Sources of competitive advantage in the smartphone industry.
The smartphone industry is marked by heavy competition. It is also among the fastest-growing industries with a large number of international players battling for market share. As the use of mobile devices has continued to grow around the world, people are using smartphones for everything from entertainment to social media and for professional use. Smartphones have also become the devices that people use to manage their productivity on the go. Depending upon how addicted people are to their smartphones, the level of demand is expected to continue to grow in the future. However, due to the ever-intensifying competition in the smartphone industry, companies are also spending more on research and development as well as marketing. For smartphone makers, the scope of differentiation has also reduced due to each company aggressively investing in research and development. While on the one hand, this helps the companies grow the popularity of their smartphone models, on the other, it has become essential since customers’ needs and preferences are evolving faster. There are many more sources of competitive advantage in the smartphone industry some of which are discussed in this post.
Brand image is a very important source of competitive advantage in the smartphone industry. The leaders in the industry sector are the brands with a strong image. Companies invest heavily in building a strong reputation and winning customers’ hearts. On the one hand, this helps grow sales and customer base, on the other, it also helps retain customers. Customers in the smartphone industry tend to rely more on brands that have a stronger market image. For example, Samsung, Huawei, and Apple, all of these market-leading smartphone brands have maintained a strong market image. Companies in the smartphone industry also invest in activities that strengthen their market image. Apple and Samsung invest in CSR activities that help them promote a good social image.
Research and development:
Research and development is also a critical source of competitive advantage in the smartphone industry. Samsung and Apple are among the leading R&D spenders in the smartphone industry. As the level of competition in the smartphone industry has grown, the scope for differentiation has also reduced. Technologies including AI, virtual reality, and machine learning technologies are the leading sources of differentiation in the industry. Smartphone brands maintain a heavy focus on technological innovation and continue to improve their product line. Worldwide the needs and preferences of customers are continuously evolving and companies need to respond to these changes with appropriate improvements in their products. Innovation also helps stay ahead of the competition and retain market share. Changing market environment and demographic composition of the global population has also prompted smartphone companies to invest more in research and innovation. Companies are researching the market environment as well as the customers’ preferences and how satisfied people are with the distinguishing features in their smartphones. While the iPhone 11 by Apple has a triple camera and A13 Bionic chip which is the fastest chip on any smartphone, Samsung brought a foldable phone to entice customers. In this way, technological innovation has helped companies distinguish their products from other brands.
In 2019, Apple has invested around $16.2 billion in research and development and Samsung spent around $17.5 billion. Huawei’s research and development expenses have also grown very fast during recent years. In 2018, its research and development expenses crossed $101 billion compared to $89.7 billion in 2017. On the one hand, while it signifies the growing competition in the smartphone industry, on the other it also signifies how it is for the smartphone brands to strengthen their competitive advantage.
Marketing is also a leading source of competitive advantage for the brand. Smartphone brands mainly use digital marketing channels for the marketing of their products. However, they also mix television and other traditional marketing channels for promotions. Apple’s marketing strategy is focused on product quality. It makes premium products and is well known globally for its focus on product quality and technological innovation. Its brand image is a leading strength. However, Apple also uses social media and other digital channels for promotions and customer engagement. While Apple does not disclose its marketing expenses anymore, Samsung is one of the leading spenders on advertising. In 2018, the company spent 4 trillion Korean Won on advertising and 7.1 trillion Korean Won on sales promotions. However, it was still lower than in 2017 when the company spent 5.3 trillion KRW on advertising and 7.3 trillion KRW on sales and promotions.
Supply chain management:
Supply chain management is also a critical source of competitive advantage for smartphone companies. Companies including Samsung and Apple have their supplier networks located all over the world and a large part of their supply chains is located in China and other Asian countries. These companies source raw material from a large number of suppliers that are located in various corners of the world. They need a continuous supply of good quality raw materials in order to produce great quality products. Apple and Samsung have highly innovative supply chains. Supply chain innovation offers some critical advantages for smartphone businesses. While on the one hand, it helps cut down operational costs on the other, it helps grow operational efficiency.
A large and global distribution network also helps smartphone companies strengthen their competitive advantage. Smartphone companies need to maintain their global presence and utilize both physical and online distribution networks for sales and distribution of their products globally. Apple sells its products from its own website, through a network of company-owned stores, and resellers including online resellers. Samsung also utilizes a similar mix of online and physical distribution channels for the sales and distribution of its products. Both companies use an omnichannel sales and distribution strategy for the sales and distribution of their products. This helps them reach a larger number of companies worldwide and also maintain their global presence.
The pricing strategy utilized by a company is also a source of competitive advantage for it. In the smartphone industry, it depends on the specific market segment that the company is targeting. Huawei and Samsung cater to a more diverse customer base. Apple, on the other hand, makes and sells only premium products and targets the higher-end consumer segment only. However, despite its premium pricing strategy, the company enjoys very strong popularity. As in the case of Apple, its pricing strategy is related to its premium brand image. The premium pricing strategy of the brand has helped it sustain its premium image. Samsung and Huawei, on the other hand, cater to a more diverse market segment which includes lower-end and higher-end consumers. Apart from some premium models, they also offer a large range of affordably priced models. It helps them serve a larger customer segment and maintain their market share. However, despite its premium pricing strategy the company experienced sharp growth in its market share in the fourth quarter of 2019. Apple’s release of the iPhone 11 was followed by a sharp growth in sales.
|Smartphone brand||2019 Q4 market share (%)|
A large product range can also be a source of competitive advantage for a smartphone brand. Apple’s smartphone range is limited to the iPhone which is also its main source of revenue. However, the company continues to bring updates and release new models to sustain customer interest in the product and grow the customer base. In 2019, the company released iPhone 11 which led to explosive growth in its iPhone sales. Samsung’s flagship product Galaxy also enjoys heavy popularity. However, the company has complemented its Galaxy series with other smartphone products. Huawei has also brought a large range of smartphones in varying price categories.