While the race for supremacy between Apple and Google is still on, in recent years Samsung has emerged as a major competitor in the smartphone market.
In this never-ending debate on who is more successful, proponents of Samsung tend to point out that it is selling more devices than Apple. While this might be a fact, during the last quarter of 2016.
Apple still took 91% of mobile phone industry’s profit despite selling only 18% of total phones. Not only does Samsung cater to a lot of price ranges, but it also has a variety of device models, and on the surface, these factors should add to their earnings.
Regardless, in comparison to Apple’s 91%, Samsung’s share of the profit was a rather meager 9%, even though it was the second-highest in the industry. If the difference in these percentages was a bit less, it might have made a bit more sense, but the stats are not self-explanatory by any means.
One thing is certain, though, having 91% of the industry profit share shows Apple’s complete dominance of the market. However, the reasons aren’t limited to Apple having a more loyal user-base although that does play a part in it.
Impact of Average Selling Price (ASP)
When you start analyzing Apple’s success, the first stat that’s sure to jump out is the average selling price, or ASP for short. Apple has always had a higher ASP for its devices as compared to Samsung. This ultimately leads to a better profit margin.
The average selling price per unit for Apple iPhones was $595 for Q3 of 2016, which is nearly 2.5 times higher than Samsung’s ASP. Even this gap doesn’t explain the staggering difference between the profits earned by each company.
Even this gap doesn’t explain the staggering difference between the profits earned by each company. A lot of other factors contributed to that stat. One of these is the recall of Samsung Galaxy Note 7 owing to the whole exploding devices saga though it doesn’t seem to have caused as much damage to Samsung as you’d think.
Also, the earnings and profit margins announced by Apple are not a one-off success owing to a single event; the situation has been this way for nearly a decade now. The truth is that Apple has always been way ahead of the pack when it comes to profit margins in the smartphone industry.
Apple and the quarter of 103.6% profit share!
The ultimate period of Apple’s dominance of the smartphone market came a couple of years ago when it achieved the seemingly impossible feat of getting more than 100% of the profit share in the smartphone market.
The reason behind this unbelievable statistic is that most phone manufacturers reported losses in that quarter, whereas Apple’s profit was more than the reported losses, and hence the share of nearly 104% among companies including Samsung, Sony, LG, and Microsoft.
So how do they pull it off?
It all comes down to marketing strategies employed by Apple and the way the company has managed to project and maintain its image over the years. Since Apple focuses mainly on high-end phones that tend to cost from $650 like the iPhone7, to $750 for iPhone 7 Plus and going up to $1100. When you compare this to Samsung, the prices are usually in the range of $350 to $700, and this is not counting the multitude of low-end devices they market.
It stands to reason that Apple’s devices bring them more profit than its competitors. The profit margins they keep are big since they have got the production and logistics cost optimized to near perfection. Manufacturing costs are bound to go down once you have been in a business long enough because processes and yield improve with the passage of time as dictated by Moore’s Law.
The biggest advantage Apple has over Samsung though is its tremendous brand value. People are loyal to Apple and are often eager to upgrade to the latest iPhone hitting the market. The Apple logo is often enough to make people pay extra for a device, even if they can get another one for the same price with seemingly better specs.
When it comes to Apple, the persona is beyond mere specs and more about the whole package that iDevices have on offer. Samsung, on the other hand, makes phones for every category, from budget phones like Galaxy Grand Prime Plus all the way to the upcoming Galaxy S8.
This variety might ensure a higher number of unit sales but does not guarantee a high-profit margin for the company. One might argue that this is Samsung’s business model, so there’s no saying that they aren’t succeeding in what their aim is.
To capture the part of the market that is interested in phones of a lower price range, Apple continues to sell older iPhones for high prices like iPhone SE— which has the body of iPhone 5s, a three-year-old phone but still quite popular in certain parts of the world.
Samsung, on the other hand, keeps introducing new phones every few months, and the older ones are quickly discontinued, which doesn’t allow them to reap the rewards of economical manufacturing. However, this might be out of Samsung’s hands, as even if they continue producing older models, not a lot of people are likely to buy them when they could get a newer model without a huge price difference between the two.
In the foreseeable future, Samsung doesn’t look like being able to take a considerable portion of Apple’s market share when it comes to smartphones, but in an industry where trends can change pretty quickly, you can never be too sure of a particular company having the upper-hand for an extended period of time.
This article is authored by Awais Imran, Head of Content & Design at Pakistan’s leading price comparison shopping startup PriceOye.pk.