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Use of Diversification by Samsung in the Penetration of the Saudi Arabian Market Essay

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Updated: Aug 2nd, 2021

Abstract

Purpose

The purpose of this study is to find out whether the use of diversification by Samsung in the penetration of the Saudi Arabian market has been successful. A case story is provided detailing how the company incorporated a combined approach to diversification to ensure its success. Currently, Samsung’s main concern is to remain relevant in a field that is constantly changing and crowded with both international and local competitors.

Research Design, Data, and Methodology

The case used academic secondary sources to collect data. The sources were retrieved from qualified and well-known publishers and journals. It is important to note that there are sufficient studies that have been done on the subject that made it possible to write the report.

Results

Several findings were realized after the literature review was conducted. The main finding that was recorded was the success of the combined diversification approach in the Saudi Arabian market. It can be argued that if the company had not used a combined approach then it would not have had the success it currently enjoys.

Conclusions

In conclusion, diversification indeed was the viable marketing strategy for Samsung in Saudi Arabia. Not only did the strategy allow the company to maintain its market share but it also ensured the growth of the company portfolio. Saudi Arabia is known to prefer local products. This goes to show the effort put up by Samsung to maintain the top spot in the industry in the region. It is crucial to note that the company has employed the use of other strategies in the same country before. However, diversification was selected due to its applicability.

Introduction

Samsung is one of the largest conglomerates in South Korea. Headquartered in Seoul, the company is well known for its electronic products even though it has ventured into other business lines as well. As of 2017, the company was valued at US$188.9 billion. One can argue that the company has had to use different strategies to penetrate almost all markets in the world. This is due to the differences in economies in the different markets it is in.

For example, it is the largest phone brand in Africa. To achieve this, the company came up with a marketing strategy that lowered the prices of its product in the African market. The reason is the lower economic status of the target group in that specific market. The same strategy is not applied in the US, where the economy is more stabilized. The assignment will, however, consider strategies that the company has used in Saudi Arabia. It is prudent to mention that it has employed the use of diversification as a key tool of entering the Saudi Arabian market.

The paper will have a literature review that will discuss the company’s application of the diversification marketing strategy in the Saudi Arabian market. Additionally, the methodology used and a case storyline will be provided. Findings and implications of the study will be presented alongside some discussion questions and answers and conclusions will be drawn from all the material that will have been discussed.

Overall, the paper will provide a comprehensive understanding of the stated strategy, detailing why it was the best option for Samsung when the company was trying to enter the Saudi market. A brief comparison will be made with other strategies that the company has used in the other markets as well. The paper will prove that combined diversification was the best marketing strategy for Samsung’s penetration of the Saudi Arabian market.

Literature Review

Overview of Industry and Company Background

The mobile phone industry has grown over the years at an alarming rate. Giachettia and Marchi (2017) attribute this to innovation and technology. The industry is highly populated with local and international companies all seeking to satisfy the needs of their target audience. One of the reasons for this is the fact that it is fast-moving. The target audience is also always looking for new and better smartphones for use.

As mentioned, technology and innovation have also played a big role in the advancement of the industry. The cell phone has been developed to offer maximum comfort and convenience for telecommunication. For example, smartphones have combined the traditional camera, radio, and recorder into one small package that individuals can carry at all times. Equally important to state is the fact that the Asia Pacific is the largest manufacturer of cell phones.

Samsung is one of the major manufacturers of smartphones. The company is prevalent in some areas such as Africa and Asia due to its flexible and affordable pricing. Indeed, the company employs different strategies to maintain its market share. Giachettia and Marchi (2017) add that Apple is the brand’s biggest competitor. Even though the company is well known for its mobile phones, it has also ventured into other businesses.

Some of these businesses can be linked back to the main business line while others are very different. For instance, the company makes mobile phones and household equipment such as fridges and washing machines. Even though the two are very different, they are tied together by the technology they use. However, the company also ventured into biopharmaceuticals, which are very different and not connect to its main business line at all.

