Can Samsung reverse its decline by borrowing Nokia’s model?

Recently, Samsung's channel strategy in the Chinese market has changed drastically: gradually reducing the share of operator channels, increasing social channel development efforts, reducing cooperation with national agents and even some provincial agents, introducing and developing FD platform providers in provinces across the country, and strengthening control over third- and fourth-tier customers. The core of this channel change is: de-operatorization and de-nationalization. The FD model in the new strategy was a channel innovation that Nokia was proud of back then, and it was also an important factor in Nokia's defeat. This strategic change has a great response in the industry, but it has not been reported in the newspapers. The only thing that can be roughly learned on the Internet is that Samsung is recruiting FD managers and FD business supervisors. What kind of move is this channel change? Can it save Samsung from its decline in the Chinese market?

1. The new policy promotes a flatter sales channel for Samsung mobile phones

Samsung mobile phones have always been sold in the Chinese market, with both operator channels and open channels being equally important, and e-commerce channels have hardly made any progress. Before 2010, open channels were mainly national agents, that is, different national agents were appointed according to product models, and national agents distributed them to provinces and cities layer by layer, with each layer getting a certain profit margin. Starting at the end of 2010, