Why a sub-brand is fast becoming necessary for Samsung to maintain dominance in the global smartphone market

Samsung has a problem. It continues to break new ground and find market share for high-end products but at the same time it’s conceding position to Chinese OEMs and local rivals in many lucrative emerging markets. Late last year it was reported that Samsung had narrowly managed to retain its top spot as the top smartphone manufacturer in the world even tough its annual smartphone sales were expected to post a year-over-year drop due to increased competition in the low-end and mid-range segments of the market.

Even though Samsung accounted for 23.2 percent of all smartphone sales worldwide in the first quarter of this year, its first-quarter sales were actually down 1.1 percent compared to 24.1 percent from last year. Chinese OEMs were the only companies that saw their market share expand in Q1 this year primarily because they are pushing out devices with robust specifications at very attractive price points.

It’s not like Samsung hasn’t been trying to take the fight to them. The company has released a plethora of low-end and mid-range devices geared towards markets like China and India where it’s conceding most of its ground to local rivals and yet it’s unable to plug the hole. Despite the fact that it’s the biggest smartphone manufacturer in the world with infinitely deeper pockets than the likes of Xiaomi, LeEco, Micromax etc it’s just not able to offer the kind of value that smartphones from the local players do and that’s hurting the company’s bottom line, forcing it to rely more upon the performance of its high-end handsets in a market that’s stagnating with each passing quarter.

Samsung’s response to this so far has been to throw everything at the wall and see what sticks. It has flooded the market with substandard budget smartphones that do more harm than good to the company’s image. Our Editor-in-Chief recently wrote that Samsung’s budget smartphone lineup is getting frustratingly crowded, pointing to the fact that Samsung has released seven budget handsets in India so far this year with almost all of them being similar in more than one aspect. This is a poor response from the company to the realization that it can’t match what the Chinese OEMs are coming up with so it’s relying on the Samsung name and its country-wide offline presence in these markets to show that it’s not backing down.

The Galaxy J2 (2016) is a prime example. You might not even remember its predecessor the Galaxy J2 which was the cheapest device Samsung launched last year. In our review of the Galaxy J2 (2016) we found it to be a budget phone that fails on multiple fronts. We didn’t find it to be special for the price Samsung was asking as it has mediocre cameras, low internal storage, offers poor call quality and its signature Smart Glow feature offers no real benefit yet Samsung slapped its name on this handset and sent it out.

We have isolated the problem: Samsung needs to come up with a better way to take the fight to Chinese rivals that are increasingly becoming popular for offering more value for money with their budget handsets. They are also starting their retail expansion in emerging markets in a bid to increase brand recognition. It may only be a matter of time before they gallop ahead of Samsung in lucrative markets like China and India.

A possible solution: Create a sub-brand to sell low-end devices, separate them from mid-range and high-end offerings, capitalize on existing brand value to launch products that provide more value for money with a fresh, new brand.

Huawei did this about two years ago when it launched the Honor sub-brand, it said that Honor is “a brand that’s not afraid to do things differently, to be brave and bring about change.” It launched Honor as a direct-to-consumer operation meaning that customers purchase Honor smartphones directly from the company instead of carriers or retailers. This saves margin and thus enables the company to provide more value for money.

The strategy has paid dividends for the company. Less than a year after launching its sub-brand, Huawei reported that the Honor brand had brought in $2.63 billion in revenue for 20 million units shipped in the first six months of 2015. Huawei saw its global market share balloon to 8.5 percent in the first quarter of this year, registering a growth of 3.5 percent over the same quarter last year. It’s smartphone shipments in the first quarter surged by 64 percent year-over-year with 28.3 million units combined shipped worldwide.

Huawei is now one of the fastest-growing smartphone manufacturers in the world and Samsung can learn a thing or two from its Chinese rival. It’s not like Huawei has stopped selling high-end devices under its own brand, it has merely created a sub-brand for mid-range and low-end devices, and even that it markets as “Huawei Honor,” so the company’s brand is not lost on customers who purchase Honor devices.

Samsung can’t just push prices lower for its budget devices to compete with the likes of Huawei because at some point customers are bound to complain about the price cuts not being extended to mid-range and high-end devices, two segments of the market where Samsung’s device lineup has much needed clarity. It also has to insulate its valuable brand and one of the best ways to do that is by launching a sub-brand.

Market analysts are already of the view that growth in the high-end smartphone segment will contract even further in the coming quarters and with increased competition at the top, it will be in Samsung’s best interests to come up with an entirely new strategy to compete in the low-end and mid-range markets, one that doesn’t involve the company flooding the market with smartphones that nobody will be able to remember even a few months from now.

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I don’t know what Samsung’s product development process looks like, but this is what happens when you build a “budget phone” by taking your flagship and trying to make it cheaper to produce and sell by swapping out components, swapping out materials, removing features, etc. Instead, Samsung should ask, “How can we build the best phone possible that can be sold within x price range?” This is what I believe companies like Xiaomi are doing. Xiaomi isn’t trying to build budget phones per se: it just understands the needs of its audience–including budget–and tries to deliver the best product it… Read more »