Case # Samsung Galaxy Series How Samsung Galaxy Became a No. 1 Brand in the World

Park So-young, Sungkyunkwan University

Kang Jae-yeon, Ewha Womans University

Kim Han-sol, Sungkyunkwan University

Ahn Jae-han, Yonsei University

Woo Seung-pyo, Hanyang University

2. The history of Galaxy: the 5 stages of competition

3. The Secrets to Galaxy’s Achievement in the Market

4. Galaxy Brand Strategy and Future Marketing Strategy Proposal

5. Conclusion

Executive summary- Samsung GALAXY Case This report deals with the birth of Samsung Electronics’ smart phone, Galaxy and the process of it becoming the number one smart phone brand in the world. It analyzes the success factors of Galaxy and further suggests the directions Galaxy should take to enhance its brand value. The Chairman Lee Kun-hee’s foresight made it possible for Samsung to make qualitative growth in a feature phone market and develop brand value. Also Samsung took an action readily in smart phone market, cooperating with international firms. iPhone released by Apple in 2007 brought crisis to Samsung. In this situation, Samsung released Galaxy S and transformed the crisis into an opportunity as a latecomer. Galaxy S targeting businessmen as its marketing strategy formed the base for Galaxy to become the number one smart phone brand. With upgraded performance and ‘human digitalism’, Galaxy S2 placed interaction among people as the major theme of advertisements and expanded its customer base. This established a bridgehead of Samsung to gain the world’s biggest smart phone market share and lead the market. At that time, Apple filed a lawsuit against Samsung stating Galaxy infringed on iPhone’s patent and it became the second crisis of Samsung. However, the recent ruling of International Trade Administration (ITC) that states Apple partly violated Samsung’s technology damaged Apple’s image as an innovator and Samsung overcame its stigma as a ‘copycat’. This improved Samsung Galaxy’s brand reputation by giving Samsung the image of a competitor which can rival Apple. Afterwards, Samsung suggested a new paradigm by Galaxy S3 using UX (User experience) design. Subsequently, Galaxy S4 built its own business ecosystem and emphasized the relationship with the user, showing true smartness. In addition, Samsung became innovative brand by release Galaxy Note series, which combines the merits of smart phone and tablet. These products set remarkable sales records and proved that Galaxy has perfectly succeeded in mainstream market. Samsung Galaxy’s success factors can be analyzed to be: establishment of core competence and partnership competence, shot-gun strategy, pioneering the ‘Phablet’ market, and Samsung’s unique culture, ‘Speed management’. By these factors, Samsung to establish itself in the center of smart phone history as a leading global smart phone brand. Key Words : Samsung, Galaxy, Smart Phone, Phablet, Lee Kun-hee, New Power Preparation, Breakthrough, innovation, Speed management , iPhone, Google

1. Introduction. Why Samsung Galaxy?
1.1. The world’s number one smart phone market share, Samsung Galaxy
Smart phone became a necessity for modern people melting seamlessly into our lives faster than any other electronic devices. It is popularized that everyone uses internet through the smart phones anytime, anywhere nowadays. Among the smart phones that are deeply rooted in our daily lives, Korea’s Samsung Galaxy is definitely the best brand. The global consulting firm, Interbrand, ranked Samsung in 8^th place in the world in 2013 Best Global Brands report. The main factor of the brand power escalation is mobile sector. Samsung won the world’s biggest smart phone market share in the third quarters in 2011(22.7%, IDC) outrunning Apple, which was the unchallenged leader and in 2012, Samsung won the number one place in the overall smart phone sales and the market share(213 million sales, 30.4%, Samsung Electronics).
FIGURE 1. Market share of Samsung and Apple
As we can see from the Figure 1, closing the second quarter of 2013, Samsung smart phone’s market share is now maintaining the number one position at 30.4%, widening the gap between Apple, which is in the second position (13.1%).
Galaxy, as the main product of Samsung smart phones, continues starting from Galaxy S in 2010 to Galaxy S4 as of now in 2013. Galaxy Note Series, using Stylus Pen(S Pen hereafter) and more than 5 inch’s big screen, were evaluated as the innovative product which pioneered the new market called Phablet market.

Galaxy Series has gained a wide recognition. Galaxy S2 awarded the best smart phone award in the world’s biggest mobile communication exhibition ‘Mobile World Congress(MWC) 2012’ and the following year at ‘MWC 2013’, Galaxy S3 was awarded the best smart phone again, imprinting to the world that Galaxy is the best smart phone brand.

