MARKETING MANAGEMENT

2009 A

Samsung China
The Introduction of Colour TV
Submitted to: Mr Khalid Hussain
10/6/2009

Submitted by:
Arsalan Vohra Hammad Rashid Razia Pukhraj Samiya Illias
82003 91017 91022 91007
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Contents
Introduction................................................................................................................................. 4

Samsung and its competitors in the Colour TV Industry................................................................... 5

Market Segments...................................................................................................................... 5

High-end............................................................................................................................... 5

Medium-end......................................................................................................................... 5

Low-end ............................................................................................................................... 5

Analysis.................................................................................................................................... 5

SWOT Analysis – Samsung China ................................................................................................... 6

Weakness................................................................................................................................. 6

Strengths.................................................................................................................................. 6

Opportunities ........................................................................................................................... 6

Threats..................................................................................................................................... 7

The Marketing Mix ....................................................................................................................... 8

Marketing Strategy ..................................................................................................................... 11

Target Market......................................................................................................................... 11

Market Penetration ................................................................................................................ 12

Positioning ............................................................................................................................. 13

Conclusion ................................................................................................................................. 14

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Introduction

Any multinational that ignores marketing to a quarter of mankind is putting its future in jeopardy.1

Therefore, the interest of MNCs2 in TE3 markets is easy to understand, because of the attractiveness
of these new markets.4

Likewise, without fully understanding China's market structure and its consumers, a foreign
marketer is risking its long-term viability in the market.5

Based on data compiled by Richard Ivey School of Business, we have attempted to analyse
Samsung’s entry into the Colour TV industry in China vis-à-vis specific conditions of the Chinese
market.

A SWOT analysis, the four Ps of Marketing, strategy development from a marketing perspective and
a brief outlook of the existing competition are included in this report.

1
Xu 1990
2
Multi-National Corporations
3
Transitional Economies
4
http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp12.pdf
5
Consumer behavior in Asia: issues and marketing practice By Tsang-sing Chan Pg 71

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Samsung and its competitors in the Colour TV Industry

Market Segments
High-end: Japanese firms, Sony and Matsushita, with excellent brand recognition had a combined
market share of 75% in the high-end market segment. Sharp, Sanyo, Mitsubishi, Toshiba, JVC and
Hitachi had also established significant market share.

Medium-end: Served partly by MNCs and partly by local firms.

Low-end: More than 20 indigenous firms focused on the low-end market.

Analysis
Japanese firms had a strong presence in China, both in market-share and production-capacity. They
were concentrating on the high-end TV market, and selling mostly in urban areas where the demand
for their products existed. In the medium to low-end side, local firms were quite active and capable
of competing with foreign firms in producing small and medium-sized TV sets.

This presented Samsung with a dilemma. The Japanese had a definite first-mover advantage in the
high-end market, whereas Chinese companies were quite capable of price wars in the low and
medium-end markets. (In fact, post 1995 data shows that at one time, TVs were actually being sold
by weight!6)

To create a niche for itself in the existing market, Samsung must re-consider its core competency
and select the market which would best respond to its products. As its area of expertise 7 is semi-
conductors, and as its business strength lies in hardware8 development, it should consider which
market it can be most competitive in.

Furthermore, keeping true to its simple business philosophy: “to devote our talent and technology
to creating superior products and services that contribute to a better global society”9, it must
evaluate which market-segment would be willing to purchase its superior products and services.

6
http://www.apmforum.com/columns/china16.htm
7
Samsung.com
8
http://www.businessweek.com/magazine/content/03_24/b3837001_mz001.htm
9
http://www.samsung.com/baltic/aboutsamsung/corporateprofile/valuesphilosophy.html

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SWOT Analysis – Samsung China

Weakness
1. Samsung – Korea was not sold to Mr. Chung’s idea
2. Changing the mindset existing in Samsung Head office – Seoul (i.e. Chinese peasants,
Tiananmen Sq)
3. Samsung’s investment in building up production capacities – making it difficult to move
away from the idea of high-end TV sets.
4. Late movers’ disadvantage would always play heavily in the decision-makers mind.

