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2.

1 Company Overview- (Samsung)


Founded in 1939, Samsung is one of the leading companies in the electronics market with 206
offices and facilities in 68 countries globally. The company was founded by Lee Byung-chull
in a small city of Korea named Taegu operating as an export company. Samsung has grown to
become one of the most successful electronic companies with a main focus on digital media
and appliances, memory, semiconductors, and system integration. Its profile is one that many
companies would like to possess. Throughout the years, the company expanded its product
lines and grew its market share and profits. The company is headquartered in Seoul and
operates in over 100 countries across the world . Samsungs profile for 2011 shows that the
company closed a very successful year achieving 220 billion euro revenue, and employing 344
thousand people all over the world.
Their working philosophies accompanied by strong values create their business principles
which are represented below.

Samsung has its roots also in other types of businesses rather than electronics. This corporation
is comprised of many companies that are setting new life standards from electronics up to
petrochemicals.

The company is focused exclusively on the consumer electronics segment and given its
competitive edge it has managed to garner the maximum market share for itself. As mentioned
above, Samsung Corporation manufactures a wide range of products which include different
industries such as electronics, machinery & heavy industries, chemical industries, financial
services and the like (2011 Sustainability Report, p.7). All these share a commitment to
creating high quality products which will create better life conditions for people and
businesses. Samsung still remains at the forefront of the digital revolution in which they
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contributed by continually developing new products that not only meet the customers demand,
but also anticipate it.

Fig .3
Because of the wide range of products that Samsung manufactures, our main focus will be in
these products, specifically on Mobile Phones and TVs as they represent the main source for
the firm profits (2011 Sustainability Report, p.12). The chart below summarizes that the two
most profitable sections of Samsung Corporate are Digital Media and Telecommunications.

2.2 Competition/Market
Samsung provides a product range that is marked by a high quality and high responsiveness to
consumer needs and preferences. This advantage puts the company at forefront when
compared to its competitors. With the initiation of innovative and unique products, Samsung
took the market by storm and managed to gather the maximum market share. The table below
summarizes the global market share of Samsung in comparison with its competitors
representing the success of the firm.
Products

Samsung's
Global Market Competitors
Share

Market
Share

Year

DRAM

34.3%

Hynix

21.6%

Q1 2009

NAND Flash

40.4%

Toshiba

28.1%

2008

Large-size LCD Panel

26.2%

LG Display

25.8%

2009
February

PDP panel

30.5%

LG Display

34.8%

Q1 2008

Active-Matrix OLED

90.0%

LG Display

Q2 2008

Lithium-ion battery

19%

Sanyo

20%

Q2, 2009

LCD Monitor

16.1%

Dell

14.6%

2008

Hard disk drive

9.5%

Seagate Technology

34.9%

2007

Multifunction printers

16.4%

HP

19.2%

Q1 2009

Television sets (LCD, PDP, CRT) 23%

LG Electronics

13.7 %

Q3'09
Revenue
Share

French
door refrigerator (U.S.
18.79%
market only)

Whirlpool

23.83%

2009 January

Mobile phone

21%

Nokia

37.8%

Q3 2009

Digital camera

9.1%

Canon

19.2%

2007

Drillship

Daewoo Shipbuilding &


20%
Marine Engineering

80%

2000~2007

2.3 Customers
Customers are what make a company function and therefore are very much valued by all the
companies. Samsung pays a special attention to its relationship with customers. Its aims are to
be respected and admired by customers. In order to strengthen the ties with their customers,
Samsung has developed several presumes activities and social network services.
Through these activities tailored for customers, the company won numerous awards for
customer satisfaction. Keeping the customer satisfied is very crucial to consistent success and
profits that Samsung holds. The company aims to provide products that will fulfill the
customer needs. In order to create a better communication chain, they have created different
packages which are composed of different groups of people in TV products or Mobile Phones
products.

2.4 Economics Circular Flow

Figure- 1

The circular flow of payments is important within an economy because it


1) Measures the national income,
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2) Provides knowledge of interdependence,


3) Illustrates the unending nature of economic activities, and
4) Shows injections and leakages.

The circular flow of income follows a specific pattern: Production Income Expenditure
Production. This circular flow is ongoing between households and firms.
The circular flow of income can also be analyzed using the production possibility frontier
(PPF). The PPF is a graph that shows the various combinations of amounts of
two commodities that could be produced using the same fixed total amount of each of the
factors of production. The graph shows the maximum possible production level of one
commodity for any production level of the other, based on the state of technology . The PPF
defines production efficiency. A point of the frontier line indicates the efficient use of
available inputs, while a point beneath the curve shows inefficiency. A PPF graphs
shows opportunity cost, actual output, potential output, and economic growth.

3.1 Utility
A representation of preferences that consumers have over some set of goods and
services in economics is called utility in economics. Because preferences are transitive,
complete and continuous they have a long utility of representation. Every customer expects to
be satisfied by the purchase, and the products or services that result higher satisfaction
received by a customer have higher utility. The mentioned, factor makes managers be more
aware of the competition since customers will thoroughly asses the product and buy the one
that gives more utility. Talking about utility, one should mention three different types of utility
which are form, time and place. To add, manufacturers should try to deliver a product that will
satisfy the mentioned types of utilities and constantly improve them as the overall product
quality will change respectively. ("Investopedia")

3.2 Utility of Form


Utility of form results from changing in the main parts of the product or service.
These altering must be of such shape and composition that they will allow the satisfaction of
the required need. There are some products or services are more in a functional form than other
which can be produced of better quality. An example of form utility can be wood. Wood can be
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altered in order to satisfy different consumer needs, such as furniture, building and
construction, paper.
The utility of form has a great significance for Samsung. Using mobile phone phones
consumers can satisfy various human needs such as the ability to access internet and gather
information, to take high quality photos. Samsung enables its users to alter the product from a
monitor to a projector. So, customer using Samsung monitors can present different types of
materials on big screen monitors.

