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Amit Ranjan Rai
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August 10, 2005

Samsung's back. Sort of. Early on this year, Samsung India was hit by a spate of high-level resignations, followed by a major restructuring in its marketing division.

The Cassandras in the media and industry were quick with their predictions of doom: the consumer electronics company's operations have been hit, Samsung is losing focus. . .

Just a few months later, Samsung India looks rejuvenated, well over its internal turmoil. Officials at the Indian operations constantly quote their global CEO Yun Yong's vision: "We want to be the Mercedes of home electronics."

And like the Mercedes, the drivers this time at Samsung -- in fact, the company has put these well above the traditional 4 Ps of marketing -- are design and innovation.

"Good designs and innovative technology will be the most important differentiator for Samsung from competition," says Ravinder Zutshi, deputy managing director, Samsung India.

Currently, the company's busy rolling out the latest cutting-edge products its Korean parent has to offer. Already this year, Samsung has introduced close to 125 new products -- from flat panel, LCD and plasma TVs [Get Quote], home theatre systems, digital cameras and camcorders, MP3 players, notebook computers and mobile phones, to top-end refrigerators, washing machines and air-conditioners.

While some have won the world's most coveted design and innovation awards, many others have been appreciated in the US and European markets for their features.

Not surprisingly, Zutshi's target customer for these products won't be found in the price-sensitive mass market. Adopting the lifestyle product platform, he's aiming for the high-end premium market.

Riding this new wave, Samsung India is aiming for a Rs 6,500-crore (Rs 65 billion) turnover this year, compared to last year's Rs 4,900 crore (Rs 49 billion). Will the strategy work?

The designer cut

First, is Samsung doing enough to drive its design- and innovation-led growth? The design and innovation focus isn't new at Samsung globally; in fact, it's over a decade since Chairman Lee Kun Hee, struck by Sony's dominance in the US, asked Samsung executives to reinvent the company through design.

But the thrust this time, says Samsung India officials, is like never before. In just over two years, globally, the design staff has increased from about 100 to 470, and since 2000, the company's design budget has been increasing 20 to 30 per cent every year.

To tap design trends across the world, the company today runs six design centres -- in London, Rome, Los Angeles, San Francisco, Shanghai and Seoul.

Samsung does not have a design centre in India and no products are actually designed here, but the company's local R&D unit sends regular inputs to the global design and R&D centres. Most of these relate to modifying and customising products according to Indian needs.

For instance, based on research provided by Samsung India, washing machines for the Indian market now include a "sari wash" course; similarly, TVs now come with higher sound output, given the Indian preference for loud sound quality.

While the India office has a limited role to play in consumer electronics design, it leads from the front when it comes to software.

Samsung India's two software development centres, in Noida and Bangalore, are building solutions for virtually all products that use software: from the latest LCD and plasma TVs, mobile phones (the current focus is on 4G, WCDMA and multimedia), digital cameras to printers and IT products.

In fact, the Bangalore centre has filed over 145 patents based on its software development work.

Besides, about 30 Indian engineers work closely with their Korean counterparts at the Samsung headquarters in Seoul, particularly on customising phones and developing software for Indian needs (regional language menus, for instance).

The effort at the global design centres hasn't gone unnoticed. Last year, Samsung won five Industrial Design Excellence Award (IDEA) -- making it the first Asian company to win more awards than any European or American rival.

Since 2000, it has won 33 top design contests and earned about 100 citations at top design contests in the US, Europe and Asia.

Thanks to the design and innovation drive, Samsung's brand value has risen dramatically in western markets, particularly in the US, in the past couple of years.

The recent fifth annual BusinessWeek / Interbrand ranking of the 100 most valuable global brands named Samsung as the fastest growing global brand over the past five years with a 186 per cent surge in brand value. This year, at the 20th position, Samsung was the leading consumer electronics brand, above Sony at 28 and LG at 97.

The attention to product design is winning the company approval even in India. Says National Institute of Design Executive Director Darlie Koshy, "The work done at Samsung is rather unique because of the multidisciplinary approach it follows -- the focus is not just on the look and feel of the products, but also to observe their performance in an experiential space, and then identifying the areas where they can be enhanced."

Designs on the Indian market
Samsung in India is hoping to build upon this value and repeat its increasing success in global markets in the country. Will it be able to do so in an extremely price-sensitive market, particularly when it is targeting its growth mainly from the premium market and not the mass market?

Says Harminder Sahni, principal at retail consultancy KSA Technopak, "In a developing consumer products market like India, no company can choose to focus only on one end. There are huge numbers of consumers across segments and they are jumping over the fence all the time. Companies have no choice but to straddle many segments until such time as market segments mature."

For his part, Zutshi believes that is already happening -- the market in India is upgrading by leaps and bounds. He points out that the market in Bihar has seen tremendous increase demand for flat panel TVs.

Similarly, Samsung's twin-door frost-free refrigerators have sold beyond expectations in Punjab and Uttar Pradesh.

"If you are able to deliver the latest technology at an affordable price, the consumer will not be willing to go back to outdated technology," he says.

Moreover, says Zutshi, "We do have products that sell in smaller towns. But even these offer value and include the current technologies. For instance, all our flat TVs incorporate a recently introduced DNIe picture enhancing technology, which usually comes with LCD and plasma TVs. And that's perhaps the reason why many of products are not priced as low as that from some of our competitors."

The consumer electronics and home appliances market in India is hugely segmented, making it difficult to point to a clear leader.

Nevertheless, for some time now, LG Electronics has been the number one player in many categories. LG's strategy has been remarkably simple: it has kept prices low while targeting the mass market.

And that's helped it bring in the numbers. It's been offering a range of feature-packed but economically priced products. And the company's kept its focus firmly on increasing its penetration in the rural and semi-urban mass markets.

For its part, Samsung claims it's never been a price warrior -- its focus has always been on the premium market, which is why it has remained a steady No. 2 or No. 3 player in most product categories. Will sticking to that strategy now help it achieve its ambitious targets?

Zutshi thinks so. "It takes time to ensure your supremacy in market share. Once you get your brand perception right in the minds of the consumers as a brand that delivers the best technology and gives you value for money, then ultimately market share goes up."

On target

But has Samsung been able to get that message across to potential customers? And how many customers actually pay attention to differentiation on the basis of technological innovations such as DNIe or Silver Nano (for refrigerators and washing machines), or even one based on design?

KSA's Sahni agrees, adding that in many cases, the sales staff at the showrooms are not able to point out the key differentiators.

That's one issue Samsung's already been tackling. Last year, the company started the Samsung Marketing Academy, which conducts regular training programmes to educate the sales forces, shop-owners and company employees on the company's technology and design, how it is different from what competitors are offering, and how to better explain the difference to the consumer.

By equipping the salespeople to sell knowledge-oriented lifestyle products, the company is hoping to provide customers a more informed buying experience, which will translate into higher sales.

Keeping its target customer in mind, the company has also created a network of over 80 exclusive showrooms comprising Samsung Digital Zone (focusing on high-end digital audio-video products such as MP3 players, camcorders and LCD/plasma TVs), Digital Worlds and Homes (where the emphasis is on creating an experiential zone for consumers to "feel" the product) and Plazas (which are relatively smaller).

It's also ensuring a presence in most big malls and multiplexes; even in the multi-brand outlets, the focus is to create a shop-in-shop atmosphere.

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