Chapter 9

NEW-PRODUCT DEVELOPMENT AND PRODUCT

LIFE-CYCLE STRATEGIES

Company Case Notes

Samsung: From Gallop to Run

In the world of consumer electronics, copycat brands are a dime a dozen. These are the brands
consumers turn to if they don’t want to pay the price for the high-end market leaders. So if
consumers want a top-tier television, they’ll probably look at one from Sony or LG. If they want
something cheaper that’s probably not quite as good, they’ll look at brands such as Insignia,
Dynex, or Vizio.

But what about Samsung? Believe it or not, Samsung Electron- ics was a maker of cheap
consumer electronic knock-offs from the time it started making calculators and black-and-white
TVs in 1969 through the mid 1990s. Today, however, Samsung is the world’s largest television
manufacturer and offers the most cutting- edge models around.

Putting the brand in context, Samsung Electronics is part of the world’s largest conglomerate,
South Korea’s Samsung Group. Founded in 1938, the huge Samsung Group also owns the
world’s second largest shipbuilder, a major global construction company, and the largest life
insurance company in Korea. The conglomer- ate is so big that it accounts for 25 percent of all
corporate prof- its in South Korea, well ahead of the number two Hyundai-Kia Automotive
Group at 6.4 percent. Under the direction of Lee Kun- hee, CEO and chairman, the third son of
founder Lee Byung-Chull, Samsung Electronics has made major strides.

THE NEW MANAGEMENT STRATEGY

In 1993, Lee unveiled what he called “new management,” a top-to-bottom strategy for the entire
company. As part of Lee’s new management, he took Samsung Electronics in a very ambi- tious
new direction. The goal: He wanted Samsung to become a premier brand that would dethrone
Sony as the biggest con- sumer electronics firm in the world. Instead of being a copycat,
Samsung was to become a cutting-edge product leader. The company hired a new crop of fresh,
young designers who un- leashed a torrent of new products—not humdrum, me-too prod- ucts,
but sleek, bold, and beautiful products targeting high-end users. Samsung called them “lifestyle
works of art.” Every new product had to pass the “Wow!” test: If it didn’t get a “Wow!” reaction
during market testing, it went straight back to the de- sign studio.

As part of Samsung’s revamped strategy and positioning, along with developing stylish and
innovative new products, the com- pany altered distribution to match. It abandoned low-end
distrib- utors like Walmart and Kmart, choosing to build strong relationships with specialty
retailers like Best Buy and Circuit City. “We’re not el cheapo anymore,” said one Samsung
designer.
In less that two decades, Samsung Electronics has achieved its lofty goals—and much more. In
2009, the company rang up rev- enues of $117 billion with profits of $8.3 billion. Compare that
to Sony at $77 billion in revenues and a net loss of almost $1 billion. Interbrand crowned
Samsung as the world’s fastest growing brand over one five-year period. Most recently,
Samsung hit num- ber 17 on Interbrand’s list of most valuable global brands as Sony fell to
number 29.

Samsung is now by far the largest consumer electronics com- pany in the world and has been
since 2005. It’s the world’s largest TV manufacturer and the second-largest cell phone producer.
Samsung competes strongly in the markets for DVD players, home theaters, digital cameras and
camcorders, home appliances, and laser printers. But more than just making finished consumer
prod- ucts, Samsung Electronics is also the world’s largest technology electronic components
company. It makes a sizable share of LCD and LED panels, mobile displays, and
telecommunications compo- nents used in other company’s products. It’s also the world’s largest
manufacturer of flash memory.

WORKS OF ART

Samsung has become more than just big. It has also achieved its goal to become a producer of
state-of-the-art products. In fact, both Fast Company and BusinessWeek recently placed Samsung
high on their lists of most innovative companies. As evidence of its design prowess, Samsung
took home eight prizes at the Interna- tional Design Excellence Awards (IDEA), where entries
are judged based on appearance, functionality, and the thinking behind each one. Design darling
Apple took home only seven awards.

Consider some of this year’s winners. A Samsung “Touch of Color” Blu-ray DVD player
featuring a hint of red tone blended naturally into a piano black frame had the judges ogling.
Com- ments indicated that, with color and appearance that changed in different lighting, the
DVD player looked like a work of art made of glass. Samsung’s Luxia LED TV series also
packed “wow” ap- peal. With specs that exceed anything on the market, a 55-inch model is a
mere one-inch thick and weighs just 49 pounds. Sam- sung’s EcoFit monitors feature a
transparent stand that give the appearance of floating in the air. The Samsung YP-S2 Pebble is
part MP3 player, part fashion item. Designed to conjure up images of nature with its pebble
shape and stunning colors, it can be worn around the neck and sports five tactile keys that make
it sim- ple enough for grandma to use. And the Samsung Kiwi mini note- book PC is a 10-inch
laptop that is high-tech, convenient, cute, and familiar all at once. These and the other Samsung
winners at last year’s IDEA awards earned Samsung the designation of “a company that’s hitting
its design stride.”

