a strong comeback with the Lumia range. The market in India is large enough to accommodate a number of companies, including the local ones such as Micromax, Lava, Karbonn, Spice and others. BlackBerry (BBRY) currently is low on visibility as it has not introduced a new smartphone except Z10.
Read on GWI The Chinese rise in Smartphones continue Unabated.
Samsung is fighting fiercely to retain its position as the top dog in the Indian mobile phone market, as Apple and Nokia fight for a bigger market share. The Indian smartphone market is growing at a furious pace and can accommodate a number of players in my view. I remain positive on both Nokia and Apple stock, given their low single digit P/E valuations. The global mobile devices market has become highly competitive due to its massive size and growth. However, top companies will continue to outperform and beat their peers.Google+