Theoretical/ Exploratory Research

Diversification in marketing is a strategy that allows a new brand to penetrate a given market of interest by introducing a customized product for that target group (Bowen, Baker & Powell, 2015). There are several types of diversification strategies and even though companies usually adopt one in their marketing plan, they can also be combined for better results. The commonly used diversification strategies are the vertical, concentric, and conglomerate.

Gnizy, Cadogan, Oliveira, and Nizam (2017) explain that vertical diversification usually relates directly to the company’s main business line. It does this by going back to a stage in the production cycle and producing brands related to that stage. An example can be given to explain further. Company A is a real estate company and has been building houses for decades. If the company decided to use vertical diversification, it would look within the real estate and construction business. Therefore, it could start selling cement or paints and so forth. Whereas the product is new it is still tied to the company’s main business line.

The second type of diversification is concentric diversification. Bowen et al. (2015) explain that this type allows the company in question to make new products that help it manage any new technologies and maneuver the market system.

For instance, a bakery known for selling cinnamon bread can start producing biscuits to capture the market more. Indeed, whereas the two products are linked by the same production procedure, they are very different. This is unlike the third diversification strategy as products do not relate at all. Bowen et al. (2015) confirm that the conglomerate diversification strategy allows a company to make new products that have no relation to the current business lines or their distribution channels. For instance, a company that deals with phones starts producing food as well and so forth.

Gnizy et al. (2017) argue that the use of diversification as a marketing strategy is coupled with a need for difference both within the company and among the target group. Using the same M10 and M20 for further explanation, one can argue that the Saudi Arabia market feels “different” from “special” since they are the only ones currently retailing the product. Gnizy et al. (2017) reveal that companies use this strategy to increase their market value in a particular country. It is important to note that although Samsung is currently the largest seller of mobile phones in Saudi Arabia, Apple has taken a keen interest in the region as well.

There are three reasons why Apple is becoming more famous in the region. The first is the rise of the middle and upper classes of people in the country. These people can afford the more expensive Apple phones easily than before. Secondly, the influx of people from other countries and cultures into the Saudi market has led to a bigger interest in other brands. This is particularly the case of citizens from Europe and America, where Apple is the preferred brand. The third reason is the differences in technology and systems that people are keener on now. Indeed, one can state that the use of diversification in Saudi Arabia was tactical as it would raise the profile of the company and hold on to the number one spot in the market.

It is important to point out that Samsung is well known for using skimmed and competitive pricing as the core of its marketing strategy. Crespo, Suire, and Vicente (2016) argue that skimmed pricing is the use of high prices to target a select group of people. There are some Samsung products that high-cost. Crespo et al. (2016) reveal that the need to identify a certain class makes skimmed pricing one of the best marketing strategies.

The higher the price of a product the more valuable it becomes regarding identity and class. It is prudent to mention that skimmed costing also involves the lowering of prices to attract clients who could not afford the product at the time of the launch. Both Samsung and Apple are known for using this strategy to remain relevant. For example, a product that launches today and retails at USD 200 will not cost the same if a competitor introduces a similar product into the market. Additionally, if the same company releases a new version of the same product, the price of the initial item will drop.

As mentioned, Samsung has also used competitive pricing to retain its market share. The company uses market research to come up with the right pricing strategy. Albeit the changing economy and ease of accessing money in Saudi Arabia, the company has not raised its pricing much. Bowen et al. (2015) admit that competitive pricing, albeit important, should be considered due to the high possibility of inflation. Even though the country has been on an upward economic scale, Samsung has to put in measures to protect its brand.

Cohesive Summary of All Relevant Findings

One can denote several things from the literature review. The first is the fact that Samsung uses diversification as a marketing strategy to reach its different target groups more effectively. This is especially the case with affordable versions of their mobile phones. Indeed, even though the company uses both skimmed and competitive pricing techniques, it still provides the expected type of product to its clientele.

