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How Samsung Can Build Profits From Commodity

Samsung's disappointing financial results point to a significant challenge to its current business model and unless it carefully reviews it business goals it faces the same slide from relevance as Nokia and Sony have before it.

Samsung is currently the number one Android phone and tablet OEM in the world, and Android is the largest smartphone and tablet OS in the world. So you would think that things are peachy for the business. However another disappointing set of financial results shows that things are sliding at Samsung and, as we've seen in the past, once things start sliding it's very hard to arrest.

The first problem that Samsung has to address is how it target its business, because it's not competing with Apple in most markets. Samsung's competition is coming from Chinese OEMs like Huawei, ZTE and Xiaomi. In the low and mid-range of the Android market phones have become commodity items, on commodity hardware and running commodity software there's no real option to add value (and hence profit) to these phones. The Samsung name has no leverage here and as a result it's share of the high volume / low profit market will fall.

At the high end of the Android market Samsung faces a different challenge. Samsung's device business has been built around being the 'Anti-Apple'. Something that has worked very well for the business until now. However Samsung isn't competing with Apple any more, it's battling LG, Sony, HTC, Motorola and even Google itself for the premium slice of the Android market. Those adverts bashing Apple? They might be fun and score a few cheap points, but they aren't relevant to Samsung's business anymore.

If Samsung intends to remain relevant in the volume Android market it needs to decide how it's going to do this. Either it competes on price and offers a range of handsets pared down to the bone in order to compete with other price led OEMs. Or it can decide to compete on value-add and offer a premium experience at a value (but not basement) price. It can't continue to try and mix the two as it does now. Whichever route it takes it's going to see a fall-off in volume and profit, a result of the growth of competition in these market segments.

At the high-end, Samsung needs to do a better job of positioning it's handsets. For the majority of users buying a premium smartphone the Galaxy S5 is the best choice in terms of features, flexibility and capability. Look at the media stream though and you'd be hard pressed to know that.

Going for the premium market by changing the materials it makes its phones from is a strategy doomed to failure. Look how well it's working for HTC and Sony.

Samsung needs to change its advertising message from targeting the shortcomings of Apple (who it's no longer competing with) to one which demonstrates the advantages its handsets have over competing Android OEMs.

The Galaxy S5 is the only handset that offers water resistance, replaceable battery and a fingerprint reader in a single device. Its replaceable back panel allows you to customise the ownership experience to an unprecendented degree (wireless charging, wallet, S-view) and it's various power saving modes plus external battery charger give you independence from the power socket that verges on the fantastic. Pushing these unique advantages and turning them into factors in the buying decision has been Samsung's biggest failing.

For all that Samsung gets (unfairly) accused of copying Apple, there's one play that it needs to steal from Cupertino's playbook - the advert that pushes positive buying messages.

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