3.3 Utility of Time


Time utility is so essential for Samsung products. As consumers are able and willing to buy
gifts during the holidays Samsung needs to satisfy demand in order not to lose the market
share. In case Samsung wont be able to invent new products during the holiday time, the
competition might arise.

3.4 Marginal Utility


In economics, the law of diminishing marginal utility states that the marginal utility of
a good or service declines as its available supply increases. Economic actors devote each
successive unit of the good or service towards less and less valued ends. The law of
diminishing marginal utility is used to explain other economic phenomena, such as time
preference.
Summarizing this theory, as one acquires additional units of a good the marginal utility
brought about by each additional unit will decrease, and perhaps even become negative. In
simpler words we could say that if we have more of something, we will attach the less value to
each additional unit we get.

3.5 Law of Marginal Utility


The Law of Marginal Utility was coined by a German economist Mr. H. Gossen describes an
important tendency of human behavior. Alfred Marshal has restated the law in the following
words: The additional benefit which a person derives from an increase of his stock of a thing
diminishes with every increase in the stock that already has. ("Economics")
We can see influence of this on the total utility, or the total value we have, of all of the goods
of that kind we have. The total utility will increase as a result of acquiring more of the good,
however, at smaller increments, until eventually we will have so many of the goods that the
total utility will actually start falling. Both of these relationships shown in the following
graphs:

Total Utility
60
50
40
Utility

Total Utility

30
20
10
0

10

11

12

10

11

Quantity

Figure-2

Marginal Utility
10
8
6
Utility

Marginal Utility

2
0
-2

-4
Quantity

Figure 3

3.6 Practical Use of Law of Diminishing Marginal


Utility
There is a huge practical importance of the law of diminishing marginal utility in economics.
The law of demand and the law of diminishing marginal utility are closely and mutual related
to each other. If the price is fewer than the marginal utility of a commodity it is assumed that
the commodity would be purchased. In order the consumer to continue to buy more successive
units the prices have to fall. It means that the diminishing marginal utility and the law of
demand are inter-related laws. According to the theory, Consumers surplus is also based on
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the law of diminishing marginal utility, since a consumer while purchasing the commodity
compares the utility perceived from the commodity with the price he would pay.

3.7 Assumptions of Law of Diminishing Marginal


Utility
The following certain assumptions are realizing the Law of Diminishing Marginal Utility:

Constant Marginal Utility of Money - According to the theory that MU of money


perceiving goods is constant, we assume that the marginal utility of money changes with
the increase or decrease in income will differ the marginal utility of the specific good.

Suitable quantity We assume that the commodity units are not so small. Instead of
decreasing, the marginal utility may increase to a few units if the units are so small.

Rationality- An important assumption is that customer is being rational.

No change in the price of commodity If more units are being consumed then a price of
the commodity should change.

Constant customs, taste and fashion There will be a sudden change in taste, custom, or
fashion if the law wouldnt hold true.

3.8 Diminishing Marginal Utility Applied to


Samsung
Lets look at an example where a consumer purchases Samsung monitor or mobile phone. In
this case a buyer perceives a certain utility from the product they purchase. After the first
purchase if a consumer decides to buy an identical product the utility perceived will diminish
and be less than the utility perceived from the first purchase. It can be explained by the fact
that buying another product of the same type doesnt fulfill any additional need. If a person
buys the third product the utility will be decreased to zero (0) or even below (0>..).
The law of diminishing marginal utility and the law of demand are interrelated concepts in
microeconomics. So in order to keep the sales always high the manager should drop the prices
of the product so that the customers perceive utility from buying them. So, managers have to
be careful so that customers perceive some additional utility.

4.1 Demand
Demand is the quantity of a good or service that customers are willing and able (i.e. money) to
purchase during a specified period under a given set of economic conditions. Conditions to be
considered include the price of the good in question, prices and availability of related goods,
expectations of price changes, consumer incomes, consumer tastes and preferences,
advertising and expenditures (Hirschey, pg. 77).
Samsungs phones and TVs are considered as consumer goods. Therefore in electronic
industry, the main purpose for purchasing electronic devices is to satisfy some sort of a need.
Samsung products are used by the business people in firms as well as by individuals for
individual purposes. People often use the TV for entertainment and informal purposes but they
are also used in business settings, while the Samsung phone customers use it for business or
individual purposes. Whether they are used for business or individual purposes, the goal is to
acquire some sort of information and therefore the ultimate need that drives the entire industry
is the need and ability to communicate ideas and thoughts via TV or phone. These items are
also considered as durable products, they can be used for a long period if used properly and
cautiously. However the demand for goods such as these depends on the features, design,
fashion, trend, and preferences of the product, advertisement, income levels and the price
itself. In the end, there are several factors that determine the intensity with which buyers wish
to purchase goods, these factors that influence the demand for Samsungs TVs and mobile
phones will be examined below.