Strengths
1. Prior US experience, of tapping a well-poised market.
2. Grew to be one of the top 12 companies in the US by Market share 3%
3. Have set-up a production subsidiary in the US
4. Ranked 221st in the fortune global 500.
5. Largest consumer electronics firm in native South Korea
6. In US recorded a total of $21 billion sales in 1995.
7. Net income grew from 3.2 billion $9 (almost 15%)
8. 6 Fully functional Overseas Production Bases.
9. Seoul -China fully functional diplomatic relationships.

Opportunities
1. Changes have been introduced to allow streamlining of the workforce – in china
2. Supply side; production capacity is 18 million units.
3. Demand side; second largest after US.
4. Industry was quite heterogeneous
5. Chinese market was strategically important. As a hub, you can cater to a host of other
markets.
6. Chinese firms were less competitive due to low technology, insufficient capital base and lack
of promotion.
7. Medium and large size TV set market was growing fast, although curre ntly the 80/20 rule is

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applicable.
8. Approximately 300 million households in the Chinese market: Currently only 41% is tapped.
9. Overall market expansion 10% - which is fairly good.
10. China's market size 1 ½ times as large as Japans'.
11. 60 million Chinese have a per capita income 1000$ +, which would grow to 200 million by
year 2000
12. Chinese market is expanding both in low-end and high-end segments alike.
13. Inherently the Chinese are loyal customers
14. Chinese govt. set to lower the tariff 36%
15. Import tariff to be lowered at 15%
16. China plans entry into the WTO

Threats
1. There existed sever gaps between stated plans of the Chinese govt. v/s their actual
delivering capacity.
2. Smuggling and Piracy: rampant
3. Internal Govt. competition (Competition between one regional / Provincial govt with
another. e.g using or utilizing foreign joint venture to affect “Regional Blockades”
4. Social Profitability taking strong precedence over economic profitability.
5. A general perception of over employment, with a compulsory week of only 5 days.
6. Sony and Matsushita (Panasonic) had excellent brand recognition from high-end consumers
75% combined market share.
7. Japanese firms intended to expand their production base (in China) from 19 to 30.
8. China had 20 indigenous firms focused on low-end market segment.
9. Late mover are at a relative disadvantage in China (due to customer loyalty factor)
10. China, highly protected market, very high current tariff structure.
11. Product differentiation through brand name recognition (Should also be treated as an
Opportunity)
12. Economies of scale and learning curve effect – A common perception about the Chinese
market would make it difficulty for any other business plan to work.
13. Korea's own high cost of labour – eliminating any option of long term import into the
Chinese market.
14. Position of a low cost supplier in China would be increasingly endangered, since there are
plans of local Chinese companies coming into the play.
15. Korean govt. had cut back on subsidies and export credit.
16. Performance of low-end product in US for Samsung has been poor
17. Increased competition in the home market as well as the global market.

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The Marketing Mix

Marketing is about projecting the right product at the right price in the right way to the right
customers. This is how value is added. Bringing a product to a market involves balancing several key
ingredients, i.e. the 4Ps of the Marketing Mix: Product, Price, Promotion and Place.

Samsung China has been evaluated below in the light of these 4Ps:

A product must deliver value to customers in the target market by meeting customer
requirements. Samsung China had carried out detailed market research and understood the
needs of its market. Samsung China had to identify what features the product would need to
have to meet its customers’ needs. However, before investing in developing a Color TV, it
needed to check whether such a product already existed. By searching the patent database,
a business can verify that its idea is entirely new. A patent gives protection from copying or
imitation by competitors.
Price needs to be competitive and offer customers value for money. Samsung China needs
to make positive returns on its investment, so if a competitor took Samsung China
technology to develop a similar product, it could price it much lower because it would not
need to recover research costs. In effect taking out a patent gives a company time to reap
the benefits of its research in the market place.
Samsung China used its specialist knowledge of the market and personal links with key
customer to promote its product.
The final P is the marketing mix is placement, a responsibility of the marketing channel. This
is the process that enables customers to buy and receive the product this can be use of
wholesalers and retailers.
Product
 High degree of competition among government at both the central and local levels. This
was due to a scarcity problem as well as an incomplete planning system. Provincial
governments tended to vie with one another to protect their already scarce resources,
while government authorities in certain localities created various obstacles to block such
competition. It was only after high levels of intervention from Beijing that the
distribution channel would open. Therefore MNEs targeting both the domestic market