Unlike Apple, its biggest competitor, Samsung has created a niche for itself in the market due to keen market research that involves all types of clients. It is important to point out that there are studies that show that the use of diversification can also help a company maintain its market share value. One can argue that this is the main reason why Samsung chose the diversification strategy for penetrating the Saudi Arabia market. Despite the broad nature of diversification, companies can incorporate any of the principles of the different types of diversification in their marketing plans.

It has also been realized that many of the companies that use diversification as a marketing strategy do so primarily to develop a culture of the class. Many consumers associated some brands with class. Diversification makes this easily achievable regardless of the price of the item. Indeed, one can argue that companies have used pricing as a key method of dividing their target audiences into classes. For instance, Samsung has several versions of the Galaxy brand that are very expensive. These versions are perceived to be of a higher status than the other affordable Galaxy products. To ensure that everyone has the chance of being in this pre-determined class, Samsung lowers the prices of previous versions when they launch new brands of the same line.

Methodology

Data will be collected empirically through secondary sources. This means that the researcher will rely on academic journals and reviews to get the needed data. The literature review has provided ample evidence that many studies have been done on the topic. The essay will combine these studies and come up with conclusions from the experiments that have been done on the same. The sources that have been chosen are not only peer-reviewed but have been identified as the best resource for the needed data due to their quality and context. It should be noted that the researcher has no affiliation with any of the sources that will be used. This reduces the level of bias that might have been recorded. A case storyline will also be presented by the assignment.

Case Storyline

Samsung: How It Started

In 1938, Lee Byung-Chul registered Samsung as a trading company dealing with textiles, retail, insurance, and food processing. Interestingly, people believe that Samsung began as a cell manufacturer when it did not. The company moved into cell manufacturing in 1960 and grew this business line to become its main source of income. In the mid-1970s, the company ventured into construction and shipping industries which further enhanced their cell phone business line as they were now able to ship their products on their own.

The new business line (shipping) helped the company save on costs and allowed Samsung to sell its products in different parts of the world. After the founder’s demise, the company management divided it into four main groups namely Samsung, Hansol, Shinsegae, and the CJ Groups. Indeed, it can be suggested that the company’s success should be pinned on a strong brand name. Therefore, one can argue that the brand name has ensured loyalty to an extent that clients prefer the brand regardless of the product being bought.

Diversification

The company has employed different strategies in an attempt to completely penetrate different markets. One such strategy is diversification which entails the use of a new customized brand to penetrate a given market of interest. To ensure that the company still maintained its reputation, it has used diversification, especially in Saudi Arabia, by customizing products it already has in the market. The company currently has over 200 subsidiaries in the stated market. The company has partnered with several other companies all over the world to ensure diversification even further. Each of these partnerships has allowed Samsung to become a household name.

It is important to note that diversification has ensured the company is well-known to people of different economic backgrounds. This is because it has both affordable and highly-priced products. These products are found within the same market but target different groups of people. Indeed, there are times when the products slightly different but the difference in pricing is due to the status they are associated with at a given time. It is important to point out that the company has also used other marketing strategies in the region but this was the most common.

Samsung has used all the stated diversification strategies in different markets. In Saudi Arabia, the company relied mainly on the first type of diversification. As mentioned previously, the vertical diversification approach introduces a new product in the market that is closely related to the company’s main business line. For example, Samsung revealed the Galaxy M10 and M20 in the Saudi market first. This product can be bought online from anywhere in the world but is currently only retailed in Saudi Arabia. As mentioned previously, the company is well known for its electronic products. The Samsung Galaxy has been in the market for over five years now.

Each year, the company releases a different and arguably better version of the Galaxy brand and chooses target countries where the new product will retail. There are various reasons why the company chose Saudi Arabia to retail the M10 and M20 brands. Even though Saudi Arabia is not considered a developed country in economic terms, it is a high-income country. Therefore, the target group can afford high-end phones. The M10 and M20 retail at approximately USD 130 and USD 180 respectively. One can argue that these phones are still relatively affordable compared to other brands such as Apple. Whereas this is true, the prices are slightly higher compared to other similar products by the company.