4.2 Determinants of Demand


Products demands are directly influenced by the price of itself. But there are more
determinants other than the price of that product which can influence its demand. When those
determinants, other than the products own price, change the demand curve shifts. For
SAMSUNG, we think mostly the following determinants influence its demand. These are
customers needs, their income, their preferences, their buying habits, price of substitute
products, price of complements, and market expectations.

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Figure 4

Price of the goods: Samsung also offer mobile phones and the price range is between
$25 for Samsung A117 Dual Band GSM and $1200 for Samsung i9300 Galaxy S III
64GB S3 (Samsung Galaxy SIII S3 I9300 Mobile Phone). Although Galaxy model of
Samsungs brand is the most expensive one, Samsungs global sales of Galaxy S and
Galaxy S II devices were more than 30 million. As a result, the Galaxy S is the highestselling mobile device in Samsungs history up to date. Therefore, even though the price
of Galaxy model is high, Samsung has seen incredible sales success and collected
enthusiastic reviews from consumers and mobile industry watchers across the globe.
Although there is an inverse relationship between the price of good and the quality
demanded, based on the satisfaction from consumers and mobile industry watchers,
Samsung has offered maximum value for the money consumers were willing to pay.
Complementary & Subsidiary Goods: Samsung customers may use the TV for
entertainment to watch news, music, sports, and/or movies at home. Therefore, these
specific customers will be influenced by price and availability of computer monitors,
Ipads, TVs, and projectors as they may be used at home for personal purposes as well
as for watching entertainment. Even though computer monitors and TVs occupy larger
space and have smaller screens compared to projectors, ordinary people still choose
TVs rather than projectors for home entertainment. However, there is a variety of
different computer monitors and Ipads designed by different companies on the market,
and as a result of competition, their prices tend to be either in the same range as TVs or
lower than TVs prices. Customers would not have a hard time getting accustomed from
TVs to computer monitors or Ipads if the size is not important. Therefore, for
individual purposes and/or home entertainment, customers would not have a hard time
adjusting and switching/substituting from their TV to a computer monitor or an Ipad if
the size is not important. However, in a business environment people tend to have
different needs and desires. In this case, Ipads, computer monitors and even TVs would
not be able to satisfy the need. In a business setting, projectors are most commonly
used to show a presentation on a large screen. Therefore, in really large meetings rooms

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lectures and presentations cannot be shown on a small TV or monitor. As a result,


projectors would have a negative impact on the demand for TVs in larger meeting
rooms and auditoriums because the image produced from the TV is much smaller than
from the projector. The demand for TVs would also be negatively affected in small
meeting rooms because a TV could be substituted with a computer monitor or even
with an Ipad.
Some of the complementary goods to that of a Samsung mobile phone are such as Bluetooth
headsets, wired headsets, cases and holsters, batteries and covers, vehicle docks, memory
cards, data cables and desktop docks (Cell Phones Accessories). Nonetheless, a phone
charger is probably the most important complementary good because without a charger a
mobile phone would not be able to work for a long time. However, a rise in chargers price
would not influence the demand for a mobile phone, since this represents such a small
proportion from the total cost of the package.
Income: Level of income (current and expected) of the customer is an important
determinant of demand. The ability of the buyer to purchase the product is based on
their income. If the person is employed and does not earn enough money to purchase
the product then he/she will most likely not buy the good. The customer makes the
decision whether to buy the product or not by looking at the current income. The
purchaser may also look into its expected income in order to make a decision whether
or not to purchase a product. When focusing on income and demand we distinguish
between two main types of goods: normal and inferior. Normal goods are the products
where the correlation to income is direct. If quantity demanded increases in response to
an increase in income, then the good concerned is a normal good. Therefore, as the
income increases the demand for the normal goods increases too. For example, phones
and TVs are considered normal goods and therefore people would purchase more of
them as their income rises. When it comes to inferior good, the relationship with
income is not as direct as in the example of normal good. Thus, if the quantity
demanded decreases in response to an increase in income, then the good concerned is
an inferior good. Therefore, for inferior good as income increases the demand will
decrease. On the demand curve, a chance in income represents a shift in the graph and
therefore income can have a real effect on the demand for a certain product (van der
Veen, Gordon).
People buy goods and services based on the level of their income and earnings. Per capita
income in Luxembourg is $108,921, in Norway $84, 840, in Switzerland $66, 934, in Denmark
$55, 988, in Sweden $48,832, in the U.S. $47,184, in Canada $48,148, and in Austria $ 44,863.
These countries are considered as top per capita income countries in the world. In general,
people working in these countries would be able to afford Samsung products much easier than
the people in the countries where income per capita is as follows: Mozambique $410, Eritrea
$403, Niger $358, Liberia $247, Congo, $199, and Burundi $192. Per capita income illustrates
the standard or quality of life of countrys inhabitants. Therefore, the people in countries with
the lowest per capita income in the world would have a harder time purchasing and obtaining
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the latest models of Samsung TVs and mobile phones. On the other hand, people in countries
with higher per capita income would be more willing to spend a part of their income for a
mobile phone or a TV simply because the percentage that he/she would lose from his/her
income would be much smaller than in poorer areas of the world. If a person is from these
poorer areas and decides to purchase a TV or a mobile phone for approximately $100 then that
would take up almost an entire amount of income from many of those people ("Ranking of
Countries with Highest Per Capita Income (2010)")

