Why Samsung doesn’t beat Apple where it matters

Samsung’s competition with Apple is on premium phone ($400+) market share, and Apple is crushing Samsung in this market.

Other market share metrics don’t really matter all that much because of the simple fact that, according to Counterpoint , Apple dominated the global profit share of mobile phones, holding 65 percent of the global profits with just 9 percent (!!) of the total handset shipments during Q2 2017.  Counterpoint also reports that over the summer of 2016, Apple was selling just over 50 percent of the global premium smartphones, and Samsung was selling just under 25 percent. By December 2016, those numbers had grown to 70 percent and 17 percent, respectively.

Samsung spent an astonishing $10 billion on marketing in 2016, and while it doesn’t report how much of it was spent on marketing its premium phones, it was likely in the billions — and probably more than what Apple has spent globally.

So why is Samsung’s premium phone market share shrinking? Why do consumers with discretionary spending still prefer Apple in such large numbers?

The reason is not the product. Samsung is a product innovation powerhouse, launching state-of-the-art devices that compete head to head with Apple’s mobile products and getting rave reviews. The reason for this wide gap in the premium handset market share lies elsewhere: in sales and marketing innovation — or lack thereof.

Samsung is a South Korean manufacturing company, which relies mostly on channel partners to sell its mobile products. That means that Samsung’s leaders see their partners as bearing the responsibility for the buying and servicing experiences. Samsung has been focusing on providing massive marketing air cover in the form of ads, sponsorships and any other activity that is externalizing all the creativity and innovation in sales and marketing to a third-party. Samsung just loves to outspend its rivals with money they give to marketing agencies — money that isn’t invested in internal capabilities.

But that just doesn’t cut it against a sophisticated direct-to-consumer powerhouse like Apple. Apple has been launching state-of-the-art products too, but it is matched by state-of-the-art direct sales and marketing capabilities. Apple is the world’s most successful retailer (sales per square foot), by far. Apple is also showing off these achievements and prioritizes them: In its 2017 event, Tim Cook opened the keynote and before he presented any of the new products, he called on Angela Ahrendts, SVP Retail, to show off the innovation and amazing new experiences of buying and immersing with Apple.

That was before anyone talked about the iPhone X or any other product. In a way, it showed that Tim Cook thinks that the experience of buying from Apple has more long-term impact on the business than the next version of the iPhone. The scaled personal touch with Apple, the consumer interaction, is so important — and it is the key to its continued wins over Samsung. Samsung leadership simply doesn’t care as much about it as Apple.

Case in point: In August, DJ Koh, Samsung’s president of Mobile Communications Business, went onstage during the Unpacked event of the Note8 and talked about the product, only to be followed by Justin Denison, SVP of Product Strategy, to talk more about, well, the product. This pattern is consistent throughout Samsung’s major keynote addresses at CES and MWC. With rare exceptions, and always low in priority, Samsung’s leaders simply don’t show off the experience of buying Samsung or getting service at Samsung.

This culture and strategy difference also is manifested in the innovation happening within the brand’s sales and marketing departments. It starts with customer data. You can’t use the iPhone without having an account with Apple, which means that Apple knows a lot about you. In Samsung’s case, it has yielded the customer data benefit to Google, though the benefits of that decision probably outweigh the detriments.

The operating system excuse doesn’t let Samsung off the hook. Apple is continuously improving its internal sales and marketing capabilities because it has a straightforward management structure. Therefore, it can experiment as rapidly here as it does with its products (and probably faster). Apple is applying AI and other novel concepts in its operations. Apple was the first among the two to experiment with proximity in its sales operations, and its CRM system is state-of-the-art.

Contrary to that, Samsung depends on its sister company, Samsung SDS, for many of its internal sales and marketing capabilities. This structure causes a lot of friction, and innovation lags significantly behind Apple. Excluding its agencies, Samsung is not using AI in its sales and marketing operations and it has only just started experimenting with proximity (full disclosure: I initiated the development and delivery of this capability). Most of it is no thanks to leadership in Korea but to the creative marketing talent here in the U.S. that is willing to take risks and craves to innovate.

In service, Apple’s Genius Bar and call center is the standard to match. Samsung was still using pen and paper earlier this year in most of its customer-facing service operations in its flagship location at 837 Washington Street in NYC.

Samsung can close this gap with Apple if its Korean leadership will change the culture, prioritizing and investing in sales and marketing innovation. It should also consider breaking away from Samsung SDS or merging with it (shareholders are pushing for it), simplifying the management structure over its internal IT systems.

Apple proved that in order to be the leader in this premium category, a brand must be investing and committing to providing the best shopping and service experience possible. If Samsung could match its world-class products with a world-class buying and serving experiences, it has a chance of leveling the playing field with Apple in the premium handset market.