The smartphones industry, which has phone makers like Apple, HTC, LG, Samsung, and Lenovo, falls under the Electronic Computer Manufacturing section of the NAICS, with code 33-4111. The industry takes a similar category name and category number 3571 in the SIC classification.
Market size
By 2020, the smartphones market will have reached USD 608.4 billion. Currently, the market is dominated by the Asia-Pacific region, which commands 40.7 of the total share. Europe, which comes second, has a 32.2 percent market share. Shipments for the year 2014 third quarter were 327 million units (Elise par. 1-3).
Scope of rivalry
Competition is very high for all market segments, with companies launching marketing campaigns and new products frequently throughout the year. The number of rivals is more than 50. Apple sold 74.8 million phones or 20.2 market share, while Samsung sold 73 million (19.9 percent market share) phones, and Lenovo took a 6.6 market share in 2014 (Chowdhry par. 2-3).
Growth rate and industry stage
Shipments have been growing yearly. The third quarter of 2013 had 261.7 million units shipped. Emerging markets globally have a growth rate of more than 30 percent (IDC par. 4-5). The phone industry is on a mature stage.
Global smartphone shipments 2007 -2014. Source: statista.com.
Forward/backward integration
Manufacturers conduct trade among themselves for phone components and provide standardized accessories that work with both newer and older models in most cases.
Channels of distribution
Distribution happens online, in traditional retail channels, and through carriers or company stores.
Process and technology change
Feature phones were dominating the phone industry A few years ago, but now even emerging markets have a high prevalence of smartphones. Premium models now have metallic full body designs and fingerprint readers; technology and manufacturing process change fast.
Product differentiation
Smartphones are different in their make and operating systems, but overall they perform the same functions. It is the consumer tastes and preferences that determine the popularity of a given make. However, the main differences are that Apple phones run on the iOS, Blackberry phones run on the Blackberry OS, Microsoft phones run on the Windows OS, while many others, including Samsung, LG, and HTC, run on Android OS. Smartphones also have different specifications, such as metallic bodies, removable or non-removable covers, and different wireless connectivity capabilities.
Economies of scale in purchasing, distribution, advertising
Large manufacturers like Samsung, Microsoft, and Apple have considerable global distribution capacities that allow them to launch different smartphone makes in various markets simultaneously. They also have enough marketing resources to sensitize consumers in the different markets to buy their products. Smaller players concentrate on particular markets. For example, many Chinese phone manufacturers only serve the Chinese market, while other low-cost manufacturers strictly cover Africa. Large capital outlay and wide-scale manufacturing capabilities allow manufacturers to make deals with carriers on exclusive distribution rights and advertising to improve their sales (Woyke 200-241).
Learning curve
New entrants do not face a steep learning curve, as most markets and products are similar. The only challenge is to upset the distribution and marketing networks of the incumbents.
Rates of capacity utilization and importance
Given that phone manufacturing is a capital-intensive industry, a high level of capacity utilization ensures high production and potential higher returns to offset manufacturing costs. However, many smaller players completely shift their manufacturing costs to third parties and rely on online networks for distribution to reduce overhead costs.
Profitability
The two biggest players, Apple and Samsung, have dominated the profitability of the industry, with the former taking almost 93 percent of all profits in 2014 (Elise par. 4).
Segments
Segments within the phone industry exist; the main ones are high-end, mid-range, and low-end segments. The high-end segment attracts a majority of the companies in the industry. Moreover, the phone models in this category have the latest innovations in technology and design. The models sell at premium prices. The mid-range segment includes more manufacturers, with many serving specific markets like Asia, Latin America, Europe, or Africa.
However, the main manufacturers, HTC, Samsung, Huawei, and others, serve the entire global market. The low-end market includes phones that are selling at low prices and only have the basic features. The phones also rely on cheap and generic materials and designs. Profit margins are small in the low-end segment and very high in the high-end segment.
Works Cited
Chowdhry, Amit. “Apple Surpassed Samsung as Global Phone Market Leader, Says Report.” 2015, Forbes. Web.
IDC. Worldwide Smartphone Shipments Increase 25.2% in the Third Quarter with Heightened Competition and Growth Beyond Samsung and Apple, Says IDC. 2014. Web.