Fashion, Trends & Preferences Samsung has become one of the most fashionable
companies in the electronics industry. Public opinion shows that Samsung has for the
first time edged past Iphone in consumer perception. This was measured by using a
metric known as Buzz score, which is determined by asking respondents if they have
heard anything about the company and the brand in the last two weeks, through
advertising, news or word of mouth, was it positive or negative? Samsungs rise in
popularity and perception is commonly associated to the successful launch of the
Galaxy S II as well as the Focus S. Since November last year, iPhones buzz score has
dropped from 3 to 25, while Samsung went front 19 to 26 (Popularity Contest:
Samsungs Brand Perception Surpasses Apple as IPhone Scores Drop")
Moreover, Samsung s upward rise from 42 in 2001 to 34 in 2002 to its present position
at 25, this illustrates that the brand has gathered momentum against its competitors. Samsung
was seen as a low-quality brand in a consumer electronic industry, but it has managed to
reinvent itself as a brand of quality despite decades of consumer perception that it
manufactured low-end, cheap knockoffs. Therefore, today, consumers appear to take Samsung
seriously as a quality brand of TVs, and even consider it a superior brand when it comes to
mobiles phones. As a result, the brand is perceived positively. Samsung used to produce
middle of the range mobile phones, now in many markets around the world they focus on the
premium high-end phones. Samsung tries to fit and adjust to customers needs. It creates
electronic devices that will be suitable and appealing for different purposes and this can shape
consumers taste because consumers like choices and options when purchasing a product
(Rusch, Robin).
Future ExpectationsSamsung has launched the newest innovation which is the
AMOLED (active-matrix organic light-emitting diode) technology. AMOLED
technology is used in Samsung TVS and mobile phones. Therefore, future expectations
of Samsung are significant factors for the demand of their electronic products. It is
expected that the AMOLED technology will be soon implemented in all Samsung TVs
and mobile phones because it provides better picture quality and requires less power to
run these devices compared to the LCD technology. Thus, the introduction of
AMOLED technology to provide better screen quality will attract customers to
purchase TVs and phones with the latest technology. Although AMOLED TVs and
mobile phones tend to be much more expensive compared to LCDs, people will
demand more of it in the future and the prices should drop eventually. Even now, it is
common that companies use AMOLED technology in smart-phones to offer better
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screen quality; however, the prices of these gadgets are very high even though they
have smaller screens. It is expected that AMOLED technology will ensure an increase
in sales to reach approximately 20 billion by 2018, due to a higher demand (Whittaker,
Zack).

Advertising

Advertising and marketing are designed to inform consumers of companys presence in the
market and its uniqueness. Advertising may increase brand loyalty and demand for the
products sold by that particular firm. Therefore, companies develop advertising to inform the
consumers about their products and services and thus how these merchandises may satisfy
consumers needs. Additionally, advertising can increase demand for products by persuading,
encouraging and motivating consumers to recognize that they actually should possess that
product. As a result, as the supplier is capable of changing the customers perception of the
product, it is also capable of creating a unique value to merchandises and eventually locking
the consumer into purchasing it.
Samsung was one of the largest sponsorships of the Olympics in Athens 2004; it still continues
the global association with popular events. The attention to entertainment marketing is a way
to enhance brand familiarity. Therefore, by increasing its brand awareness, Samsung attracts
potential customers. As a result, Samsung has marketed itself much more efficiently in the
recent years than when it started, all those things help to push the brand forward (Rusch,
Robin).

4.3 Price Elasticity of Demand


Price elasticity of demand is calculated by using the following formula: the percentage change
in quantity demanded divided by the percentage change in price.
Moreover, the greater the reaction of a change in price is in regards of change in the quantity
demanded is the greater the elasticity of demand. Therefore, a high price elasticity implies that
when the price of a product increases, buyers will purchase less of that good or service and
when the price of that product decreases, buyers will purchase more of it. If price increases,
percent decrease in quantity is greater than the percentage in price. As a result, there will be a
reduction in total revenue if price increase; a decrease in unit price will obviously then cause
an increase in total revenue. For example, shoes have a price elastic demand. Despite the fact
that people have to wear shoes, the choices of different kinds of shoes are enormously high and
thus switching costs are small. Therefore at times when people are unable to afford expensive
shoes from popular brands they will either buy cheaper brands or have a smaller collection of
shoes.
There is also low price elasticity which basically means the opposite of high price
elasticity. Thus, the changes in price do not have a large impact on the quantity demanded.
Inelastic demand is a situation where the result of the numeral calculation is between 0 and 1.
For instance, fuel has a price inelastic demand. People always criticize gas stations for
increasing the price of fuel; however, those same people still purchase the gas because they
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really need it. Here, the owner of the gas station may technically benefit if price can be
increased without losing sales. Therefore, when prices increase, percent decrease in quantity
demanded is less than the percent increase in price; as a result, total revenue will increase.
Lastly, there is also another category of price elasticity which is called unit elasticity. In
unit elasticity there is a direct relationship between quantity demanded and price and a
percentage change in one of these will be precisely coordinated by a percentage change in the
other. In the case of unit elasticity, the changes in price will not have an impact on total
revenue of the firm (Riley, Geoff).

5.0 Perfect Competition between Samsung &


Others
Perfectly competitive market, that would be an idealistic view. In reality, the market is an
oligopoly with four major players-Apple, Android, Blackberry, and last/least, Windows. As is
natural in any market, demand for a product will drive supply: as demand continues price will
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increase. Naturally, when demand for a certain product shoots up, competitors will seek to
enter the market. That is exactly what occurred when Android came onto the scene in 2008.
Androids entry was natural and necessary. The Samsung has obviously progressed
significantly, as have Androids devices.