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and the export market set up production bases in at least two places: typically one in the
south and the other in the north. After that, the Chinese government judged that its
current TV production capacity was sufficient to fulfill the demand in both domestic and
export markets.
 China was a market where the first mover enjoyed advantages over late comers.
Consumers had a tendency to be loyal to a first mover’s product. This meant first image
of a product lasted long in the eyes of the consumer and the first to enter the market
could gain the largest market shares
 In 1994 China had 300 millions households. The percentage of households with a color
TV set was just 41%.
 Strategy to increase sales in china they were said to have to plan increase production
bases from 19 to 30
 Samsung China has high levels of knowledge in electronics. Samsung China (Color TV)
Analyzer was the first product of its type in a growing market.
 The product differentiation through brand name recognition posed another barrier
against firms relying on low prices for their unknown branded product

Price
 Pricing depends on the market. There are many different pricing strategies that a
business can apply. Setting a relatively low price can attract customers, but reduce the
profit margin. The approach is called market penetration.
 Samsung initiated a complete review of its strategies for China up to that date.
Abandoning its original, somewhat passive approach to enter the Chinese market, it
espoused a proactive policy aimed at moving ahead of the competition. It also switched
to a sales strategy that viewed China as a market for launching and selling a high value –
added product.
 These moves were based on the realization that although it is possible to make short-
term profit on low to medium price product in China this approach offers little in the
longer term.
 Samsung decided to end its strategy of mass producing to sell a medium priced product.
China Strategy and any sense of complacency or superiority about the market must be

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avoided at all cost.

Promotion & Place

 The most innovative product in the world will still fail if potential customers do not
understand the value it brings to them. The most effective method of promoting sales
will depend on the types of product and the target market.
 The TV set industry had made significant up-front investments not only in advertising but
also in after sales service facilities and dealer networks to support the brand image and
to move from the low-end to the high end market segment.

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Marketing Strategy

Marketing strategy is a process that can allow an organization to concentrate its limited resources
on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. A
marketing strategy should be centered on the key concept that customer satisfaction is the main
goal.

A marketing strategy combines product development, promotion, distribution, pricing, relationship

management and other elements; identifies the firm's marketing goals, and explains how they will
be achieved, ideally within a stated timeframe. Marketing strategy determines the choice of target
market segments, positioning, marketing mix, and allocation of resources

SAMSUNG’S MARKETING STRATEGY

Target Market

Samsung should target both the high-end market segment as well as low-end market segment
because in both areas there are opportunities. The two international brands Sony and Matsushita
have 75% share of the high-end market segment in China.

Samsung is an international brand so it can enter easily in both the high-end and low-end marketing
segment because of its experience and capability to invest in the market.

Market Share
0% 20% 40% 60% 80%

Sony &
75%
Matsushita

Others 25%

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To enter in high-end market segment Samsung has to build a competitive advantage over others,
which it can by its better technology, plethora of features, or low prices as compared to Sony and
Matsushita.

Samsung has to increase its marketing budget because Sony has invested heavily in its marketing.
There is a high opportunity in low-end marketing segment for Samsung as well. There are many local
producers in market but they have only expertise in TV set 19” or smaller.

