Reference no: EM133992926

Case Study

Apple versus Samsung: The Battle for Smartphone Supremacy Heats Up When Steve Jobs died in October 2011, the world lost one of the towering figures of the modern business era. Apple, the company Jobs cofounded, was a pioneer in the consumer electronics world; key product introductions included the Apple II (1977), the Macintosh (1984), the iPod and iTunes (2001), the Apple Store (2001), the iPhone (2007), and the iPad (2009). At the time of Jobs's death, Apple was the most valuable tech company in the world. By September 2012, Apple stock had soared to record levels, briefly rising above $700 per share. In addition, Apple had amassed more than $100 billion in cash, most of it held abroad as foreign earnings. Meanwhile, once-dominant tech industry giants such as Nokia, Sony, Dell, and BlackBerry were struggling.

Exhibit 1-12 Apple co-founder Steve Jobs wore many hats during his illustrious career, including inventor, entrepreneur, CEO, and visionary technologist. He was also a master showman, a storyteller, and marketing genius. His appearances at product launches are the stuff of legend, and under his guidance Apple's must-have products-including the iPod, the iPhone, and the iPad-were, simply put, the epitome of "cool." As Silicon Valley venture capitalist Roger McNamee has pointed out, there was another side to Jobs. In McNamee's words, "Steve's the last of the great builders. What makes him different is he's creating jobs and economic activity out of thin air while just about every other CEO in America is working out ways to cut costs and lay people off."

Source: Bloomberg via Getty Images. Despite strong 2012 sales for the iPhone 5, however, industry observers began to wonder whether Apple's hot streak of hit product introductions was starting to cool. Apple's reputation was based on its proven ability to disrupt existing markets (for example, the music and telecommunications industries) and create new markets with technical and design innovations. However, in some circles the 2012 launch of the iPhone 5 was viewed as an evolutionary, rather than a revolutionary, breakthrough.

In fact, many consumers opted to buy the slower, cheaper iPhone 4 or 4S rather than upgrade to the iPhone 5. As growth in the key smartphone sector began to slow, Apple was being challenged by various competitors. First and foremost was Samsung Electronics, a division of Korean industrial giant Samsung Group, whose products range from semiconductors to household appliances to smartphones. Samsung's popular Galaxy series of phones are powered by Android, an operating system developed by Google. Some Galaxy models, including the Galaxy Note (also known as a "phablet"), have larger screens than the iPhone, a point of difference that has helped drive sales.

The rivalry has been heated, with the two sides squaring off in court over alleged patent infringement. China and Europe are two of Samsung's key markets; in 2012, Samsung launched the Galaxy S III in Europe. In 2013, Samsung staged a lavish event at Radio City Music Hall in New York to launch the Galaxy S 4. Why the change? As J.K. Shin, the executive in charge of Samsung's mobile business, noted, "We're a global player in the smartphone market and a global company, and the U.S. is an important market for us . . . I'm not satisfied with our U.S. market share." In many developing countries, there is strong demand for inexpensive mobile phones. Some Android-based models from Samsung and other companies sell for much less than the iPhone 5. Apple does not offer a lower-cost version of the iPhone. In the United States, wireless carriers such as Verizon and AT&T usually subsidize the price of the iPhone for consumers who sign a multiyear service contract.

That's why an American iPhone 5 sells for $199. By contrast, in other countries consumers pay the full price of the iPhone but are not tied to a contract. Moreover, the iPhone 5 is the same in every world market. By contrast, Samsung makes several versions of the Galaxy S 4-using different processors, for example-to suit the needs of different regions. Not surprisingly, smartphone makers are setting their sights on China, India, and other emerging markets. For example, Greater China, which includes China, Hong Kong, and Taiwan, is now Apple's second-largest market. While Apple currently commands almost a 50 percent share of the market for phones selling for $480 and up, CEO Tim Cook is not satisfied. Distribution is critical, and Cook is aggressively expanding the number of outlets in China that sell iPhones. Negotiations are ongoing with China Mobile, the largest carrier in the region and the world's largest carrier overall. As growth in China and Europe slows, India, the number 3 smartphone market, is becoming increasingly important.

Here, however, Apple lags far behind Samsung in terms of smartphone shipments. Samsung offers an Android phone for about $100; by contrast, Indian consumers pay $500 for an iPhone 4 and about $850 for the iPhone 5. Famously, Steve Jobs downplayed the importance of formal market research, saying that consumers don't know what they want. By contrast, Samsung Electronics relies heavily on market research; 60,000 staff members work in dozens of research centers in China, Great Britain, India, Japan, the United States, and elsewhere. Samsung designers have backgrounds in such diverse disciplines as psychology, sociology, and engineering. Researchers track trends in fashion and interior design. Also, Samsung spends more on advertising and promotion than Apple. For example, Samsung has a major presence at the SXSW Interactive, Film, and Music conference held each March in Austin, Texas. In 2013, Samsung sponsored the TechSet Blogger Lounge and presented a concert showcase by Prince; Samsung users got preferred access to tickets. Although many SXSW attendees use iPhones and iPads, Apple has no visible corporate presence at the conference.

Questions

1. Do you own a smartphone? If so, which brand did you buy, and why?

2. Should Apple introduce a lower-cost iPhone to attract consumers who are not willing or able to pay a premium for an Apple device?

3. Do you think Apple can continue to grow by developing breakthrough products that create new markets, as it did with the iPod, iPhone, and iPad?

4. How has Samsung's global marketing strategy enabled it to compete so effectively against Apple?