Woyke, Elizabeth. The Smartphone: Anatomy of an Industry. New York: New Press, 2014. Print.
The world of globalisation and industrialisation is growing at a great pace, which has sent businesspersons, merchants, and entrepreneurs into a competitive arena, thus forcing them to find alternative methods to boost their businesses. For instance, introducing a variety of products to meet consumer needs and demands as well as increasing their competence in the market structure. As new products emerge into the market, it is a common knowledge that none of them has a ready market place (Moyes & Lawrence 2003). The most common strategy utilised by manufactures and entrepreneurs is sales and marketing approach, which involves several activities that intend to provide consumers with relevant information regarding their new products. This study seeks to provide a detailed product feasibility report for new android Smartphone in the Chinese market.
Synopsis of product feasibility
Currently, within the business paradigm, product feasibility has become a necessary aspect to enhance business competitiveness and market dominance. According to Abou-Moghli and Abdallah (2007), product feasibility is one of the essential business marketing elements in the market analysis process, which is deemed as a scientific tool of obtaining relevant information pertinent to the provision of realities of the targeted market. Generally, product feasibility study refers to analysis and evaluation of the potency of the intended business project in terms of provision of services or product targeted at giving decision makers confidence over the execution of a business idea. Bateman (2004) affirms, “As a preliminary evaluation of a business idea, a feasibility analysis is completed to determine if an idea is worth pursuing and to screen ideas before spending resources on them” (p.72). Product or market feasibility normally provides an opportunity for recognition of prospects affiliated with the introduction of the new product or service before a company produces an everlasting business plan regarding the new business idea.
For any business to become successful, market and product feasibility studies have become essential for small, medium, and commercial business enterprises. Research denotes that economic feasibility analysis must reflect on a preliminary evaluation of a business proposal to distinguish if it is worth pursuing. When decision makers deem a business idea unworkable, it is necessary to drop it or rethink it in a bid to avoid engaging in null businesses investment (Reilly & Millikin 1996). Once a business idea has proven feasible, decision makers are capable of developing a business plan and further launch the business venture. According to Bateman (2004), a positive market or product feasibility analysis gives an entrepreneur the needed morale to the gateway of pursuing the business idea.
Description of the new product
Growth in global technology has enhanced competition among accessory related companies, with effectiveness, efficacy, and reliability being among the considerable factors that consumers’ interests lie. The proposed new business product is an integrated Smartphone with completely different and upgraded features, which are meant to consume the entire Chinese Smartphone industry. The new phone, which is currently under test, has several features that have proven significant to users by bearing a consideration of all views related to consumers of similar products. The new make manufactured by Tecno technologies in China is a technologically updated phone, which is suitable for the young generation due to its vast number of features that make it unique. Tecno N7 Smartphone is a pocket friendly phone that is reliable with an extended battery life, an estimated talk time of about 9 hours, runs on android operating system, wide fast touch screen, high processing speed enhanced by dual processor of the latest version, mobile tracking system device incorporated, and perfect 4G Internet speed.
These features imply that Tecno N7 is not an ordinary Smartphone, but an extraordinary technological product. With the innovative design of this mobile phone, consumers are capable of enjoying all Internet related activities at the comfort of their stay, with long lasting battery life enabling effective and uninterrupted communication for several years. The increasing importance of fashion and style in mobile phone currently affiliates with the introduction of Smartphone including those with android operating system and the apple phones (Falaki et al. 2010).
Consumers have considered “Smartphone” as a trend of future wireless communication within the advanced technology for it bears traits similar to portable computers (laptops). One of the unique features associated with this Smartphone is battery power performance, which has been a challenge to several phones of this type, as well as the mobile tracking device. Hang et al. (2012) postulate that Smartphone manufacturers globally have managed to provide unique gadgets; regrettably, they have been unable to use their technology to provide proper battery power solution, thus making consumers lose confidence in their products.
The probable aim of introducing the mentioned new product in the market is to instil and restore confidence among Smartphone fanatics to continue using android-based Smartphone devices. Since the advent of Smartphone, mobile devices have turned into small personal computers and much has transpired with several studies building their interest in examining consumers’ perception on these products. According to a recent empirical study conducted by Hang et al. (2012) who collected usage data of 4,125 participants and 22,626 applications, “Communication is still the main use case for Smartphone closely followed by content-based services like Internet surfing and social media application” (p.1).