5.1 Profit Maximization


How much to produce
The profit maximization principle stresses on the fact that the motive of business firms to
maximize profit is solely justified as being a method of maximizing the income of their
shareholders.
The rules that apply for profit maximization are:

i. increase output as long as marginal profit increases


ii. Profit will increase as long as marginal revenue (MR) > marginal cost (MC)
iii. Profit will decline if MR < MC
iv. Summing up (ii) and (iii), profit is maximized when MR = MC

What this means is that the production and sale of the businesss product reach a point
that if the business were to sell one more unit, it would begin to lose money because
the costs of producing that unit would exceed the units price on the market. Achieving
this goal with precision in the real world is difficult, but it illustrates the overall
strategy of maximizing the owners annual return, even if that means not making sales
that could have been made if the business produced.
Financial Position is given below:

Year

Samsung

iOS (Apple)

2011

219.52

89.26

Windows
(Microsoft)
8.77

2012

451.62

130.13

16.94

2013

758.72

150.79

30.84

2014Q1

229

43.7

6.2

2014Q2

255

Source- Samsung Annual Report 2014

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7.4

Figure 5 (Collected- Samsung Annual Report 2014)


Hypothetical Analysis, Samsung is the sole producer of smart phones. The daily demand
for Smart phones is D (p)=10200-100p.The cost of producing q per day is q2 / 2 (this implies
that MC =q).
a. Total Revenue S c h e d u l e :
Total Revenue is given by p(q)*q, that is, the revenue that Samsung receives when
it sells q units. To get p (q), we invert the demand function
q=10,200--100p by solving for p in terms of q,or p (q) =102 q/100
Substituting this into our total revenue equation, we o b t a i n
TR (q) = (102 q/100) *q =102 q- q2/100
b. Marginal Revenue Schedule:
Since our demand equation is linear in q, we can obtain the marginal revenue
using the "twice-as-steep" rule, so MR (q) = 102 q/50.Alternatively,wecan
obtain it by recalling that marginal revenue is the derivative of Total Revenue with
respect to q.
c. The Profit Maximizing Quantity, q* is that quantity at which marginal cost and
marginal revenue are equal. Setting MR (q) =MC, we have

102 q*/50 = q*
q* =100
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The profit maximizing price is that which generates q* =100 in sales or, substituting into the
inverse demand function calculated in (a),
P(100)=102(100/100)=101
When selling 100 units, Samsung generates Total revenues equal to
TR (100) = (102) (100) (100)2/100 =$ 101
Its total cost is; TC = (100)2 /2 =5000
Therefore its total profit when it sells 100 units is 101100 5000= $5100

5.2 Market Analysis


What input to be used & in what quantity

Size of Market: As stated in the company overview, Samsung operates in over 100
countries across the world. That being said, the company does business globally and
has 206 offices and facilities in 68 countries around the world. As the population of the
world increases, the number of Samsung customers will increase, and thus demand will
increase as well. Hence, it implies that the number of buyers is an important factor of
demand. Therefore, as the market grows, Samsung will have to expand its production
and employ more workers to take care of customers who are willing and able to buy
products.

Market Segmentation: There are different types of mobiles for different needs of an
individual. Samsung targets the entire segment with his variety.

Top Segment..Classy Products


Middle Segment.. Best Alternative
Low End Segment..High Tech Product at Low Price

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Trend in market

Hardware Trend

RAM, MEMORY, SCREEN, BATTERY, Shape, Size and type of Smartphones

Software Trend

Utility

LTE 2G 3G 4G

Price

Smartphone market size and value

At the end of the 2013 year, 1.4 billion smartphones will be in use: 798 million of them
will run Android, 294 million will run Apple's iOS, and 45 million will run Windows
Phone, according to a new study by ABI Research.

THERE are around 7 billion people on the earth.

4.55 Billion Mobile phones means = 63.5% of world Population have phones

The global smartphone audience surpassed the 1 billion mark in 2012

While the economic recession adversely affected the global markets; the global
smartphones market was one of the very few markets that did not have impact of the
global meltdown. The smartphones market with an annual growth rate of 12.8% from
2008 to 2009 is expected to grow by 26% over 2009 to become a $69.8 billion market
in 2010.

The Asia-Pacific smartphones market stood at $17.1 billion in 2009 which is expected
to become a $45.2 billion market in 2014 growing at a CAGR of 18.6% during 2009
2014.

Major Companies

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5.3Present Market Share


The Porters five forces analysis already positioned Samsung to the type of industry
competition it pertains. Given the fact that the number of firms in the market is few with a
large number of customers makes the electronics market an oligopoly one. Besides the limited
number of successful firms present in this market, the barriers to entry are also relatively high
because of the presence of strong and trustful companies and also because of the high costs to
start a new business. Additionally, the strong and ongoing competition between the companies
in this market represents another characteristic of an oligopoly market. Moreover, the pricing
strategy is much controlled by all the firms operating in this market. The companies have a
moderate influence over market prices but not a pure influence. This is because of the
similarity of the products offered and also because of the size of the firms. In an oligopoly
market, the firms do not have much power in price changes. These factors are the main reason
why we believe the market electronics to be an oligopoly.

