Marketing SPOTLIGHT SAMSUNG "Huh?" That would have been the reaction of most consumers when asked about Korean electronics giant Samsung (meaning "three stars") a decade ago. Indeed, the situation was so bad that Samsung chairman Kun-Hee Lee had ordered all the cell phones in its factory to be smashed after he found out that those he had given to some employees and friends were defective. The mid-1990s marked the turning point for Samsung. The company identified and embarked on three main areas it believed would help it to become a global leader: technology, design, and branding. Samsung invested heavily in R&D in digital technology. Today, it employs 2,400 scientists with PhDs and 25,000 other junior researchers in 15 labs worldwide. It makes the world's biggest LCD display (82-inch) and plasma HDTV (102-inch). Recent cell phone innovations include a model that uses voice- recognition technology to convert speech into text messages; and another that automatically scans business cards and inserts the details in the user's address book. In all, R&D accounted for $2.9 billion in 2003, or about 8 percent of Samsung's revenue. Memory chips had been Samsung's first big win, and, along with LCD screens, allows Samsung to control two of the three pillars of the digital age (Intel leads in microprocessors, the third pillar). Samsung created the world's first one-megabit chip, and by 1994, it was making the first chip that held 256 megabits. Samsung is now the world's largest producer of DRAM and SRAM chips. Samsung supplies the world's biggest tech names with these parts, and also embeds them in its own products. The chip and LCD divisions sell to other Samsung businesses and outsiders for the same price, with no favoritism. This assures Apple, HP, and other clients that they are treated fairly-and knowledge of their buying patterns offers valuable intelligence to Samsung.In 2005, Apple announced that the iPod Nano would use flash chips rather than a hard-disk drive. Samsung is contracted to supply most of the chips. The Nano is just one of many digital devices that may switch to NAND memory. Samsung intends to invest around $33 billion on new chipmaking facilities. "Pre-emptive investment is critical to success in the semiconductor industry," says Lee. Samsung is also the world's largest producer of thin- film LCD screens and computer monitors. Samsung VP Seung Soo Park says, "Our mission is to consumerize digital technology, and that means finding economies of scale. "Employees working on diverse products devise common manufacturing techniques and parts. In 2002, Samsung introduced 30,000 products, up from 18,000 in 2000, with the same number of parts (67,000), enabling huge cost savings. Samsung encourages competition between its product divisions, leading to some novel innovations. A recent contest between the digital-camera team and the camcorder unit yielded the DuoCam, a product that combined both. From a company that started selling just TV sets in the 1970s, Samsung is now the world leader in eight product categories, and is the second largest maker of cell phones. Samsung entry's into the cell phone market was precipitated by the Asian financial crisis and plunging chip prices in 1997.Says Kitae Lee, its global cell phone chief, "We didn't have many products we could use to build our brand except, maybe, cell phones. "To thrive in the cell phone business and command higher prices, Samsung poured profits from the chip and LCD businesses into innovation that would enable it to jump far ahead of current technology, and into marketing. The cell phone has contributed significantly to build Samsung's new image. "We saw the cell phone was changing from a utility item to a fashion statement," says Eric Kim, former Samsung marketing head. "People used to say, "Why would anyone want to take a photo with a phone?" Now Samsung has a 12 percent share of the camera-phone market, just a point behind leader Nokia. In 2004, Samsung launched the first clamshell handsets that worked with both the CDMA and GSM systems used in different parts of the world. Better design clearly played a role. As Samsung's CEO, Jong- Yong Yun, said, "Good design is the most important way to differentiate ourselves from our competitors. To keep its product designs at the leading edge, Samsung designers can now go straight to top managers with ideas for new products and designers now tell engineers the features they want. Samsung is shedding its traditional Confucian-based, hierachical structure, encouraging younger designers to challenge their superiors when they think something needs changing. Samsung designers are sent to work at furniture, fashion, and industrial design houses to keep abreast of the latest trends. Since 2000, Samsung has opened or expanded design centers in San Francisco, Los Angeles, London, Tokyo, Seoul, and Shanghai.lt studies everything on how consumers actually use products, from the packaging to owners' manuals to ring tones. As a result, Samsung's designs have won numerous awards worldwide. Brand building is Samsung's final strategic pillar. A decade ago, it was mostly seen as a producer of cheap TVs and microwave ovens. While its TVs were technically as good as Sony's, Samsung's sets would sit at the back of retail stores or be found in discount stores. Jan Lindeman, Interbrand's global brand valuation director, said, "In 1997, Samsung products were appreciated as good in pricing and quality but short in brand differentiation. The strategy is not sustainable as you have to be a low-cost producer forever. To achieve brand repositioning, Samsung embraced changes in all aspects including product design and distribution. It pulled out all its handsets from discount stores like Wal-Mart. More importantly, its senior management was committed at an early stage to make its brand play a key part of its competitive advantage and made brand development a corporate performance target." In 1999, Samsung appointed Eric Kim to head its global marketing office. Kim succeeded in unifying fragmented sales channels that were using more than 50 different advertising agencies. He also exploited Samsung's prowess in technology, launching consistent and more daring advertising campaigns. Samsung also used product placements to good effect. Many of its futuristic gadgets appeared in the cult movie "Matrix Reloaded." Samsung was also a principal sponsor of the 2004 Olympic games in Athens. This has paid off with a huge leap in brand awareness. Kim more than doubled Samsung's marketing budget to about $3 billion annually. And it is still looking for areas of improvement. "Samsung isn't satisfied with where it is in the U.S.," says Brendan Ryan, head of its incumbent ad agency, Foote Cone & Belding Planning is under way to encourage consumers to turn to the Samsung brand before they think about what product to buy, rather than being led to the brand by an interesting device.Says Lindemann,"(Samsung) is not yet a brand that can live without the product. To get that iconic status, Samsung has to be perceived to be even more "cool" than it is today. Samsung's initiatives have led to revenues of $71.6 billion and profits of $9 billion. It is the fastest rising among the world's top 100 brands, according to Interbrand. In 2005, Samsung ranked 20th, up from 34th three years ago. In the process, it surpassed Sony, which slipped to 28th position, to become the king of consumer electronics. Discussion Questions 1. What have been the key success factors for Samsung? 2. Where is Samsung vulnerable? What should they watch out for? 3. What recommendations would you make to their senior marketing executives going forward? What should they be sure to do with their marketing? Sources: Mae Lynn Tan, "Samsung Having the Last Laugh," The New Paper (Singapore) (October 7, 2005):6; "As Good as It Gets?" The Economist (January 15, 2005): 60-62; Heidi Brown and Justin Doebele, "Samsung's Next Act," Forbes (July 26, 2004): 18-22; Cliff Edwards, "The Lessons for Sony at Samsung," Business Week (October 10, 2005): 35-36; "Being Asian: A Competitive Branding Advantage, The Singapore Marketer (April-June, 2005): 24-25; Rana Foroohar and B.J. Lee, "Digital Masters," Newsweek (October 11, 2004): 31-33; David Rocks and Moon Ihlwan, "Samsung Design, Business Week (November 29, 2004):44-49; Moon Ihlwan and lan Rowley, "March of the Flash Chips, Business Week (October 17, 2005): 24.