Marketing Management Process

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Sunday, December 23, 2012
Samsung Marketing Strategy
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Section One
The Role of Marketing in Developing Successful Business Strategies

C HAPTER O NE
The Marketing Management Process
Samsung—Building a Global Brand 1

SAMSUNG ELECTRONICS is the largest component of South Korea’s largest chaebol —one of the giant family-controlled conglomerates that have been instrumental in building the country’s economy over the past half century. Samsung’s electronics unit started out in 1970 making cheap 12-inch television sets under the Sanyo label. Over time it morphedinto a technically innovative company, capturing the number one position in the global memory chip market and pioneering the development of flat-screen displays ,plasma TVs, multifunction cellphones, and other digital devices. But until the mid-1990s, Samsung Electronics competed primarily by ( a ) producing technical components or low-cost manufactured products for firms with better-known brands, like Dell,Hewlett-Packard, and General Electric; and ( b ) selling me-too consumer products—like TVs and microwave ovens—under the Samsung brand through discount chains like Wal-Mart at very low prices.

Samsung Electronics’ cost-driven competitive strategy worked well until 1996, but then several shocks in its market and competitive environments forced a major reevaluation. First, the global memory chip market went into a tailspin due to slackening demand and excess capacity. At about the same time, sales and profits of Samsung’s branded products were also softening. As Yun Jong-yong—a company veteran who was brought in as CEO of the electronics unit in 1996—complained, Samsung could build a TV that was technically just as good as one made by Sony, but because of the low-price, down-market image of the Samsung brand its sets sat at the back of the store or piled up in discount chains. Finally, the Asian financial crisis in 1997 made a major strategic shift essential for survival. The company was losing 170 billion won per month, and Mr. Yun admits, “Our capital was almost completely eroded.” Kun-Hee Lee,the chairman of the Samsung Group and son of its founder, exhorted Mr. Yun to, “Change everything except your spouse and children.”

New Competitive and Marketing Strategies

Mr. Yun’s decided on an ambitious new competitive strategy aimed at developing and marketing technically superior products while building an image of Samsung as a stylish, high-quality brand commanding a premium price. The objective was to establish a unique competitive position using technical innovation and design to appeal to younger and relatively up-scale customer segments around the world. “If we were to continue competing only on price,” admitted one executive, “the Chinese would slaughter us.” Technical Innovation and R&D Obviously, one crucial element necessary for successful implementation of the new strategy was innovative product development. Mr. Yun decided that Samsung had to control its own technical destiny, not just copy others. Dissecting the emerging products of the new Digital Age, a group of company managers identified core technologies common to them all: semiconductors, large-area LCDs, display drivers and chip sets, and mobile telephony. By focusing mainly on these digital technologies, Mr. Yun believed, the firm could gain an advantage over its competitors. While Sony and other rivals had a huge head start in consumer electronics, that lead was rooted in the analog world. The digital world required new skills and innovations. Consequently, Samsung began shifting substantial resources into technical research and development. As of this writing, no other tech company in the world spends a higher percentage of revenue on R&D: about 8.5 percent—amounting to over $6 billion—in the 2006 fiscal year. Twenty-six percent of the company’s entire workforce—some 36,000 people—are engaged in research and development activities in 42 research...
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