Figure 6

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Figure 7

22

Availability of Inputs
As is known, the main factors of manufacturing are. labor, land, raw material and
entrepreneurship Price and availability of inputs theory states that the availability and price of
factors of production of the goods or service, such as raw material or labor have a major impact
on supply. As the cost of the input goes up, the cost of production will increase too and
consequently supply will decline. Likewise, a decrease in the price of inputs leads to an increase
in supply.
Looking at our company, Samsung we can see that it is precisely sells and markets
mobile phones. Thus, its supply would be affected if there is a change in the production costs of
Samsung as well. Should the price of raw materials, determined for consumer phones, change,
Samsung Group will be the first to feel the difference. Samsung Group would have to buy more
costly parts for assembling its products and it will have to provide the same amount for a higher
price.
Samsung utilizes numerous raw materials for producing mobile phones. Another
determinant of the production cost could also be taxes and thus a determinant of the supply. The
higher the taxes the higher the production costs. Labor is a sufficient part of Samsung costs.
People in more 100 countries around the world are employed by the company. Packaging
materials for products has to meet a lot of requirements, such as light weight, easy operability
and resistance. For example, if the price of paper soars, this would impact Samsung costs, as all
the mobile phones are packaged by the company with its logo. This will undoubtedly affect
Samsung costs. Packages are also designed in a way to not only help minimize the costs and
weight of the package, but also the design is important to help minimize storing space and
minimize transportation costs by sending more products.

5.4 Optimal Pricing Rule


What prices to charge
Some of the more common pricing objectives are:
Maximize long-run profit
Maximize short-run profit
Increase sales volume (quantity)
Increase dollar sales
Increase market share
Obtain a target rate of return on investment (ROI)
Obtain a target rate of return on sales

Stabilize market or stabilize market price: an objective to stabilize price means that the
marketing manager attempts to keep prices stable in the marketplace and to compete on
nonprime considerations. Stabilization of margin is basically a cost-plus approach in
which the manager attempts to maintain the same margin regardless of changes in cost.
Company growth
Maintain price leadership
Desensitize customers to price
Discourage new entrants into the industry
Match competitors prices
Encourage the exit of marginal firms from the industry
Survival
Avoid government investigation or intervention
Obtain or maintain the loyalty and enthusiasm of distributors and other sales personnel
Enhance the image of the firm, brand, or product
Be perceived as fair by customers and potential customers
Create interest and excitement about a product
Discourage competitors from cutting prices
Use price to make the product visible"
Build store traffic
Help prepare for the sale of the business (harvesting)
Social, ethical, or ideological objectives
Get competitive advantage

5.5 Setting Pricing Strategy


STEP 1: SELECTING THE PRICING OBJECTIVES
The company first decides where it wants to position it market offering. The clearer a firms
objectives, the easer is to set price. A company can pursue any of five major objectives through
pricing: survival, maximum current profit, maximum market share, maximum market skimming,
or product quality leadership.
Company purchase survival as their major objective if they are plagued with over capacity,
intense competition, or change in consumer wants. As long as prices cover variable costs and
some fixed costs, a company stays in business. Survival is a short run objective; in the long run,
a firm must learn how to add value or face extinction.
Many companies try to set prices that will maximize current profits. They estimate the
demand and costs associated with alternative prices and choose the price that produces maximum
current profit, cash flow, or Rate of return on investment. This strategy assumes that the firm has
knowledge of its demand and cost functions; in reality, these are difficult to estimate. In
emphasizing current performance, a company may sacrifice long run performance by ignoring
the effects of other marketing mix variables, competitors reactions, and legal restraints on price.

Some companies want to maximize their market share. They believe that a higher sales volume
will lead to lower cost and higher long run profit they set the lowest price assuming the market is
price sensitive.
It often happens that companies unwilling a new technology favor setting high prices
to skim the market. Sony is a frequent practitioner of market skimming pricing.

STEP 2: DETERMING DEMAND


Each price will lead to different level of demand and therefore have a differ impact on a
companys marketing objectives. The relation between alternative prices and the resulting current
demand is captured in demand curve. In the normal case, demand and price are inversely related;
the higher the price, the lower the demand. In this case of prestige goods the demand curve
sometimes slopes upward. Perfume Company raised its price and sold more perfumes rather than
less! Some customer takes the higher price to signify a better product. However if the price is too
high, the level of demand may fall.
On the other hand, the impact of internet has been to increase customers price sensitivity. In
buying a specific book online, for e.g. a customer can compare the price offered by over 2 dozen
online book stores by just taking mysimon.com. These prices can differ by as much as
20 percent. The internet increases the opportunity for price sensitive buyers to find and favor
lower-price sites. At the same time, many buyers are not that price sensitive. McKinsey
conducted a study and found that
89 percent of internet customers visit only 1 book site, 84 percent visited only 1 toy site, and 81
percent visited only 1 music site, which indicates that there is a less price comparison shopping
taking place on the internet that is possible.
Companies need to understand the price sensitivity of their customers and prospects and
their trade-offs peoples are willing to make between price and products characteristics.