Both of these features and related applications have proven significant, though disadvantaged by their high power consumption ability, an aspect that most consumers find tiring and embarrassing. In a bid to restore faith and interest among consumers of Smartphone regionally and globally, Tecno Mobile Phone Company decided to introduce a modernised Tecno N7 android Smartphone with greater power saving capability and a long life battery with intensified mobile security to users.
Description of the target market
One of the most important aspects in the product feasibility study is the market evaluation and analysis. As postulated before, it is necessary for the involved company or organisation to establish the target or proposed market where the product will serve. According to Moyes and Lawrence (2003), the basic aim for establishing the proposed market is to examine the potential clients considering the regional demographics including psychographics or life style and the entire consumers’ social status of the target market to determine the prevailing status of the market (developed or developing).
Other important objectives associated with identification of the target market include identifying competitive advantages of the intended product, identifying the potential competitors, as well as establishing marketing strategies needed to propel marketing activities of the product. All these reasons are among the major considerations that guided the feasibility study of the newly introduced Tecno N7 android Smartphone. Characterised with the perceptions held against previous android Smartphone mobiles, it was paramount to undertake market analysis.
Tecno N7 Smartphone mobile will primarily target the local market around China before hitting the global business sphere depending on the initial perception of the product from the background. China is one of the competitive market places for technological products renowned globally, with several of the products originating from this country proving competitive in the international market. However, the Chinese local market is a largely populated market composed of a large number of consumers of technologically based products, who in the recent past have complained of poor locally made products by some companies.
The market is rich of different types of technological products including phones and computer accessories among others. The rich technological local market has flared in the European world with a number of consumers hailing from different parts of Europe. The company chose this market since it involves young and potential consumers that are technologically updated and of great knowledge on Smartphone mobiles to investigate its competence through consumers perception.
Since the company intended to distribute the product through distribution channels, the market segment composing of different buyers was essential. Given the fact that the Chinese local market composed of the consumer market and business, market Tecno N7 series bears a great advantage of getting potential clients from these regional markets. Consumer market refers to a form of the market where most purchasers or customers are individual persons; on the other hand, business market describes an organisation or organisations capable of purchasing the product or service. Since the regional market in China comprises the two potential clients, the business is likely to avoid suffering huge loses since this aspect will facilitate getting a response from a variety of clients. The most closely related product seems to be the famous Smartphone mobiles including Huawei phones, Samsung phones, Sony Xperia phones, and Alcatel mobiles among others. However, the model and features of these phones differ distinctively with Tecno N7 possessing greater and unique features.
Market entry strategy
Given that the Chinese regional market is a very competitive market, a complex marketing strategy that will present Tecno N7 with an entry into the market is essential. Product initial entry into the market is always a crucial issue among managers of businesses, and thus poor entry strategy may affect the entire life of the product in the market (Novak 1996). After a comprehensive analysis and research of business failure associated with product feasibility in the preliminary stage, the management and marketing panel will ensure a critical observation of the aspects of such business letdowns.
During the product entry stage, which will determine the current, proceeding, and future life and existence of Tecno N7 Smartphone, the company is set to use several mechanisms. Tecno Mobile Phone Company will consider the challenges and potential barriers established during market analysis stage in the market area. One of the mechanisms includes customer relationship and satisfaction through intense customer care related services and trade fare agreements.
It is normally ideal for a business introducing a new product to meet all the local and international business protocols before introducing a new product to human market consumption. This aspect creates consumer confidence in the consumption of the business product. After analysing the cost of the related phone products in the Chinese local market, the company decision makers will estimate and discuss the entry price, which is probably a lower price relative to other competitive products.
Bateman (2004) asserts, “A crowded market, with lots of competitors, is typically characterised by fierce price competition and low operating margins” (p.81). As detailed in the market description before, similar characteristics exist in the Chinese local market. Normally, businesspersons consider lower market prices as the best competitive advantage. As crucial market entry elements of success, Tecno Mobile Phone Company will practice switching costs to the target market, observe customer loyalty, engage in agreements with customers, suppliers, strategic partners, and control the distribution channel through a proper promotional and marketing plan.