Market Penetration

In 1994, China had 300 million households. The percentage of households with a colour TV set was
just 41 per cent. It was estimated that about 80 per cent of 80 million urban households owned
Colour TV sets, whereas only 28 per cent of 220 million rural household owned Colour TV Sets, so
there was a big opportunity in that area. Samsung should target very carefully in the rural area, as
these areas mostly prefer (or perhaps they can afford) only small TV sets (19” or smaller) and only
local producers are facilitating them so if Samsung entered in that area it would get a big market
share due to its brand name. Ergo, keeping an initially a low profit margin, they can capture a huge
market share as local producers cannot inject high capital, and so achieve a competitive advantage
over local producers.

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Positioning

Samsung should also focus on their brand image while entering China’s market and should focus on
the culture and trends of society and the growing economy of China. Advertising should be in such a
way that it attracts the customer because the Chinese are loyal to their specific brands. Hence, some
short term marketing should be launched as well. The Chinese sense of pride should be tapped into
to make them feel proud to buy a Samsung product.

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Conclusion

1995:

Samsung has a great future in Chinese markets if it can find the right mix, and create a niche for itself
in that market.

Based on its experience in the global market place, the China-specific market conditions, and
Samsung’s research on the Chinese Colour TV market, we feel it will be able to pull it off.

As such, our recommendation is to concentrate on the medium to high-end markets, keeping in

mind Samsung’s core competence and its business philosophy.

The rural market, although largely untapped, is not a feasible sector as Samsung would have to
compromise on either profit margins, or product quality.

Quoting Business Week 2003, Jul 16 titled The Samsung Way: “No wonder Samsung exited the low-
margin market for TV sets 27" and under”.

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MARKETING MANAGEMENT
2009 A

Samsung China
The Introduction of Colour TV
Submitted to: Mr Khalid Hussain
10/6/2009

Appendix A
Samsung US experience
and lessons to be learnt for China

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Appendix A
Samsung US experience
and lessons to be learnt for China

Samsung Electronics Co has been active in the US market since 1979. Also, by 1995, it had six
production bases in different countries, and four more were under-construction. As such, it has a lot
of international business experience that it can use to compare the Chinese market and the
strategies and policies it must adopt to succeed here.

US China

_Chinese labour cheaper than

_home-country low-labour cost
advantage
_Large demand base for low-
Market Entry end
Low End _fewer competing firms
_Samsung could compete better
with low-end producers than
with Japanese firms
Korean
_ Large market potential,
especially in rural China
_ Many indigenous firms already in
low to medium end
_ Samsung brand could compete
effectively with local TV
manufacturers than with Japanese
brands

_Japanese firms changing focus

Market Entry _ Japanese firms dominating the
to high-end; low-end market
High End market: First-mover advantage
open for other companies

_Rural market demand 19” and

21”. (36% demand for 21”)
_TTSEC of China already
Economies of Scale _Popular sizes: 13” and 19” manufacturing 14” sets for exports
Experience Curve selected for low-end _16 existing operations in China
_Largest consumer electronics firm
of Korea; 221st in Fortune Global
500

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_To create large volume sales

_Short-term policy
_Marketing and physical
Buyer Brand Name
distribution by foreign buyers,
especially large retailers and
OEMs

_Stable volume business with _Samsung’s China operations

differentiated product
Long term objective
Samsung Brand
_Grew to become one of the top
12 companies in US market
_3% market share
would give it the insider image in
China because it showed
Samsung’s commitment to the
Chinese market
_Investment of $4bn more in 2000

_Comparatively high tariff to

_Anti-dumping suit filed by US
companies
Legal issues and other
_Shifted production from US to
threats and opportunities
Mexico to take advantage of
NAFTA
discourage foreign products in
local markets
_ Foreign companies encouraged
to focus on exports
_Tariffs expected to be lowered
with China’s entry in WTO

Highly competitive Chinese firms

Low operating profit margin due
Profit margin would lower the already low profit
to low-end products
margins in the low-end segment

1994: $14.6billion
Total Sales
1995: $21billion

1994: $1.2billion
Net Income
1995: $3.2billion

Prepared by: Arsalan Vohra, Hammad Rashid, Razia Pukhraj and Samiya Illias