Future Projections

Arguably, there are a lot of things that Samsung has in store for the future. The company has focused on biopharmaceuticals since the mid-1990s and there are indications that it will invest more in this business line. The Samsung Medical Center has invested heavily in both facilities and educational centers. The facilities have been referred to as China’s number one health centers offering viable services for both in and outpatients.

The center has also invested in medical research and has given out money for the same. It is arguable that this venture still uses the diversification approach as it offers a different product completely. It is not clear whether the company is looking to manufacture medicine but the management has been keen on innovative health solutions. It is interesting to note that the company has combined its biopharmaceutical business line with its cell phone one. Currently, a majority of Samsung smartphones have Samsung Health, an application that can record heartbeat rate, pressure and monitor fitness activities.

Findings and Implications

Findings

Several findings can be realized from the case story. The first is that whereas Samsung is not changing its main business lines, it is looking to diversify its portfolio further. One can point out that the cell phone industry is crowded with competitors. The additional fact that more people are investing in locally made mobile phones threatens the company’s market share. This is especially the case in the regions where the company has made a name for itself such as Africa and the Middle East. It is crucial to point out that the company has put measures in place to continue securing its place in the market despite the challenges. Despite this, there is a need to diversify further by bringing in new products under the same trusted brand.

It has also been realized that diversification has to be strategically implemented for it to be successful. Samsung has managed to do this by tying its products and business lines together with one aspect or the other (apart from the brand name). For example, as mentioned earlier, the company has incorporated Samsung Health into some of its common mobile phones. This ensures that the clients have knowledge of the health business line the company also engages in.

Indeed, Samsung Medical Center is only in China yet phones that are shipped to Africa also have the Samsung Health application. The main reason for this is the fact that the company intends to grow its biopharmaceutical and health business line as well. Thus, they are ensuring that their brand is recognized also as a health brand for easier market penetration at the right time.

Implications

There are several implications of the findings that were realized. The first is that the cell phone industry has to keep innovating to remain relevant. Samsung has added more features to their phones to ensure relevance. The fact that their medical center is also rated highly makes its health mobile app more practical. Additionally, the changing cell phone industry will prompt current competitors in the field to invest in other business lines. The fact that more people prefer to support local brands within their countries as a way of ensuring authenticity continues to pose a challenge to cell phone manufacturers. Therefore, diversity is important for the survival of all companies in the industry.

Conclusions

In conclusion, marketing is crucial when trying to enter new markets. This is also the case for companies that have had long-lasting brands such as Samsung. The company is currently the largest cell phone brand in Saudi Arabia and it has employed various marketing strategies to secure its position. As per the requirements of the assignment, only one of these strategies was discussed. The chosen strategy was diversification which allows a company to introduce a customized brand into the market.

Research shows that the strategy has worked well in new markets as it enhances a feeling of a class. For instance, if Samsung were to develop a new version of the Galaxy specifically for Saudi Arabia, it might consider incorporating some of the popular culture needs among the Saudis. This would make the region feel special and boost sales of that particular product.

The essay was guided by the thesis statement that combined diversification was the best marketing strategy for Samsung’s penetration of the Saudi Arabian market. From the literature review and findings presented, one can argue that the thesis was proven true. Combined diversification refers to a mixture of the three types of diversification strategies that can be used. The company has to choose when to apply the said types of diversification, and when to combine them. Indeed, Samsung has used other strategies to help secure its market share. However, diversification stands out as it has also led to the diversification of the company’s portfolio. The research studies that were used to write the literature review also prove the same.