Company’s plan on generation and screening of ideas
The responsibility of ensuring critical decision making within most companies lies in the management sector where all managers ensure broad participation on decision making depending on the company’s structure. According to Wilson (2010), entrepreneurs are capable of greatly increasing their chances for success by analysing their business ideas, the management team, and the product market place. The initiative of generation and screening of ideas is further eminent in other studies where Reilly and Millikin (1996) state that it is necessary for businesspersons to evaluate whether their management teams “possess the characteristics that are most common to entrepreneurial success” (p.1). Decision-making in any company forms an integral part in executing business plan and determining the future prospects of businesses. However, before a company considers an idea as successful, there is a need for employing substantial efforts in analysing and screening it before spending resources on the same, and this decision may have negative repercussions in the future of the business.
In the initial stages of generating the business idea regarding Tecno N7 phone series, the company will request the entire management team to hold meetings to discuss new business ideas. According to informal knowledge acquired from the company workers, there is a group of 10 managers in this company from different departments, which the company depends on generation of business ideas. Inclusive of stakeholders and other managers in the company, discussion of the created idea before the top officials including the C.E.O and other shareholders validate the business idea depending on several issues. The validation of the business idea falls under the screening phase where the manager of Tecno Mobile Phone Company will engage in a serious sitting to screen the business idea in anticipation of launching the new venture. The management in this stage will consider several critical issues within the company. As postulated by Bateman (2004), important issues considered in screening of ideas may include “product/service feasibility, industry/market feasibility, organisational feasibility, and financial feasibility” (p. 77).
Positioning of the product in the market
There will be expected stiff competition in the market from famous old companies’ products including Smartphone mobiles from the major international companies including Samsung, Apple, and Sony Ericson among others. However, Tecno N7 series will be the second Smartphone produced by Tecno Mobile Phone Company, which is an upgrade from the initial phone that had received substantial global awareness from its unique features incorporated in the phone. The company expects that the product will receive great public limelight in the target market especially from the new features incorporated.
From as low as an estimated price of about $200, the price seems to be well positioned in the pricing strategy to lure consumers into its consumption. If the company executes business idea in an intellectual manner, the company will probably benefit greatly from improving the company’s reputation through the quality of the product as well as the general company’s financial image. The company expects the product to raise the annual profit to an estimated profit of about $7 million.
Consumer’s perception on the product
Based on a comprehensive research undertaken by the company’s marketing on a similar product released in the previous year, the clients and consumers of Tecno products globally are increasing gradually with the company’s reputation also growing. Novak (1996) asserts, “A statistically valid survey delivered to potential users or consumers will provide the most exact information possible about market demand” (p.19). Samples of the new product (Tecno N7 Smartphone) introduced in the Chinese local market through the business market revealed that the product is capable of attracting millions of users from the local and regional market. Reports documented by major business clients for Tecno Mobile Phone Company has shown considerable clientele morale in consuming the products even before its official launch. The possibilities of receiving greater numbers of consumers remain high for this product given the previous perception on an almost similar phone type, which is an indication that consumers are expecting the best from Tecno N7 phone series.
Estimated sales potential
As postulated before in this report, the company remains optimistic about the performance of Tecno N7 Smartphone mobile in the Chinese local market before getting to the international market. According to Reilly and Millikin (1996), a good product feasibility plan must include an estimation of the basic financial feasibility of the business, which is “inclusive of potential sales revenues, fixed and variable costs, and break-even figure” (p.4). However, the major aim of this report is to provide expected sales output (sales estimate). The company expects to obtain its estimated sales output of about $7 million annually. On a monthly basis, the initial sales estimate expected is $5000, with an expected growth of $750 each month. All reports documented on the company’s daily, weekly, monthly, and annually basis will continuously undergo validation by company’s sales experts. The table below presents the estimates of sales profit of each month for a period of 1 year.
Table 1: Annual estimated sales potential.
