Five years ago, in 1995, not many people in India were
aware of the Samsung brand. Five years down the line, there is hardly any IT
person who doesn’t know about it. That the Korean giant not only managed to
create a market for its hitherto unknown brand in India, but also became a
computer essentials company wanting to do business worth Rs 2,500 crore by the
year 2003, is significant. It’s a case study of how a team of 11 people,
including four supporting staff plus five channel partners helped the company
achieve a turnover of more than Rs 501 crore during 1999-00.
In mid-1995, when Samsung first set up its office in India,
the IT market and the industry had just started opening up, with the total
number of PCs shipped in India crossing the two-lakh mark for the first time.
Yet, the majority of monitors sold at that time were monochromes. Local vendors
were competing with MNCs on the price front and one of the key strategies they
adopted was to bundle only monochromes, leaving little space for the color
monitors players. For the 233,990 PCs (DQ TOP20) sold during 1994-95, only an
estimated 20,000-25,000 color monitors were shipped. Samsung entered the Indian
market with color monitors and fax machines.
Low demand was just one of the problems for the company.
Coupled with other factors like poor brand awareness, shoestring budget and a
one-man team initially, it was hardly a situation where Samsung could ever have
become a leading player in the Indian IT peripheral space. So what options did
the company have?
The channel strategy
Fortunately for Samsung, by this time manufacturers were
moving away from exclusive dealers and SIs to a mass distribution system. The IT
industry in India was witnessing the emergence of carry-and-forward (C&F)
type of companies who would sell others companies’ products and generate
market for them. These marketing and distributing companies could choose from
the best products in the market to sell, while manufacturers had access to a
ready marketing channel. What this meant was that manufacturers had just to
convince the channels to sell their products, who in turn would leverage on
their influence over dealers and resellers to push those products. ‘‘Unlike
the consumer electronics where purchases are made on
the recommendations of friends and relatives, IT purchases
were and still dependent on recommendations of dealers as they were the only
approachable experts for an end-user," remarks Vivek Prakash, national
sales manager, Samsung.
Samsung decided to adopt the channel route. But then it was a
task too daunting for the one-man team then (Prakash) or even for the 11-member
team now. The strategy–operate through the network of companies specializing
in mass distribution business. This also meant dealing with only few people,
leaving the job of handling hundreds others to the distributors.
Says Prakash, ‘‘In a market that had just opened up,
which was not financially mature and where ways of protective grids were
limited, we wanted somebody in the middle to control the credit risk for us and
the channel partners were best suited to do this.’’ So the channel partners
took direct delivery of the products and took care of the market risk of dealing
with the smaller resellers while Samsung had to deal with only a couple of big
distributors.
Experts believe that the fast pace of changes in the Indian
economy has increased the need for such an approach, particularly because unlike
in the US, the retail channel for IT in the country is still evolving. Also the
end-users are not mature enough, as is the case with consumer electronics. On
the other hand, internal expansion or vertical integration may take too long, in
times when competition and consumers demand that the company sell everywhere
quickly without compromising on the quality. Cisco was an example of what a
company could do by concentrating on the products, while its alliances and
partners were handling sales. ‘‘And we wanted to follow the Cisco model,’’
he says categorically.
The thumb rule
While Samsung’s first two partners were Redington India and
Savex Computers, the company today has six first-line distributors in India–including
Tech Pacific, Ingram Miro, Integral Computers and Salora (the latest channel
partner to join hands in September this year).
But having the best partners alone does not automatically
ensure success. ‘‘The company needs to provide adequate support, listen to
their problems and devise ways to help them out so that both can grow together.
They also need to care about their partners so as to maintain top-of-the-mind
recall and Samsung has really mastered the art of pampering us,’’ remarks
Gautam Khandpur, CEO, Ingram Micro.
Samsung has followed a strategy of uniform price policy.
"The minute the market gets to know that I am playing favorites, the
network is bound to collapse,’’ comments Prakash. Samsung decided to fix the
volume that each distributor could sell in a time frame and each of them are
offered equal share of the market to discourage one to become bigger than the
other. This also meant that none of these distributors had incentives for
competitive play on pricing. According to Prakash, ‘‘One cannot do business
through channels without a fair and open policy.’’