Samsung is moving many of its product categories forward. For example, as the cell phone
industry moves from “dumbphones” to smartphones, Samsung aims to double its market share of
the higher-end market from 5 to 10 percent. With the release of its latest high-tech
communication phone, the Galaxy S, Samsung no doubt has a shot. One industry analyst says,
“Samsung may easily meet [its] target as the handset market is sharply transferring to
smartphones and the hardware features of the Galaxy S are pretty competitive in the market.”
Running on Google’s new Android operating system, the phone features a four-inch screen, an e-
book reader, a five-megapixel camera, and a high-definition video

recorder and player. But perhaps the best thing going for it is the fact that it will not be tied
exclusively to any single carrier, as are many of the top smartphones. More than 100 mobile
operators around the world will offer the Galaxy S.

MABULJUNGJE

Lee was recently named the top CEO of the Decade by Fortune Korea. True to that title, he has
just recently announced that the “new management” is now old news. After 17 years of remark-
able success, Lee admitted that the world’s largest technology firm’s current main products may
likely become obsolete within the next 10 years. That forward thinking has him again in reform
mode. He has dubbed Samsung’s newest strategy “mabuljungje,” a Chinese axiom that means
“horse that does not stop.” In a memo to Samsung employees, Lee said, “The ‘new management’
doctrine for the past 17 years helped catapult the company into being one of the world’s best
electronics makers. Now is not a time to be complacent but a time to run.”

As with any truly forward thinking, innovative company, Sam- sung doesn’t claim to know what
will replace today’s products as they become obsolete. Rather, it is investing heavily to ensure
that it is the company that develops them. Samsung recently unveiled a $23 billion investment
plan—its biggest to date. That amount is three times the one that Samsung discarded only
months earlier. It’s also bigger than the combined investment budgets of Intel, IBM, and Sony.
Much of this year’s budget is earmarked for capital expenditures, new equipment, and plants to
ensure that Samsung stays ahead of the game. The rest is for R&D. At a groundbreaking
ceremony for a new chip plant outside of Seoul, Lee announced that despite Samsung’s past
success, the company risked losing market share if it did not completely overhaul its business
model.

According to Timothy Baxter, president of Samsung Electronics America, as a major pillar of

mabuljungje, Samsung will capitalize on interactivity—as in mobile phones with TVs and TVs
with the Internet. Samsung’s future will bring many products that will talk to each other. At a
recent expo, Baxter stared at a pair of aces dis- played on his Samsung Omnia II mobile phone.
After tapping a few phone buttons, up popped a poker table on a Samsung big- screen TV with a
pile of cards held by his opponent—a poker buddy in another city. “There’s no reason these
phones can’t inter- act with the TV,” Baxter said, indicating that if he has his way, Texas Hold
‘em is just the first in a series of such synergistic exchanges.

But such advances in product interactivity go beyond just pre- senting consumers with flashy
hardware features. They will take Samsung into a competition for consumer eyeballs with
companies such as Apple. Samsung knows that it cannot thrive in the long term by merely
offering sharper colors or better sound quality. Pric- ing power comes only from unique features
or control over con- tent. Samsung is putting plenty into discovering the unique features. But its
investment strategy will also position Samsung as somewhat of a broker between advertisers and
the devices that carry the ads. Although Samsung is now hush-hush about its plans, it has
announced its intention to unveil a tablet computer and an app store similar to Apple’s that will
give Samsung control over that content. Samsung sees apps as the advertising vehicle of the
future.

In its favor, Samsung has access to a piece of the puzzle that Apple doesn’t—big screens. Thus,
as its small devices interact with its Web-enabled TVs, Samsung could bring in lots of ad dollars
from companies eager to pitch their products on screens 25 times the size of an iPhone’s. If
successful, Samsung will pose a threat to not only Apple but also cable companies. That’s
because the type of network that Samsung has planned will also make it a data col- lector, privy
to insight about the kinds of applications its TV own- ers like so that it could help suggest what
ads they should receive.

Questions for Discussion

1. How was Samsung able to go from copycat brand to product leader?

2. Is Samsung’s product development process customer centered? Team based? Systematic?
3. Based on the PLC, what challenges does Samsung face in managing its high-tech
products?
4. Will Samsung likely achieve its goals in markets where it does not dominate, such as
smartphones? Why or why not?