Duration
Estimated Sales
1stphase of three months
$5000
2ndphase of three months
($5000+$750)* 3= $17250
3rdphase of three months
($5000+$750)* 3= $17250
4thphase of three months
($5000+$750)* 3= $17250
Total
$6.9M
Recommendations on product engineering, testing, and launching
The product engineering process should admit and follow all protocols governing manufacturing of products including meeting the standards for consumer use as well as observing issues governing employee welfare (Hoagland & Williamson 2000). It is important for Tecno N7 manufacturing team to observe Corporate Social Responsibility (CSR) to keep a good relationship with its neighbouring including the entire community surrounding the company.
The product testing and justification will involve a stringent process of research and investigation from global technological experts from across the world to investigate the health safety of the product for human consumption (Hoffmann et al. 2003). After completion of all procedures including manufacturing and testing of the product, the product (Tecno N7 Smartphone) should undergo an official launching with the press and other potential organisations capable of increasing the promotional aspect of the product should attend. All stakeholders directly and indirectly affiliated with the company should receive an invitation to the official launch of Tecno N7 Smartphone.
Recommendations on product advertisement promotion and distribution
This report strongly recommends that product advertisement, promotion, and distribution are essential sales and marketing strategies and the company must seriously consider them especially in the preliminary stage of the product. According to Hoffmann et al. (2003), marketing of a newly introduced product is one of the globally renowned strategies for improving the market image of a product, increasing product awareness, and improving the company’s competitive advantage. The company should formulate a strong advertisement strategy that should target consumers through daily newspapers coupled with weekly beauty and business magazines to target young consumers and interested business tycoons, together with radio play stations and TV programmes to support the advertisement of the Smartphone. The company should formulate a strong promotional team composed of young and energetic youth full of potential and knowledge to convince consumers. For easy distribution, the company should consider all famous phone outlets in the Chinese local market to provide a quick entry into the market.
Conclusion
Conclusively, it is important for the producers and manufactures of new products to consider the regional and international competition before the introduction of a new product in the market. Product feasibility study is essential to provide all the basic information needed by investors to make a critical decision of investing in the production of the product (Wilson 2010). As commonly known, the main objective of setting up business is to generate more revenue in terms of profit, and thus it is essential for firms to consider both the market and product feasibility before venturing in a new business idea. According to Bateman (2004), comprehensive analysis and discussion of the newly introduced business idea is imperative to screen all the ideas raised before making a final investment decision. With all the importance points discussed in this report, managers should learn how to incorporate new business ideas through comprehensive feasibility research and investigations to identify which idea is worth undertaking.
Reference List
Abou-Moghli, A & Abdallah, G 2007, ‘Market Analysis and the Feasibility of Establishing Small Businesses’, European Scientific Journal, vol. 8 no. 9, pp. 94-113.
Bateman D, 2004, Feasibility analysis: Property solutions: The Value of Validating a Business Idea. Web.
Falaki, H, Mahajan, R, Kandula, S, Lymberopoulos, D, Govindan, R & Estrin, D 2010, Diversity in Smartphone Usage. Web.
The rapid expansion of technologies in the twenty-first century has increased the production of new gadgets, and smartphones came at the forefront of the range. The modern market is highly competitive in regards to winning the attention of customers to become interested in their products. The most notable players in the smartphone market include Samsung, Apple, Huawei, Xiaomi, Oppo, Vivo, and Motorola, with the first two companies being the most significant competitors for customers’ attention. Thus, the purpose of the current exploration is associated with the analysis of the smartphone market, with the emphasis placed on Samsung and Apple, which are considered significant rivals in the industry. The popularity of one or the other brands has been attributed to the release of the latest gadgets to the market. However, it is also essential to account for the significant contribution of Huawei to the market as the high affordability of the products as well as the continuous innovation represent a challenge to both Samsung and Apple.
Background: Literature Review
A smartphone is seen as an essential component of global society’s daily life as it represents a tool for business communication, keeping in touch with friends and families, as well as sharing information, and even making money through producing content. At the early stages of smartphone development, the products were innovative yet bulky and unattractive in design (Reid, 2018). Since the conception of the iPhone by Apple in 2007, the industry has changed significantly, with the brand becoming at the forefront of dictating global trends within the smartphone market.