Also, the company ensured that its brand pricing was very
stable. Despite tremendous overheating in the market–particularly during lean
months like September when prices tend to move below cost–Samsung has been
among the few companies known to have kept a check on the price fluctuations.
With its uniform pricing and volumes and fixed delivery cycles, channels do not
have any incentive to play on the price front. This is important from the
systems integrator’s (SI’s) perspective who are affected the most by surges
in prices of IT peripherals.
Creating the brand
Once the vehicle of delivering the products was decided,
Samsung had another issue to address–that of supporting its channel partners.
This not only meant creating a conducive business environment and backing them
with adequate service support and incentive schemes, it also meant addressing
the core issue of generating brand awareness among end-users.
Says Moninder N Jain, business manager, office automation
division, Samsung, ‘‘Our major customers are these dealers and we aim at
keeping them delighted in order to make them loyal. This also ensures that we
develop a long-term relationship with them and they continue to do business with
us and educate the end-users on the benefits of using Samsung products.’’ No
doubt then, the company has invested heavily in creating infrastructure to
support its channels through various incentive schemes, by providing adequate
after-sales service facilities and creating top-of-the-mind recall. According to
market estimates, the company has a budget of around Rs 20—22 crore for its
brand development plans during the current fiscal. This would include various
schemes for the consumers, apart from advertisement campaigns through outdoor,
print and electronic media. Besides, the company also has schemes to help its
partners organize road shows and participate in exhibitions. Samsung has been
very aggressive in promoting the Samsung brand compared to the other vendors
like LG, Microtek, Seagate and other peripheral players.
Samsung to End-Users through |
||||||
Products | Tech Pacific India |
Redington India |
Ingram Micro India |
Savex Computers |
Integral Computers |
Salora |
Color Monitor |
Yes |
Yes |
Yes |
Yes |
X | X |
HDD | Yes | Yes | X | Yes | X | X |
ODD | Yes | Yes | Yes | Yes | Yes | X |
Laser Printer | X | X | X | Yes | Yes | Yes |
Multi-function Printers | Yes | X | X | X | X | Yes |
Says Anish B Srikrishna, senior manager, marketing, ‘‘Our
relationship with channel partners goes beyond the routine interaction and
business relationship. We believe that for us to grow, these partners need to be
extremely satisfied doing business with us.’’ According to Jain, no matter
what incentives a company gives, it would be able to motivate the dealers or SIs
to push in its products once or twice. However, if the company does not follow
up the sale with a hassle-free after-sales delight, these dealers would switch
to another brand. ‘‘After all, at the end of the day, the customers are
going to bother these dealers if anything goes wrong and the company does not
mend it,’’ he adds. Hence, Samsung has adopted the policy of an all-India
service where the end-user can directly contact the company for any replacement
or service. It has also Web-enabled these services, whereby the customers can
actually log in to the Samsung site and send in such requests. As Samsung keeps
track of each and every shipment made by it, down to the end-user level, it is
actually in a position to offer an all-India warranty and guarantee. According
to Anish, a Samsung customer does not need to go to the dealer at all. He can go
to any of the service centers or at Samsung offices across India and get the job
done. Strategically, again, the company has decided to keep its service and
distributor partners separate so that none of them can rely on these benefits to
discount prices or play favorite.
Samsung also claims to be the only company in India to launch
swap centers for reducing the time in servicing and replacing its hard disk
drives. It also claims to be the only company in the country with a formal
service policy for its CD-ROM products.
Effective channel and brand management has been the key for
Samsung’s phenomenal success. Revenues are the key pointers to that. Samsung
has grown from Rs 203 crore in 1997-98 to touch Rs 501 crore for fiscal 1999-00.
The maximum emphasis in the company is to manage the channel partners well and
to create a strong brand awareness about Samsung in the country. Other
activities like swap and service centers and market research are outsourced.
Comments Prakash, ‘‘We want to remain a lean machine and do simple things,
leaving the specialists to handle specialized task.’’
SHUBHENDU PARTH
in New Delhi