STEP 3: ESTIMATING COSTS


Demand sets a ceiling of a price on the price the company can charge for its product.
Costs set the floor. The company wants to charge a price that covers its cost of production,
distributing, and selling the product, including a fair return for its efforts and risks

5.6 Reaction to Price Change

Any price change can provoke a response from customers, competitors, distributors, suppliers
and even government.
CUSTOMER REACTION:
Customer often question the motivation behind price changes, a price cut can be
interpreted in different ways : The item is about to be replaced by a new model ; the item is
faulty and is not selling well ; the firm is in financial trouble ; the price will come down even
further ; the quality has been reduced. The price increase, which could normally deter sales, may
carry some positive meaning to customers: the item is hot and represents and usually good
values.
COMPETITORS REACTION:
Competitors are most likely to react with the number of firms are few, the product is
homo-genius and buyers are highly informed.

5.7 Optimal Pricing Rule


What price to set?
Samsung currently enjoys downward sloping demand curve .profit maximization implies Q*
such that MR =MC
The corresponding P* is the optimal price. Recall the basic relationship between price, MR, and
demand elasticity.
MR = P* ( 1+ 1/Ed )
At profit max, MC =P* (1+ 1/ Ed)
We know, TR= PQ
MR= dTR/DQ =d/dQ( P * Q) = P dQ/ dQ + Q dP/ dQ =P + Q dP / dQ
MR = P + P 1/Ed = P ( 1+ 1/Ed)
This says that optimal price of a product depends on its MC and its price elasticity of demand.
Evaluation:
Higher is MC , higher is optimal price
Higher is Ed , lower is optimal price
Suppose the market for Samsung is Q (P) 1000 - 50P. Samsung can be produced at a constant
average and marginal cost of $10 per unit.

Calculate the market output and price under perfect competition:


First find the inverse demand function by solving the demand equation for P as a function
of Q:
Q 1, 000 - 50P
50P 1, 000 Q
P 20 Q/50
Then set this equal to marginal cost to find the competitive solution. This will give
P 20 - Q /50 10 MC
Q/50 = 10
Q =5000
P = 20 Q/50 = 20 5000/50=10
Notice that, in this case, we cannot determine the number of firms, but only the
aggregate market output.

5.8 To Build up Forecast


Analysis of the data for any research is very important. We collected the data through primary
sources. Then we input the data into SPSS and analyzed the data according to our hypothesis.
We are trying to understand the profit maximization and long-term value and perception
regarding Samsung on the basis of the data obtained. So result may deviate from there alone.
To analysis the data we have used SPSS software and applied frequency test and factor analysis.
We have tried to test our hypothesis with the result obtained. We have tried to coefficient of
factors affecting the purchasing behavior of Bangladeshi consumers.

5.9 Research Methodology

Data collection

Preparing a questionnaire of two different mobile companies using different variables

Where people had to rate it on the scale of 1 to 5

Data was collected from the people who had used both the companies phone.

The sample size taken into consideration was 50

Sampling Techniques:
we have putted the questionnaire in the internet and selected interviews randomly in the
sheet.
Questionnaire of Samsung &IPhone
Name:
Age:
Occupation:
Current mobile you are using:
Sr
No.

Questions

How would you rate your brand


according to your preference?

Appearance/design

Camera & picture quality

Sound quality

Battery life

6
7

User Friendly (including touch &


feel)
Built quality

Value for Money

Headphones and other accessories

10

After sales service

Samsung

I phone

Rate all the 2 brands from 1-5 for the 10 questions stated below:
1-Poor
2-Average
3-Good
4-Very Good
5-Excellent

Data Analysis

Arithmetic Mean: Arithmetic mean is commonly referred to as "average" or simply as


FX
N

"mean".MEAN

1. How would you rate your brand according to your preference?


Particulars

Samsung

I-phone

13

18

20

17

12

Particulars

Samsung

I-phone

MEAN

3.78

3.16

The Mean rating Samsung is higher.


Median: The middle number in a sorted list of numbers. The median can be used to determine
an approximate average.
Median =

N +1
th observation
2

2. Appearance/design
Particulars

Samsung

I-phone

10

15

17

18

18

14

Particulars

Samsung

I-phone

Median

14

10

The Median of Appearances/ Design of Samsung is high.


Mode: The result with the highest occurrences is the mode of the set.
3. Camera & Picture Quality
Particulars

Samsung

I-phone

17

16

15

25

13

13

Particulars

Samsung

I-phone

Mode

17

25

Camera/ Picture quality of IPhone is higher than Samsung.


Standard Deviation: A measure of the dispersion of a set of data from its mean. The more
spread apart the data, the higher the deviation. Standard deviation is calculated as the square root
of variance.

4. Sound Quality
Particulars

Samsung

I-phone

17

21

19

24

Particulars

Samsung

I-phone

Standard Deviation

1.01

1.04

The Standard deviation of IPhone is higher which means that the Sound Quality is less/
Bad.

Coefficient of Variation: Coefficient of Variation: The standard deviation of data divided by its
mean. It is usually expressed in percent.

Coefficient of Variation=
Variables

100
x

Samsung

I-phone

1.01
100
3.54

Sound Quality

1.04
100
4 .22

= 28.53%

= 24.64%

Skewness:Is a measure of the probability distribution of a real valued random variable. The
skewness value can be positive or negative or even undefined.
SKEWNESS=

(Mean-Mode)

Standard deviation
5. Battery life

Particulars

Samsung

I-phone

12

14

17

17

15

12

PARTICULARS

SAMSUNG

IPhone

MEAN

3.78

3.16

MODE

17

25

S.D

1.01

1.04

SKEWNESS

-13.089

-21

Range: Range is the difference between largest value and the smallest value.
RANGE= L - S
L+S

6. User friendly (touch & feel)

Particulars

Samsung

I-phone

11

21

26

18

10

Particulars

Samsung

I-phone

Range

0.9259

0.8261

The Range of User Friendly of Samsung is high.

