hankyoreh

promoting its stocks of the Samsung Galaxy S6 smartphone

“We’ve had more customers come in thanks to the Galaxy S6, but no one has bought it yet. We have plenty of phones in stock, but we’re only allowed to carry 10 of the Galaxy S6 Edge Gold.”

“If it were me, I’d buy the iPhone 6. The Galaxy S6 battery runs out quickly, and you also have to pay extra for the wireless charging pad.”

At the mobile phone shops in Seoul’s Yeongdeungpo district that a Hankyoreh reporter visited on Apr. 16, shopkeepers recommended Apple’s iPhone 6 over Samsung Electronics’ Galaxy S6. Outside all of the stores, posters were up announcing that the Galaxy S6 was in stock. Inside the stores, though, shopkeepers admitted that customers were just not that interested.

At an SK Telecom shop, customers were shown a picture of the Galaxy S6 and the Galaxy S6 Edge instead of the actual product; at a KT shop, they were given a model of the phone to look at. The shops weren’t ready to bring out the actual product until the customer was clearly going to buy.

One week since the Galaxy S6 and the Galaxy S6 Edge were launched, the initial market response has been tepid. “The response is better than with the Galaxy S5, but it’s not as strong as the iPhone 6,” said a source at one telecom.

A representative at Samsung Electronics had little to say. “The market response is better than the previous product [Galaxy S5], but we are watching the market carefully.”

Telecoms and industry analysts offer a variety of explanations for the lukewarm market response. For one thing, the purchase rebate that retailers are offering customers is lower for the Galaxy S6 than for other models, including the iPhone 6. According to a wholesale price sheet acquired by the Hankyoreh, retailers receive 100,000-230,000 won (US$92-212) in subsidies for selling the Galaxy S6, compared to 210,000-280,000 won (US$193-258) for selling an iPhone 6.

“The telecoms are budgeting slightly higher rebates for the iPhone 6, which came out last year, to lower their stock, and Samsung Electronics hasn’t made its subsidies available yet,” one telecom source said. The implication is that phone retailers have an incentive to push customers to buy the iPhone 6 over the Galaxy S6, since selling the iPhone 6 makes them more money.

Another explanation for the market response is the divide between the customer bases for the iPhone and the Galaxy S lines of products. At SK Telecom, 43.1% of customers who reserved a Galaxy S6 are in their thirties, compared to 26.4% in their twenties and 20.2% in their forties.

“iPhone fans tend to be people in their teens and twenties who rely on word of mouth, while a lot of the Galaxy S customer base is middle-aged,” a company source said.

Another factor is that, with the number of smartphone users in South Korea breaching 40 million last year, the premium phone market has shrunk. “The domestic smartphone market has already passed from the growth state into the mature phase, and with rebates falling after the Mobile Device Distribution Improvement Act took effect, the low-cost smartphone market is growing faster than the premium phone market,” a source at an electronics company said.

In effect, it’s not easy for premium phones in the 800,000-1 million won (US$732-921) range to attract buyers in the domestic market.

Even though the South Korean market only accounts for 4% of total mobile phone revenue for Samsung Electronics, this situation represents the larger difficulties that the company is currently facing.

Furthermore, while the Galaxy S6 is more expensive to produce than the iPhone 6, it is being sold for less. According to market research firm HIS, the production cost of the Galaxy S6 Edge (64GB) is US$50 more than the iPhone 6 Plus, but its retail price is lower.

“Samsung Electronics doesn’t expect a high operating profit margin the way Apple does, and since it manufactures a lot of the parts that it uses, it can keep down its production cost,” said Noh Geun-chang, chief of research at HMC Investment Securities.

“Samsung’s strategy will probably be to concentrate its marketing in developed markets on the more expensive Galaxy S6 Edge and the high memory models (64GB, 128GB) to increase the average purchase price while increase sales of its more affordable low-memory (36GB) models in emerging markets,” Noh said.

By Lee Jeong-hoon, staff reporter

Please direct questions or comments to [english@hani.co.kr]