Porter’s Five Forces Analysis of Electronics Brand Samsung
Samsung is a well-known electronics brand. It is globally popular for its smartphones and televisions and several more products like cameras and wearable devices. The brand is also known for its focus on technological innovation. In recent years, its sales have grown and in 2016 it delivered impressive financial results. Its flagship product the Galaxy smartphone (including Galaxy S6 and S7 edge) has been very popular in the global market and continues to enjoy sales growth. Samsung’s profits in 2016 were mainly driven by high sales of these products. As per the industry forecasts, the demand for smart-phones will continue to grow and the most important differentiating factor driving higher sales will be AI.
Porter’s five forces analysis of Samsung analyses five important factors that affect the competitive position and market share of companies. These five forces are a part of every industry and market and determine the attractiveness of the industry. This analysis will show how competitive Samsung is and how well it is positioned in the industry.
Bargaining power of suppliers:
Suppliers are the sources from which the companies obtain the raw material for making products. They are an important group and their bargaining power is an important force affecting the position of a company. If the suppliers have higher bargaining power, the competitive strength of the company will remain low and vice versa. In the case of Samsung, its suppliers’ bargaining power is low because of several important factors. The first significant factor is their smaller size due to which their bargaining strength is low. These suppliers are scattered all over the world. Moreover, Samsung can easily switch to a new supplier from an older one. However, Samsung being a major source of income for these suppliers, they cannot easily switch to another brand. So, Samsung makes the rules that the suppliers are required to follow. It conducts regular investigations to see if suppliers are working according to the rules and regulations. From labor welfare to product quality and sustainability, the Samsung suppliers are required to follow the rules in all these areas. Thus, you can see that all these factors keep the overall bargaining power of suppliers minimized. If some of the suppliers are able to exercise some bargaining power then it is because of their size and financial clout.
Bargaining power of customers:
Increased access to quality information has led to a continuous rise in the bargaining power of the customers in the 21st century. The overall bargaining power of customers is moderately high in the case of Samsung. The reason is that while the switching costs are very low for the customers and they can easily switch to any of the competing brands, customers can easily compare brands and their products and read feedback from other customers. Higher competition, prolific use of technology, and other reasons too are behind the rising influence of the customers. Brands are investing a lot in marketing and advertising to attract new customers. Every competing brand is aggressively marketing itself. Marketing is the main method companies use to grow customer base and market influence. All these factors mean higher bargaining power of the customers. The factors that moderate their influence include the market image of a brand, quality of its products, and financial clout as well as similar more factors.
Threat from substitutes:
Substitute brands and products pose a moderately high threat to the Samsung brand. The brand has several competitors in the market. The most significant competitors of Samsung are SONY, LG, and Apple. Apart from these, there are other local and international brands too that pose a competitive threat. So, overall customers have several substitute brands and products before them. The switching costs are also low. A strong brand image, technological innovation, and similar other factors moderate this treat to some extent. For every product that Samsung makes, there are several substitutes available in the market except for the computer chips. Intel is the only main rival brand that offers a substitute product for the chips made by Samsung. Apart from that whether smartphones, laptops, televisions, or other electronic products that Samsung makes, customers will find the market full of substitutes.
The threat of new entrants:
The threat of new entrants is low for Samsung. Building such a large brand is not easy. There is a lot of financial investment plus marketing and a need for highly skilled human resources. So, the barriers to entry are high. One can enter at a smaller scale and raise a local brand, but then the level of competition from the market-leading brands is very high. Moreover, legal and regulatory pressures also act to raise the barriers to entry.
Level of Rivalry in the Industry:
The electronics industry sees intense competition because of the large number of competing brands and their size and financial strength. From LG to Apple, Apple, SONY, Toshiba, there are several brands that are competing for market share. It is also why entry for new brands becomes difficult. These large players are well-known brands with an established brand image. Technological innovation becomes the primary differentiating factor. Overall, the level of competitive rivalry in the electronics industry remains high.