Result: After sampling 50 people for our survey we conclude that SAMSUNG is a more
preferred brand over Iphone.

5.10To accommodate changes and promote


progress
The technology that is utilized by the company in its production operations makes a very
significant impact on the productivity of the company that is to say on the proportion of inputs
and outputs and the efficiency with which the inputs are utilized. This will be crucial in deciding
what the production capacity of the company will be as well as how the costs of production will
develop. Or else, productivity represents the value of output produced per unit of input
(productive resources) used. An increase in productivity means increase producing goods or

service without modifying the amount of resources, or producing the same goods or services
with fewer resources. As s result the productivity affects production cost per unit and capacity
level. A lower production cost per unit or increase in the capacity level would encourage the
manufacturer to boost supply on the market. In contrast, a high production cost per unit or a low
capacity level would reduce the supply. Samsung is not only selling and marketing monitors
mobile phones, but it also is producing them. It denotes that the level of technology would
influence Samsung quality and quantity of mobile phones provided.
From the beginning of 2012 AMOLED is used for mobile phones. Manufacturers have
researched and developed in-cell touch panels, compounding the production of capacitive sensor
arrays in the AMOLED module fabrication process. In case of in-cell sensor AMOLED
fabricators are AU Optronics and Samsung. Samsung has produced their version of this
technology as Super AMOLED. All of these technological advances in Samsung reflect on the
products that Samsung sells. If Samsung is able to respond faster to any change in price or
demand Samsung would be able to supply their products faster in the market.
Moreover, Samsung is a mix of different companies each of which focuses in different
areas then uses all these experiences and R and D researches to manufacture different products.
On top of that, Samsung uses a very modern information system resembling the just on time
system. Samsung, first of all, decides on how many mobile phones the company should supply in
the market. Samsung sends this information to the Samsung which in return decides on what
parts it needs and orders them from its suppliers. These parts could include the parts required to
produce the panels or circuits or any major components needed in making the final product. This
system helps to decide on the timing these items should be sent since the location of the factory
is very close to many other competitor factories and suppliers. In the case of shortage, some of
its production could always be outsourced.

6.1 Recommendations
Samsung: To compare with Apple, Samsung should be focus on increasing its value proposition
in the smart phone market. Samsung could be develop new products having stylish and modern
design, in order to attract buyers who except stylish, trendy and fashionable smart phones. On the
other hand, Samsung should be keep on producing the existing models of smart phones which
are relatively less costly to tap the Middle class and Lower Upper Class of population.

As a result, the market share of Samsung would increase and has more strength in the
competition with Apple.

Apple: from the results of questionnaire, Apple users are trendy and some of them are short-term
users. In order to keep those customers, Apple should produce new products to avoid losing
them. As a result Apple could increase its market share, even attract the users.

6.2 Conclusion
Samsung has a unique history as it was presented throughout our analysis in the paper. In a short
period of time, it managed to enter successfully the market and surpass its huge and competitive
rivals in many markets, especially that of United States and Japan. This success is also shown in
the field of technology requiring the company not only to adapt acquired technologies but also to

innovate and create its own. Samsung is nowadays considered as a company which should be observed as
its developing history makes it so. To observe the successes and flaws of a company that
progressed from a simple television production to state-of-the-art semiconductors, provides
important benchmarks and recommendations for the study of new-entrants and also steps to
follow in the path of success.
As we are witnessing the ongoing global economic crisis and the sluggish recovery, it may
be prudent for Samsung to go back to the basics to search for the right strategy for both, the
entrance on the new undeveloped markets and to survive the crisis and overcome conflicts.
Recently, the company had faced several conflicts and scandals and therefore today more than
ever, it should be very careful in every step undertaken in order to maintain its current position
and keep its customers. It may be time for the new management to re-invent Samsung and what
better time to do this than now with a paradigm shifts and trends that are happening in the
business and economic worlds

7.0 References
About Samsung-History. Samsung
.Samsung, n.d. Web. 2012
June2012.<http://www.samsung.com/us/aboutsamsung/corporateprofile/history.html>."Business
Area."
Different%20industry%20structures%20and%20CR4.pdf>."Law of Diminishing Marginal
Returns."
Economicae

.Economics Interactive, 2008.Web. 20 June 2012.


Samsung
.Samsung, n.d. Web. 22 June
2012.<http://www.samsung.com/us/aboutsamsung/ourbusinesses/businessarea/pop_NotePC.html
>."Porter's Five Forces."
2012.<http://www.mindtools.com/pages/article/newTMC_08.htm>."Samsung Authorized
Resellers."
Samsung.N.p., n.d. Web. 20 June
2012.<http://www.samsung.com/us/peaceofmind/authorized_resellers.html>."Samsung Profie About Samsung."
Samsung
.Samsung, 2011.Web. 20 June
2012.<http://www.samsung.com/us/aboutsamsung/corporateprofile/ourperformance/samsungpro
file.html>."Samsung Ranks #1 for Preliminary Worldwide Mobile Phone Market Share for
Q1'08."
Market Share for Samsung Glaxy S2 Mobile Phone.Samsung, n.d. Web. 22 June
2012.<http://www.samsung.com/us/aboutsamsung/ourbusinesses/businessarea/pop_SGH_A867_
Eternity.html>.TL 320Digital image.Samsung