The Korean electronics maker is determined to widen its LCD-TV leadership, pummeling rivals with an all-out effort to promote new screens with LED technology
Stop in a Best Buy (BBY) to buy a new TV and, separate from all the flat screens from the likes of Sony, Sharp, and Philips, you'll find a section devoted to just one brand, Samsung, and only one type of TV technology, LEDs, or light-emitting diodes. Since July, Best Buy has been devoting 16-foot-wide wall space in each of its 900 stores nationwide to the Korean company's top-of-the-line flat-panel sets, which feature a new type of lighting that produces a picture that is crisper than ordinary LCD or plasma models. It's the first time Samsung Electronics has gotten this kind of red-carpet treatment at Best Buy, which has a similar arrangement for Apple's (AAPL) iPhone.
The alliance with Best Buy is another sign of the success Samsung Electronics has achieved in marketing its high-end TVs, which are burnishing its brand image and helping Samsung to rake in profits. The increased presence in the U.S. retail electronics chain underlines the Korean company's growing leadership in TVs. Its global shipments of LCD TVs totaled 5.7 million in the second quarter of this year, up by some 606,000, or 12%, from the first quarter, the largest growth of all TV makers, according to market researcher iSuppli. In contrast, sales for Sony (SNE), erstwhile king of the TV world, fell to 2.8 million units from 3 million.
Samsung's strategy this year was to bring out a new series of TVs, particularly those using LEDs as a light source. It was a high-risk bet as the new lineup could boost the price by up to a third at a time when consumers faced the pain of a global recession and the threat of layoffs. But Samsung officials said they were determined to widen the gap with rivals after becoming the leader in LCD TVs in 2007 both in terms of unit sales and revenues. "We needed a new driver to maintain a growth momentum," says Sue Shim, senior vice-president for TV marketing at Samsung.
Making LED TVs Stand Apart
The Korean electronics company saw the answer in LED-lit LCD TVs. That's because by replacing traditional fluorescent lamps with LEDs to illuminate the screens of LCD TVs, manufacturers could deliver brighter and sharper picture quality, save power by more than 40%, and reduce the thickness of the screen by a third to make it easier for consumers to hang them on the wall. Yoon Boo Keun, Samsung's TV chief, said he believed his company could accelerate the opening of a market for the products as they satisfy "unmet needs of consumers."
Once the decision was made last fall, Samsung pushed for LED-lit LCD TVs at full force. To make its new products stand out from other LCD TVs, Shim's marketing team drew up a plan to position them as a completely new category. "We want to get across a message that it is a whole new species of TV," Shim said. To stress the difference, Samsung dropped a reference to LCD, simply calling them "LED TVs."
One of the first moves was to dominate shelf space at major retailers. To this end, Samsung came up with a full lineup of four different models of LED TVs, in sizes ranging from 32 to 55 inches, and launched them globally in March at the same time. Rivals introduced only one or two models. That has allowed Samsung to dominate the LED category so far this year. Market researcher DisplaySearch expects Samsung to grab a share of some 60% for all of this year in the segment, which is expected to rise from 3.7 million units in 2009 to 64 million in 2012.
The Korean company also splurged on hundreds of millions of dollars in ads and other campaigns to promote TVs using LED technology. It declined to give details of its marketing spending but said this year's marketing expenditure for its TV business tripled that of last year. One example: Samsung is spending more than $25 million for a U.S. deal this year with the National Football League and various promotions tied to it.
Profit Margin Estimate of 12%
The promotional campaign was as active online as offline. To attract consumers, Samsung hired a British TV studio to make a short but odd video of sheep covered with LED lights being herded around a hillside in the darkness. As the flock moves across the hill, viewed from afar, the lights form and reform into various shapes and ultimately bounce through fields like the old Pong video game. The online video managed to generate 4 million hits in the first eight days and more than 10 million hits so far. The company also bought search-related ads to make sure Samsung will be the first item in search results related to LED TVs.
Dividends from the marketing investment have been handsome in the traditionally razor-thin TV business. Samsung's Digital Media Div., which makes TVs, computers, printers, and audio and video consumer devices, reported a respectable profit margin of 9% on sales of $9.5 billion in the three months to June, without providing a breakdown of the contribution from TVs alone. Song Myung Sup, electronics analyst at brokerage HI Investment & Securities, figures the company's TV business profit margin was 12%.
Now, with signs that the global economy is recovering from recession, Samsung is spurring its efforts to cement its leadership. TV business chief Yoon says his company aims to sell at least 10 million LED-lit LCD TVs next year, about five times its targeted volume this year, as the LED segment gains popularity and competition gets tough. "We will work hard to deliver new values to consumers at competitive prices when they want them," says Yoon. "I'm confident we'll maintain our leading status."