Marketing Strategy – Samsung
Samsung was founded in Samsung town, Taegu, Korea in 1969 by Byung-Chull Lee. Less than 60 years ago, the Samsung Group was a small Korean trading company, supplying rice and agricultural commodities to neighboring countries. Today, Samsung is composed of 35 businesses including electronics, chemicals, machinery, construction, textiles, entertainment, financial services, and insurance, with 423 offices and facilities in 68 countries (Samsung, 2011).
1996 saw a turnaround of a lot of events in the organization. A new CEO, Yun Jong Yong addressed the financial crisis aggressively by enunciating some bold moves and strategies. He wanted to bring a change in the organization and the manner in which business was run. Yun recruited new staff that would act as change agents and help in achieving the organizational goals. He wanted Samsung to be the number one brand in consumer electronics and change their market position from being price oriented copycat manufacturers to being premium-priced product leaders. Yun lay off 24000 employees, shut down factories and sold off business units which did not fit his strategic plans.
The new strategy was to discard the failing strategies and build a new brand. In order to gain worldwide recognition, a lot of advertising and marketing activities
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Until 1998, Samsung relied on a strategy of competing on price with products that were based on technologies that had been developed by other firms. Samsung was generating a majority of its profits from the lower priced appliances that consumers bought since they could not afford a higher priced brand such as Sony or Mitsubishi. The success of this price competitive strategy was tied to the ability of Samsung to continually explore for locations that would allow it to keep its manufacturing costs down. At the same time, it would need to keep generating huge orders to maintain its economies of scale and keep its production costs low (Dess, Lumpkin, & Eisner, 2010).
In 1996, the president and CEO, Yun Jong Yong was concerned about the future prospects of the firm and its heavy reliance on a strategy of competing on price. There was also a growing concern about the competition that the firm would likely face from the low cost producers from China and other countries. The financial crisis of 1997 made conditions worse for Samsung as it was left with huge debts due to a drop in demand and a crash in the prices of many electronic goods which resulted in their warehouses being stacked with unsold products (Dess, Lumpkin, & Eisner, 2010).
After much consideration, Yun set the stage for gaining global leadership by enunciating a bold strategy (Aaker, 2008). To start with, he decided to lay off about 24000 employees, shutdown factories and sold off about $2 billion worth of businesses like pagers and electric coffeemakers that were perceived as to be of marginal significance for the firm’s future (Dess, Lumpkin, & Eisner, 2010).
Evolution of a new Samsung As a company, Samsung lacked any common brand identity; it was a ‘house of brands’ which enjoyed minimal recognition and positive evaluation by consumers, and so lacked brand equity. As part of the makeover, first, Samsung adopted a top-down “single Samsung” policy to develop its business across the globe. Samsung concentrated primarily upon increasing brand recognition and esteem, using billboards to plaster its logo and products across the planet and associating these with prestigious events and associated life-styles (Willmott, 2010).
Second, Samsung changed its market position from being a price-oriented copycat manufacturer to a premium-priced product leader whose wares were sold in upscale retail outlets. Third, they would continue to be vertically integrated and turn their memory and component design and manufacturing into an asset by gaining direct access to the latest technology. Fourth, Samsung would be a world leader in creating new products designed to be distinctive and cool; the organization would become much faster to market with these products (Aaker, 2008).
Samsung wanted to follow a differentiated strategy compared with its past strategy of being low cost leaders by offering new cool, innovative and distinctive products. Rather than being cheap copycat manufacturers whose products appealed to laggards, Samsung wanted to be premium-priced innovative product manufacturers whose innovative products were targeted towards a section of consumers called innovators. Acceptance of their products by these consumers would pave way for other consumers who would want to buy Samsung products. Instead of creating an order qualifying product, Samsung wanted to focus on creating order winning products which would help them to be successful and competitive globally.
In order to achieve these objectives, the organization refocused on its business by investing heavily in corporate branding and R&D with a strong support from the Korean government (Yeung, 2007). The focus of all these initiatives was on quality, listening to markets, creating distinctive advantages, being the best, anticipating the future, creating an organizational environment to foster innovation and growth, and contributing to a better global society (Aaker, 2008). Samsung has since then maintained its design and technology leadership through a strong commitment towards R&D, to come up with innovative and differentiated products.
