Samsung's slippery slope in India

Samsung has lost share in the fastest-growing and largest smartphone market in the world, only to be further upstaged by the recently launched, value-packed Android Ones. It will take some doing for the Korean leviathan to preserve its dominance in India.
Written by Rajiv Rao, Contributing Writer

In the second quarter of 2014, Xiaomi for the first time in its short-lived history became the largest-selling smartphone maker in China, its sale of 15 million phones easily outstripping Korean juggernaut Samsung's sales of 13.2 million units, and garnering the underdog a 14 percent market share versus Samsung's 12 percent.

Sam S5
Samsung needs to redirect its attention away from high-priced phones such as the S5 and towards lower-end ones.

Could this be a ghastly omen that bodes ill for Samsung's future in India?

It shouldn't. Yes, Xiaomi has proven to be wildly popular in India, as I described in this piece, but its go-slow strategy in the country means that it's anyone's game for now. And Samsung is the cell phone company to beat in India, commanding incredible brand recall and consumer loyalty whether it is for its smartphones or flat-screen televisions or practically anything else it hawks. I used to own a Galaxy S2 not so long ago and don't anymore, and I seriously doubt that I will ever buy a high-end Samsung phone thanks to the deluge of other brands that are offering similar value at unbelievably low prices. If the average Indian consumer is anything like me, Samsung is in a heap of trouble.

Recent market share figures suggest that the rot at Samsung may have already started. Numbers can be a funny business, inherently contentious, especially to those who end up on the losing side of things. Which is why, when Counterpoint Research proclaimed that Samsung had plummeted 8 percentage points to 25.3 percent in terms of market share for smartphones in India for the last quarter (ending June), everyone took notice. The main culprit for Samsung's drop, the firm said, was rapidly growing local outfit Micromax, which had grabbed an impressive 19.1 percent share.

Samsung was livid. According to this piece, Samsung's BD Park, president and chief executive for south-west Asia, reacted angrily, suggesting that "there's a business motive behind release of such kind of data", and that "In India, it might be 1 to 2 percent up or down. Samsung's market share has doubled over the second place, so what is the meaning of comparing or saying that the gap is narrowing?"

Finally, well-known and widely respected research outfit IDC weighed in. Samsung may have breathed a tiny sigh of relief, because the market share for Samsung that IDC put out was 29 percent. But that exhalation probably wasn't as forceful as it would have liked, since the drop was approximately 6 percentage points (from 35 percent), and far from an insignificant number.

Sam Micro
Samsung's biggest threat in India today is local player Micromax, which has rapidly gained market share in the last year.

Now, getting hot and bothered about a few percentages up or down from one quarter to another can be a futile and ultimately counter-productive exercise — these oscillations are, after all, de-rigeur for an industry where short-term fluctuations are a regular occurrence given the plethora of players, the flood of new launches, and the sheer vastness of options that smartphone consumers have today in front of them. It is the long-term game that is key.

Samsung's India numbers show that the last six months have been pretty rocky. According to IDC, Samsung had a 26 percent share in Q2 '13. This then went up to 33 percent in Q3 '13, and finally to 38 percent in Q4 '13. So far, so good. But then, this year, we've seen the beginning of a slide — from 35 percent in Q1 '14 to a worrying 29 percent in Q2 '14.

Sure, Samsung's global picture isn't all that hot, either: It went from 32.2 percent global share of phones in Q2, according to IDC, to 24.9 percent — and the India slide could be part of an overall slump. (This is despite having one of the largest portfolios of smartphones amongst OEMs.)

However, India's numbers should be of a greater concern. China's smartphone shipments may have expanded by 24 percent this year, but, according to IDC, India's will almost double to 81 million. The smartphone story is just beginning here (71 percent of India's population are still wielding "dumb" feature phones), while China's is heading towards saturation. To be losing market share, and that too by big chunks, in a sizzling market cannot be good news.

What on earth could have contributed to this sustained fall from grace for such a primo brand? Well, according to Indian website BGR Samsung faced a meltdown in a crucial category that accounted for at least 50 percent of its sales — phones priced between Rs 6,000 and Rs 13,000 ($100 and $216). Apparently, Indian players such as Micromax and Karbonn made solid gains against it. So much so that its high-end phones didn't do well at all.

To add insult to injury, Apple's iPhone 5s and iPhone 5c, according to IDC's analyst to BGR, were able to trounce Samsung's Galaxy Note 3 despite the high prices of these phones, thanks to Apple's superior buyback schemes that reflected market prices versus those offered by Samsung's schemes, which didn't.

sam 3 andr 1
The recently launched, low-cost Android One will pose a major threat to Samsung in the near future.

Also, bone-headed pricing decisions didn't help any. According to the BGR article, Samsung decided to slash the price of its S4 by 30 percent before the launch of the S5. Guess what the value-seeking Indian did? Yup, she naturally went for the S4, which, let's face it, is not a universe away from the S5 to warrant paying a third more.

I wish there was a ray of hope in this story of gloom and doom for Samsung, but it doesn't get any better. As IDC reported, the sub-$200 category makes up 81 percent of smartphone sales in the country, so if you're not winning in some way in that category, you've got to get a new job. IDC also pointed out that the average smartphone in India will sell for $137 this year, a 44 percent drop from prices in 2010, and cheaper than China (at $211). Instead of Samsung coming out with a blockbuster cheaper smartphone that offers the value of the S5 in a sub-$200 price range, it continues to, well, trot out the S5.

Meanwhile, the hottest phones in India are Xiaomi's Redmi 1 S (which Indians can't seem to get enough of — literally, in some cases, thanks to suppressed sales), Xiaomi's super-smartphone, the Mi3 (same story in terms of actually getting said hands on phone), the rapidly selling Asus Zenfone, and, of course, the impregnable Moto G and Moto E — all of which I wrote about here.

Then there's the latest value-for-money phenomena: The Android Ones made by local outfits Micromax, Spice, and Karbonn, which, at little over Rs 6,000, seem to offer an outstanding deal to the hundreds of millions of youth, as well as feature phone-toting rural Indians desperate to get their hands on something affordable but nifty. With quad-core processors and 5MP cameras, I'm not sure that Samsung has anything in its line-up that can come even remotely close to competing with any of the above offerings (on paper, at least) in terms of luring future buyers. Its existing Galaxy Star Pro and Galaxy S Duos 2 are not exactly high-value options with outdated software and screen resolutions. And toeing the line on the Android One spec sheet wouldn't really differentiate it from the pack.

If I were a shareholder of Samsung, I would be appalled — no, make that enraged — at this lack of foresight, leadership, and even common sense exhibited in one of the most crucial markets it is firmly entrenched in; indeed, one that it has dominated for years. If it doesn't figure out a low-end smartphone game plan in the next month (I mean day, of course), it could face more carnage in the numbers game.

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