The iPhone changed the industry in several important ways. First, the Internet became an essential part of everyday interactions, with voice communication declining over the years (see Figure 1). Second, photography became a part of everyday life while before the gadget’s invention, it was a hippy. In 2017, the total number of digital photographs taken amounted to 1.2 trillion as compared to 400 billion in 2011 (Molla, 2017) (see Figure 2). Third, the creation of the Apple App Store associated with the integration of games and applications into the smartphone change how software was developed and distributed (Molla, 2017). From motion-sensitive video games to maps or accounting applications, smartphones provide a broad range of programs that make life easier while also providing revenue to their developers (see Figure 3). Finally, the iPhone led to the subsequent creation of the Android ecosystem, which boosted the revenue of Apple’s key competitor – Samsung. Also, the new operating system meant that BlackBerry and Nokia would not survive for much longer if they fail to design a similar product.
Figure 1. Voice versus data traffic in monthly bytes (Molla, 2017).Figure 2. Digital photos were taken worldwide by a device (Molla, 2017).Figure 3. Global app revenue for iOS and Google Play (Molla, 2017).
Despite the vital role of the iPhone in expanding the profitability of the smartphone market, its influence continues to dwindle. China’s Huawei has been growing its sales over 2018-2019, challenging its global leaders, Samsung and Apple. For a while, the company has been near to reaching the position of the world’s second-largest smartphone seller. Huawei has taken over Apple for the first time in 2017 and continued switching from one place to another throughout 2018. When it comes to Apple’s performance, its shipments decreased from 52.2 million in the first quarter of 2018 to an estimated 36 to 43 million in the same quarter of 2019 (Savov, 2019). The company’s marginal product (MP) is directly associated with the costs of manufacturing. Apple usually hires workers to the point in which the marginal revenue product is equal to the wage rate. Notably, the company has recently stopped reporting iPhone sales in earnings reports, which complicates the current analysis. The performance of Samsung also decreased in shipments, from 78.2 million to 71.9 million in the same timeframe (Savov, 2019).
In addition, a range of other international brands that used to have leverage in the global phone market is also suffering from the impact of Huawei. The sales of Sony keep declining, with the company intending to decrease its staff working on the mobile business by half. In addition, LG reported to stop manufacturing phones in South Korea and transferring operations to Vietnam to cut costs. HTC, moreover, is only technically in the smartphone business, with its sales dwindling with each quarter.
Market Analysis
Apple’s Performance: SWOT
Apple Inc., which was incorporated in 1977, is a company that markets and manufactures mobile devices, personal computers, and other digital products. In the smartphone market, Apple plays a central role by dictating trends and being at the forefront of innovation. Due to the sales of the high-end iPhone X, Apple managed to garner more than 50% of the global smartphone market during the fourth quarter of 2017. The high sales were linked to the holiday shopping season, which allowed apple to capture 51% of the worldwide revenue for smartphone sales, which was more than the rest of the industry combined (Mawston, 2018). In the fourth quarter of 2016, Apple had a 48.5% market share. Samsung was in second place with 15.7% of the market share in the same period.
Strengths
As mentioned in the Strategy Analytics report on Apple’s performance, the company’s total revenue (TR) reached “US $61 billion in the quarter, helped by solid demand for its premium X model, and Apple now accounts for more revenue than the rest of the entire global smartphone industry combined” (as cited in Reisinger, 2019, para. 3). The average selling price of iPhones has approached around US$800, which is approximately three times higher compared to the average in the smartphone industry. The significant profits for the company have always been attributed to top-level technologies, proficient research, sustainability, and the iconic quality of Apple as a brand.
Weaknesses
However, in 2018, the company’s sales in the smartphone segment declined significantly along with the demand for them, despite the large supply. During the fourth quarter of 2018, Apple earned 15.8% of the market share during the period, which was down from 17.9% in the same period of 2016. This drop is considered the most significant decline of any large smartphone producer during the period (Reisinger, 2019). The dramatic decline in performance can be attributed to the changes in the smartphone market and consumer behaviors. In addition, upgrades in the iPhones brought to the market were not as substantial as expected, which led to customers keeping their old devices for longer (Mishra, 2019). Also, the economic weakness in some countries limited the expected sales of Apple devices, with users taking advantage of affordable batter changes instead of buying the latest gadget.
Opportunities
For the company, the main opportunities are linked to the expansion of services that are being offered to customers, which increases supply. For instance, Apple applications made phones smarter and more efficient in terms of the services that are being offered to users. Also, the advent of the iPhone transformed the advertising industry transformed significantly. Mobile marketing has become necessary due to the increasing time potential consumers spend on their phones and the need to attract their attention through advertising.