Developing a Premium Brand
Samsung began developing its own products rather than copying those that other firms had developed. In particular, Yun placed considerable emphasis on the development of products that would impress consumers with their attractive designs and their advanced technology which would allow Samsung to become a premium priced brand (Dess, Lumpkin, & Eisner, 2010). To achieve this goal, Yun recruited new managers and engineers, many of whom had both knowledge of the local market and experience in the international market; who would have a key influence on the development of the organizations plans (Lin, 2009). To create incentives for this new talent, Yun discarded Samsung’s rigid seniority based system and replaced it with a merit-based system for advancements.
Close links with retailers helped Samsung to get information regarding the needs of the customers and come up with distinctive, innovative and attractive products to meet these needs. Samsung began launching an array of products that were designed to make a big impression on consumers and were focused on the specific un-met needs of the prospective customers. Samsung calls these customized versions of their core products as ‘WOW’ products (Dess, Lumpkin, & Eisner, 2010).
Finally, to help Samsung change its image among consumers, Yun hired Eric Kim, who worked hard to create a more upscale image of the firm and its products. He consolidated the disparate business operations and drove towards a single vision based on the new cool, upscale Samsung brand of technology leadership in digital convergence by replacing the firm’s 55 advertising agencies with one global agency and delivering a presentation to top Samsung managers in English (Aaker, 2008).
Alternative Value Propositions
A successful business strategy needs to add value for customer, and this value needs to be real rather than merely assumed. Value is more likely to be real if it is driven from the customer’s perspective rather than from that of the business operation and must be recognized and perceived as worthwhile by the customers. A business has to make what customers want to buy. Samsung has been able to sustain its value proposition by owing important product dimensions which can be differentiated from its competitors (Aaker, 2008). Samsung has invested in continuous improvement and R&D activities which have helped them to stay ahead of their competitors. The strategic options that the company has followed over the last decade have allowed it to remain competitive across the globe and are discussed in this section.
Being Global – Samsung invested in a lot of activities to be perceived as a global brand. It associated itself with global events and personalities to build its brand equity. A successful brand would allow it to compete in the global markets and the more the number of its consumers; the higher will be its brand value. This could translate into the share of voice leading to a share of mind which leads to a share of the market.
Appealing Design – The innovative and distinctive design of Samsung products will appeal to a customer, providing them with substantial self-expressive and functional benefits. In order to make the designs credible and visible, Samsung associated with branded sports personalities.Superior Customer Relationship – Samsung listened to the needs of the market and created products which catered to these un-met needs. Their products were able to deliver a satisfying experience to its customers on several levels e.g. self-expressive, social.
Quality and Value – ‘Quality first’ is a core value of every product Samsung sells. By creatively applying technological expertise, Samsung enhances the value of their existing products and develops new categories of breakthrough ideas. Samsung’s world-class products don’t just meet consumer needs, they exceed them, and delight customers with benefits not found in competitive products (Oswald, 1996). Brand Familiarity – Successful brands drive consumer preferences, preserve margins and build customer loyalty, even in the face of tough competition. Brands provide peace of mind to consumers and create value for shareholders (Oswald, 1996). Samsung has been investing a lot in advertising and marketing in order to constantly remind the consumers of their presence.
According to Chairman Lee Kun-Hee, “Devise strategies that can increase brand value, which is a leading intangible asset and the source of corporate competitiveness, to the global level” (Samsung, 2011). By sponsoring various global sports events including the Olympics, Samsung announced its arrival on the global screen. The sponsorship associations suited perfectly with the CEO’s vision of becoming a global brand by showcasing the company as hard working, striving for excellence in the industry, being focused and creative and being fiercely competitive. Samsung acquired a new corporate identity by changing its logo and that of the group. The white colored letters on a blue color background represented reliability, stability, and warmth. Samsung was written in English so that it would be easy to read and remember globally. The logo was shaped elliptical representing a moving world – symbolizing advancement and change (Fine, 2005)
Apart from communicating its brand identity through sport event sponsorships of various kinds, Samsung also used other channels to communicate its identity. Samsung associated itself with the South African fashion industry and sponsored many fashion events. It also joined hands with the famous fashion house- Giorgio-Armani to introduce a new mobile phone which was the size of a credit card. This initiative was a big hit with fashion conscious customers. Samsung also ventured into sponsoring Hollywood movies, notably The Matrix trilogy. All these initiatives have helped build its brand over the years.