In March 14^th, 2013, ‘Samsung Mobile Unpack’ event was held at New York Radio City Music Hall for unveil Galaxy S4. Samsung unveiled Galaxy S4 in front of major American and European media and Galaxy S4 gets a compliment that it is the best smart phone in every term. Galaxy S4, which has been released recently, set a phenomenal record making 10 million sales in one month after the release and is continuously writing the history of the best smart phone brand.
1.2. Rising as the market leader from the fast latecomer
From 2007, Apple released iPhone series every year and largely contributed to popularizing smart phone. Introduction of iPhone completely changed the dynamics of global cell phone market. The market share of Nokia, which took up around 40% of the world’s cell phone market share, started plummeting and was relegated by sensation Apple’s iPhone brought.

However, Samsung took ‘Fast Second’ strategy and showed fast and daring decisions in the following steps. Samsung forecasted that if it can enter the market by understanding the flow of market then it would be able to secure and dominate the market, and Samsung started to prepare. Cell phone manufacturing technology was already worldwide recognized but software was considered as a weak spot. For this, Samsung strategically cooperated with the best software company, Google and by using Android OS, Samsung could overcome the weak spot. With all preparation, Samsung released Galaxy S, setting 2010 as the first year of smart phones. Galaxy S received rave reviews that it is the smart phone of the best technology and imprinted the market that it is the only smart phone that can compete with iPhone.

Galaxy has been growing as the representative smart phone using Android by increasing market share and brand recognition through releasing following series. However, Apple’s image as an innovative firm was strong and Samsung’s image as a fast second was hard to dispel. This was the difficulty Samsung had to overcome in order to be on the top.

Samsung overcame the difficulty with Galaxy Note by imprinting innovative image to the market. It pioneered Phablet market which grafted the strengths of smart phones and tablets. Providing experience of diary and note through S Pen was evaluated as suggesting a new direction to the smart phone market.

Through the following products, Galaxy S3 and S4, Samsung not only showed outstanding performance but also suggesting new paradigm of considering the experience with user and took the leadership in global market. Galaxy has risen as the leading brand in present smart phone market.
2. The history of Galaxy: the 5 stages of competition
It is inevitable that firms face several small and big crisis or hardships in the process of getting on top in cold blooded market environment. Important things here are how they can handle these frequent crisis and hardships in a wise way and how can they prepare and show the competence that could change the crisis to an opportunity.

Firms that don’t have understandings of incessantly changing environment will experience decline and the firms that only seek the immediate outcome will not be able to realize their dreams in global market. Samsung faced a crisis in 2009 when iPhone 3Gs brought a sensation and changed the dynamics of cell phone market. There is a reason why we need to pay attention to Samsung’s strategy at that time. When Nokia, which was the number one global player in feature phone market, took a late action with a peace-at-any-price principle and faced a tough time, Samsung made a tremendous growth by entering faster than any other players with a daring investment. Samsung leaped bigger by utilizing crisis as an opportunity and rose as a number one smart phone market share, 3 years after it entered the smart phone market. And the force of this tremendous growth came from the realization of ‘5 stage competition’.

‘5 stage competition’ is a strategy analyzing frame that divides the process of brand from the small beginning step to the big success into five steps. The common point of the first class global firms is that the beginning was insignificant but they experienced tremendous growth with an opportunity or a turning point and this

that 5 stage competition made it possible.

This report deals with the preparation Samsung took in each step from foresight competition to mainstream market dominating competition and objectively analyzes the factors that made it to be the top player in a short time by using the framework ‘the 5 stages of competition by Prof. Kim’. The following graph represents Samsung Galaxy’s 5 stage competition.

FIGURE 2. The 5 Stages of Competition and Samsung Strategy

Source : Chung Kim’s Marketing for the Future (2005)

Chairman Lee with excellent foresight said “There definitely comes a time when every person has one wireless device. Regard Phones highly” in the early 1990s and that made Samsung to focus on cell phone industry. Also he declared “New Management” and said “Change everything except your children and your wife” in June 7^th, 1993 in Frankfurt and after Samsung prepared information infrastructure for information age and reorganized the business structure centering the core competence. Through this management philosophy, Samsung changed to a firm with changes, innovation and a sense of challenge. The “New Management” spirit became the driving force in Samsung Electronics’ success in cell phone. When defective cell phones were distributed in the market in 1995, Samsung recalled the all of the cell phones and burnt them and made the executives aware of the quality oriented management and built trust with customers creating ‘Anycall’ history. In 2007, Anycall outran Motorola and rose to number 2 global brand following Nokia. Samsung’s new management sprit and the experience of competition in feature phone market became the driving forces for Samsung to become the global top player in a short time.

The chairman Lee, who resigned in 2008, returned in March, 2010 and mentioned ‘Crisis Theory’.