Discussion Questions

Analyze the cell phone business industry with a key interest in Samsung mobile

The cell phone business industry is very diverse. One can argue that it is an overcrowded field. Three of the major cell phone manufacturers are Apple, Samsung, and Huawei, although there are many other companies all over the world. Samsung is known to have penetrated the field more as it has focused on developing countries as well. The company has products that target both high-end and low and middle-income clients. It is important to point out that Samsung has taken cell phone innovation further in an attempt to maintain its profit margins. For instance, it has incorporated its other business lines into the cell phone line.

One of the business lines of the company is biopharmaceuticals and it has opened a Samsung Medical Center in China to this effect. To ensure that all its clients know about their interest in medicine and medical research, the management has incorporated Samsung Health in a majority of its products. The same has been done with its other electronics where the company ties the products to one another. This has also enhanced the brand.

How did Samsung manage to penetrate the Saudi Arabian market?

Diversification was key in the penetration of the Saudi Arabian market. This is the customization of a product to suit the specific needs of the target market. It is important to note that whereas the company has not made entirely new mobile phones for the Saudi market, it has introduced new versions of their main phones in the market. For example, the M10 and M20 were launched in Saudi Arabia and were retailing only in the stores in the country. Other users had to purchase the same product online.

Explain the different types of diversification techniques used in marketing?

There are three types of diversification technics namely vertical, concentric, and conglomerate. Vertical diversification allows a company to manufacture a product from one of its production stages. On the other hand, concentric allows the company to create a possible product using a futuristic approach by taking into account any technologies and new market trends. This product usually falls into one of the business lines of the company.

Lastly, conglomerate diversification introduces a completely new product into the market. This product is usually very different from any other that the company has created in the past. Indeed, one can argue that the last type of diversification is the riskiest regarding business. Therefore, companies have to ensure they do viable market research to manufacture a product that will give back their return on investment.

What type of diversification did Samsung use in Saudi Arabia?

Samsung used a combined approach to the diversification strategy. One of the advantages of the combined approach is the flexibility of the strategy. The combined approach allows for the company to not only rely on their clients’ needs (as they know them at the time) but also be able to provide new and exciting products.

What is the future projection of Samsung?

One can argue that the company has a stable future due to some of the investments it has already made. The cell phone industry is ever-changing and the fact that more people are invested in buying local products makes the environment that much harder for manufacturers. However, Samsung has invested heavily in other electrical products and health care. This provides the company with the needed stability of the future in case the cell phone industry collapses or becomes too overcrowded.

References

Bowen, P. H., Baker, K. H., & Powell, E. G. (2015). Globalization and diversification strategy: A managerial perspective. Scandinavian Journal of Management, 31(1), 25-39.

Crespo, J., Suire, R., & Vicente, J. (2016). Network structural properties for cluster long-run dynamics: Evidence from collaborative R&D networks in the European mobile phone industry. Industrial & Corporate Change, 25(2), 261-282.

Giachettia, C., & Marchi, G. (2017). Successive changes in leadership in the worldwide mobile phone industry: The role of windows of opportunity and firms’ competitive action. Research Policy, 46(2), 352-364.

Gnizy, I., Cadogan, J. W., Oliveira, J. S., & Nizam, A. (2017). National-regional diversification strategy and export performance: An extended abstract. In: P. Rossi (ed.) Marketing at the confluence between entertainment and analytics. Developments in marketing science: Proceedings of the academy of marketing science. (pp. 29-33). New York, NY: Springer.

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"Use of Diversification by Samsung in the Penetration of the Saudi Arabian Market." IvyPanda, 2 Aug. 2021, ivypanda.com/essays/use-of-diversification-by-samsung-in-the-penetration-of-the-saudi-arabian-market/.

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IvyPanda. "Use of Diversification by Samsung in the Penetration of the Saudi Arabian Market." August 2, 2021. https://ivypanda.com/essays/use-of-diversification-by-samsung-in-the-penetration-of-the-saudi-arabian-market/.

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IvyPanda. (2021) 'Use of Diversification by Samsung in the Penetration of the Saudi Arabian Market'. 2 August.

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