Threats
As China plays a vital role in Apple’s performance, it is also essential to note that the economic condition in the country can either boost or slow down the company’s growth. The trade dispute between the US and China could not be resolved amicably, which meant that consumers were reluctant to purchase expensive phones because of the geopolitical tensions (Ovide, 2019). It is possible that dwindling performance in the last year caught the company by surprise, with executives failing to forecast any potential red flags for the business.
Also, the continuous rise in iPhone prices makes customers think twice about whether they want to get a new gadget, which decreases demand on a long-term basis. In big smartphone markets, phone companies have for years been offering customers iPhones at artificially low prices. Coupled with this factor as well as less drastic changes to each model of the iPhone or other smartphones and the rising costs on new devices, has led users in the US to keep their smartphones for more than three years (on average) (Ovide, 2019). For example, iPhone X’s cost to make is $357 while it was initially sold for $999, making the marginal cost $642, which is a higher-than-average price among other smartphones sold by competitors. Moreover, Apple predominantly sells its phones to people who already have one of their previous iPhones. Thus, the sales of new iPhones depend on whether some customers will keep their gadgets for longer or decide to upgrade them (Ovide, 2019). Therefore, it is imperative to mention that the smartphone market has always been seen as having inelastic demand, which means that consumers were not sensitive toward price changes. However, with Apple’s strategy of continuous price increases, price elasticity may change in the other direction within a decade.
Samsung’s Performance: SWOT
Strengths
Throughout 2018, Samsung has been showing a boost in performance, beating Apple in the global market of smartphones. In the fourth quarter of 2018, the company’s TR was USD 70.2 billion. Among the 3.6 billion active smartphone users worldwide used in June 2018, Samsung was the most popular brand, reading 893 million active devices during that period and a market share of 27%, which is 3% more compared to Apple (Mourdoukoutas, 2018). Compared to Apple, the marginal cost of Samsung smartphones is lower even though they are also expensive to produce. For example, the Galaxy S8 costs $307 to manufacture while it is currently sold for $499.99 on the company’s website. The steady increase in the company’s profitability has been attributed to the wide selection of budget devices, which is an important criterion for markets such as India.
Weaknesses
Samsung has to work very hard to compete with Huawei as well as such Chinese entry-level brands Xiaomi, Oppo, and Vivo, which are gaining steady popularity in Asian markets, including India. In addition, the new trend of dual-brand strategies among Chinese phone manufacturers allows them to capture new and broad customer audiences, including younger clients who only start investing in the latest gadgets, and Samsung does not have such a strategy.
Opportunities
The reason for Samsung’s growth is rooted in Apple’s failure to attract a broad customer base as it has always been targeting the profitable high end of the smartphone market and introducing more expensive and sophisticated smartphones. For example, even the budget-friendly version of the iPhone XS, the iPhone XR started at $749, which is a price that only a premium market while some of the cheapest Samsung models start at $179 (Samsung, 2019). Therefore, while Apple managed to stay profitable through increasing prices on the latest devices, Samsung and other Chinese smartphone manufacturers increased demand by targeting the low-end of the market, mining the “fortune at the bottom of the pyramid” (Mourdoukoutas, 2018). The disposable income in the hands of customers at the bottom of the global income pyramid is counted in trillions, which represents a significant potential for expansion.
However, apart from targeting the lower spectrum of customers that cannot afford expensive smartphones, Samsung has also been dedicated to presenting premium gadgets to the market to compete with Apple in innovation. For example, the release of the Samsung Galaxy S10 5G markets the release of the first Samsung’s 5G smartphone in the market, which was developed through collaboration with network operators and software developers (Samsung, 2019). The starting price for the new phone was $1,299, which is comparable with the price for the Apple XS Max. The success of Samsung in 2019 has been mainly attributed to the release of the Galaxy S10 flagship line. Both the “Galaxy S10+ and S10e individually captured 6% of the entire smartphone market, selling 2 million units each” (“Samsung’s market share surges,” 2019, para, 3).
