How Samsung Built a Winner With the Galaxy S7
Smartphone buyers are snapping up Samsung’s new Galaxy S7 and S7 Edge phones, with first month sales up more than 50% over last year’s models in some countries.
The popularity of Apple’s larger iPhones crushed the Galaxy phones in 2015, but this year Samsung (SSNLF) plotted a comeback by adding back some old school features it left out of the S6 and using a host of aggressive discounts and offers to entice early buyers.
Overall, across 40 countries, sales of the S7 line are up 25% compared to the similar period for the S6, according to market tracker Counterpoint Technology. That includes a nearly 65% jump in first month sales in India, 50% in the United Kingdom, 30% in the United States, and 20% across Western Europe, the firm said.
The new models should outpace sales of both the S6 and S5 lines and harken back to the break out, super hit S4 from 2013, says Neil Shah, Counterpoint’s research director. The hit S4 helped Samsung grab the top sales ranking in 2013, when its 31% market share was nearly double Apple’s share. That share dropped to 23% by last year.
An almost $100 price cut on the S7 from the S6 and numerous special offers were critical to stoke early demand, Shah says. Samsung and mobile carriers gave away virtual reality Gear headsets, tablets, and even a 48-inch TV set with some sales. U.S. carriers also offered two-for-one deals to customers adding lines.
Key to the lower pricing was Samsung’s decision to keep costs down by making fewer changes on internal components. “I think not much under-the-hood changes has helped Samsung to price it aggressively,” Shah said.
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Samsung also decided to go back to basics, adding back popular if less sexy features, like a removable memory card slot and water resistance, that it dropped on last year’s more premium looking S6. Combined with keeping the higher-end aluminum and glass shell and high resolution “QHD” screen introduced on the S6, Samsung was able to offer its fans more of what they craved without denying them some of the nerdier perks that Apple (AAPL) leaves out of its iPhones.
“In our surveys, we found the microSD card slot [and] waterproofing was very popular,” Shah says.
There was also less copying from its competitor in Cupertino this year, both in terms of features and approach. Samsung actually made a thicker phone than last year’s model so it could include a larger battery, a move that would seem rather unlikely for Apple. The 2016 S7 weighs 10% more and is 16% thicker than last year’s S6 but includes a battery with 18% more capacity. Samsung also avoided copying Apple’s software additions like 3D touch and Live Photos.
DJ Koh, head of Samsung’s mobile division, made the strategic divergence from Apple quite clear in his remarks at the Mobile World Congress in Barcelona in March. Apple famously eschews customer research and even takes away popular features loved by customers to move its products forward. Koh said Samsung was doing just the opposite: “What I have learned from the first generation of the Galaxy S to the seventh is how to listen,” he said. Samsung will “not presume to tell our customers what they should want.”
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On the back end, Samsung also did a better job this year with its supply chain. In 2015, the company was overwhelmed with orders for the more expensive Edge model, with its slick curved display, leading to shortages and delays and no doubt many missed sales. This time around, Samsung was ready for a nearly 50/50 split in sales between the two models in many markets and had the supply ready to meet the demand.
Finally, Samsung also benefited from Apple’s standard practice of making few outward changes to its iPhones every other year. Last year’s iPhone 6 and 6 Plus models, with larger screens for the first time, convinced a huge number of Android phones users and former Samsung customers to switch to iOS. But the effect captured years of pent up demand and this year’s 6S and 6S Plus models had less impact on Samsung.
The S6 “suffered from the launch of the iPhone 6 line, which drove higher conversions from Android, but that effect is also weaker a year later,” Jan Dawson, chief analyst at Jackdaw Research, noted.
Investors have already taken note of Samsung’s improving prospects and some fear sales will drop off in coming months, as they did last year. But with the smarter decisions that went into this year’s models, that seems less likely than ever.