He was aware of that Samsung’s representative products have changed by 10 years and Samsung’s future should depend on new business, new products and new technology. Samsung’s representative brand ‘Anycall’ was not an exception. Galaxy S was released in June, 2010 as a rival of iPhone in the changed global wireless communication market after the iPhone’s appearance and this was a signal for the big change of dynamics of global smart phone market.

Since Samsung entered semiconductor market in 1977, it became a top player of semiconductor and memory in 1993. Also, Samsung has an experience of being a global number 2 player following Nokia in feature phone market. In order for Samsung to build its reputation as a major global firm in feature phone market, there was a continuous hardware upgrade and this experience made its hardware capability to be established as Samsung’s core competence. And when Samsung took an action for smart phone market that Apple’s iPhone expanded, Samsung could focus on the smart phone market with confidence in hardware which was the strong point of Samsung. Samsung already had its own AP(Application Processor) which are the main hardware for smart phone development and manufacturing, Memory semiconductor, display, camera business. Samsung’s mobile AP is globally recognized, dominating AP market with Qualcomm and has been maintaining global top position since 1993 in semiconductor and memory sectors. Also, AMOLED from Samsung mobile display has overwhelming market share in AMOLED market. Samsung’s original core competence was suitable for the new division called smart phone.

After Apple’s presentation of iPhone in 2007, smart phone era has begun and there was different aspect from the past market which considered hardware as the most important one. Smart phone enabled the users to select and install the applications they need and this led smart phone’s popularization. Therefore, in order to catch the consumers’ attention, strong software was needed. In other words, in feature phone market, the hardware strengths played the most effective role but in smart phone market, software capability became crucial as well as hardware.

For Samsung, which had hardware technology for its strength, software capability necessary for smart phone market was relatively weak. It was hard to overcome the weakness with Bada OS, which Samsung autonomously developed in a short time. In this situation, Samsung maintained its strength in hardware and strategically cooperated with global top software firms, making an opportunity to aim for world’s top hardware and software capabilities. As a result, Samsung created synergy which integrated world’s top hardware with the world’s top software, using Google’s open operating system, Android, through a strategic partnership with Google.
2.3. Competition for dominating the Early market
2.3.1 History of smart phone and analysis of early smart phone market
-Smart phone’s history and the appearance of Apple’s iPhone and its effect

It was Apple which popularized smart phones but it was not Apple that developed smart phones in the first place. To define smart phone briefly, it is a ‘phone just like a computer’ which provides calendar, addresses, calculator, notes, e- mail, fax and such. From this definition, the first smart phone is ‘Simon’ developed by IBM in 1992. Starting with this product, Blackberry developed by Canada’s RIM was popular in the business world before smart phone’s popularization. However, Apple’s first presentation of iPhone in 2007 and its release of new models added with innovation every year made Apple’s iPhone 3Gs to be the smart phone market leader in 2009. After iPhone 3Gs’ sensation, center of the cell phone market’s business ecosystem moved from the feature phone to the smart phone. Until then, only minor mania or early adapters used smart phones. However, after the appearance of iPhone 3Gs with iOS which is intuitive and simple interface, software strength based on an app store and iTunes, and a refine design, the smart phone era truly began in the world.

After the release of Apple’s iPhone 3Gs in 2009, dynamics of the cell phone market completely changed. To quote Steve Jobs’ expression, iPhone 3Gs has materialized ‘real smart’ smart phones that no other smart phones could before. The appearance of powerful iPhone became a crisis for world’s wireless business firms.

While Apple was releasing innovative smart phones, RIM’s Blackberry which was a byword for smart phones, could not be innovative and turned the customers away for its small screen and lack of contents.

Nokia, which has been number one player in feature phone market for 14 years, already has been internally developing internet-based smart phones similar to the level of iPhone in 2004 including touch screen. However, due to the peace-at-any-price attitude and bureaucracy, Nokia’s entrance to the smart phone market lagged behind. Nokia’s IT experts and the executives were certain that iPhone could not be a big threat and took the peace-at-any-price attitude. However, Nokia did not completely give up on smart phone business. The problems were the late entrance to the smart phone business, insufficient beginning, and especially the late progress.

Even though Samsung launched a smart phone called Blackjack in 2006 and it forecasted that smart phones would be used as the phones in future, Samsung couldn’t forecast that smart phones would establish as the mainstream in cell phone market when the iPhone initially appeared. Because of this, the entrance to the smart phone market was late. However, different from Nokia, Samsung took a rapid action trying to overcome the crisis resulted from iPhone’s appearance faced by existing cell phone key players. At that time, Samsung earned 80% of its revenue in wireless business from feature phones but it invested daringly in smart phone business to turn the crisis into an opportunity.