Threats
With the release of Apple’s iPhone 11 in September 2019, Samsung may have to give up the leading position in the market of smartphones. However, the current performance of Samsung shows that the global public wants to get not only technologically advanced devices but also those that will be affordable. Therefore, the threat of substitute goods offered by Huawei and other Chinese manufacturers is also potentially challenging for Samsung in the long run.
Huawei’s Performance: SWOT
Strengths
During the first quarter of 2019, Huawei reached the highest level of the global smartphone market share of 17% (Srivastava, 2019). The company’s TR for the fourth quarter of 2018 was $107 billion in 2018. Huawei managed to overtake Apple as the second-biggest smartphone brand in the same quarter as the volumes of sales increased by approximately 50% year-on-year. The MC for products is also lower than Apple’s; for example, its Mate 10 costs $290 to produce while it costs $710. Notably, the company became the second-largest brand in smartphone shipments without having any significant presence in the United States, which is highly important for modern technology manufacturers. By the end of 2019, Huawei is still expected to remain ahead of Apple as the company is keeping pace with the latest innovations without having to increase prices. Huawei was the first to introduce such features to the market as reverse wireless charging, onboard Artificial Intelligence, and advanced camera options.
Weaknesses
Despite the favorable position of Huawei on the market, it has struggled with a large number of controversies that influenced its reputation. The rivalry between the Chinese and American market has increased rumors about an espionage controversy, which weakened the image of Huawei in Western countries, which represent a significant market for sales. The company also has an unfavorable position in the US market despite representing the key competition to Samsung.
Opportunities
The dual-brand strategy, which involves the marketing of both Huawei and HONOR companies to build a closer connection to a profile of young consumers and gain an extra market share in China (Srivastava, 2019). In 2019, the company has reached a high level of innovation and now matches Samsung hardware. Following in both the latter’s and Apple’s footsteps, Huawei is also becoming increasingly vertically integrated. What is essential to note about Huawei’s performance is that despite the overall decline in the smartphone market, the company exhibited an increase from 11% to 17% in the share of smartphone shipments between the first quarters of 2018 and 2019 (see Figure 4).
Figure 4. Huawei increases its market share (Srivastava, 2019).
What is essential to understand about Huawei’s growth and the strengthening position in the Chinese market is that the company is coming up with new products regularly. Apple, however, is making updates to an already existing iPhone, which becomes less exciting for customers in the long run. The branding strategy that the company established in China has also been boosted by the trade conflict with the United States. Therefore, a Huawei smartphone is a device that shows direct opposition to the American market.
Threats
The company is expected to face many threats during its performance. With the brand’s prevalence increasing in the East, it becomes more and more complicated for Apple to maintain its relevance and expand in China, especially due to the pressure from such brands as Xiaomi. However, Huawei has to compete with both American and Chinese brands to stay relevant in the market. Regulatory pressures are also challenging, as the tension between the US and China grows in regards to the economic cooperation of the countries.
Summary and Conclusions
The current economic climate is not ideal for issuing new smartphones to the market, especially those with high price tags. At this time, Apple is experiencing a significant decline in unit sales as more and more people choose to hold on to their phones for longer. Huawei is the only player in the smartphone market that is growing steadily due to the combination of innovation and reasonable prices on their devices. Besides, the trade-related tension between the United States and China creates a favorable environment for Chinese companies to capture larger shares of their domestic markets due to the uncertainty associated with prices set by foreign companies.
Despite the vast opportunities of innovation, research, and development, as well as entertainment as applied to the smartphone industry, the prospects of such giants as Apple remain unclear. With the company updating the already existing flagship product, the attention of the public keeps dwindling while prices get higher. Samsung holds a strong position in the current smartphone market leader due to the company’s dedication to offering a wide range of both high-end and affordable devices so that every customer can make his or her choice.
It is also troubling for both Samsung and Apple is that Huawei is planning to release its operating system to compete with Android and iOS. When the company manages to do so, it will change the entire smartphone market, with Apple having to deal with the most considerable consequences in the sector of Asia. Also, following Samsung’s footsteps, Huawei is working on the release of foldable display phones paired with 5G technology, thus capturing a new segment of customers. Overall, the growth opportunities are vast for Huawei, which is why both Samsung and Apple should work harder to maintain their positions in the global smartphone market.