On July 2008, Samsung, which had strengths in hardware, released ‘OMNIA’ with Windows mobile OS through the partnership with Microsoft as a rival for iPhone. However, OMNIA couldn’t make an impressive result due to the slow speed which was regarded as the limitation of Windows mobile OS, shortcomings of interchangeability, and noticeable shortage of applications compared to that of App Store. Samsung released a wave phone which carried Bada OS that Samsung autonomously developed on February 2010, but the purpose of Bada OS which was the maximum realization of the functions of Apple’s iOS and Google’s Android had an innate limitation. Accordingly in March 2010, Samsung announced that it would focus on the launch of smart phone with Android OS which was an open OS with a high growth potential in application sector. And ‘Galaxy S’ which is an orchestration of Samsung cell phone’s 20 year capabilities, was born.
2.3.2. Galaxy S: strategically entering the early market
As the dynamics of smart phone market changes due to iPhone, Samsung decided to aggressively enter the early smart phone market. We can see the grand plan from Samsung in that Samsung resolutely abandoned ‘Anycall’ whose brand value amounted up to 5 trillion Won and presented the new brand ‘Galaxy’. Samsung tried to maximize the product leadership by presenting ‘Galaxy S’ with the overall collection of its core competence and through aggressive marketing.

It is important to clarify the target market in early market because the competitiveness of the firm is uncertain. Completely dominating the target market can expand to other consumers, which could lead to tremendous sales. Samsung recognized these characteristics and selected ‘competent businessmen’ as Galaxy’s target customers. Businessmen are the main users of initial smart phones and whose main buying factor is the hardware strength. The businessmen need smart phones that can handle the work with speed and convenience rather than the sensitivity factors. Hence, Samsung emphasized the hardware strengths and Android OS to stimulate the desire of possession for Galaxy S.

As you can see from the slogan, ‘Super Smart’, Galaxy is the overall orchestration of Samsung’s technology. Galaxy S is the product that strengthened Samsung’s weaknesses on software and contents. By carrying the latest Android operating system, 2.1 version and cooperating with Google, Samsung overcame the market’s unfavorable reaction on Wave and OMNIA. Moreover, by carrying Social Hub which is an integrated communication service, Samsung enabled the users to use e-mail, messengers, Social Network Services. In terms of hardware, through 1 GHz processors and autonomously developed 4 inch Super AMOLED Display, Samsung showed the capabilities as a global hardware manufacturing firm in a flagship brand called Galaxy.

Samsung took a strategy that approached quickly to diverse sales channels in order to establish its position in early market. It is important to draw as many consumers as possible early market step. This is because they could lead the post consumers after the market expands and can become a bridgehead for tremendous sales. Therefore, Samsung tried to make it easy for consumers to buy Galaxy S. With the existing cell phone capabilities, Samsung could quickly understand each nation’s communication standard and the requirements of telecommunication carriers. Samsung built sales channels by implementing local friendly strategy with main foreign telecommunication carriers, especially based on global SCM which is a core competence. The reason why Galaxy S was sold respectively as Captivate(AT&T), Vibrant(T-Mobile), Epic 4G(Sprint), Fascinate(Verizon) in the main market, the U.S was that Samsung granted each carrier’s demand. However, Apple at the moment had a sole supply contract with particular carriers. Apple gave an exclusive sale to AT&T and this limited sales network became an opportunity for Samsung. Even though Galaxy S was released later than iPhone, the sales went up quickly. As of now, Samsung is maintaining the coexistence with the carriers and has supply contracts with about 800 carriers which are 4 times more than Apple has.

Galaxy S’s promotion is summarized as appealing the product’s outstanding performance and spreading the brand of ‘Galaxy’. First of all, Samsung implemented an aggressive promotion informing Galaxy’s outstanding technology. In the top part of one advertisement, the letters ‘LL’ in the word ‘Hello’ looks like antenna bars. This shows the Galaxy’s excellent technological skills in terms of reception and at the same time indirectly being sarcastic about iPhone 4’s problems in reception. Also when Apple approached customers with emotional marketing, Samsung used rational marketing telling why they need to buy Galaxy S, and appealed to its main target, businessmen. The advertisement mentioned processors and display in terms of hardware and appealed the strong points of Android. The initial advertisement of Galaxy S tried to inform that through Galaxy, businessmen’s needs could be satisfied.

Also with the launch of Galaxy S, Samsung exposed Android robot and Google’s logo in many advertisements to inform that it’s the best Android phone and the representative brand. Through the events which freely exchanged iPhone for Galaxy, Samsung could gain the attention of initial consumers and provided an opportunity to use Galaxy S.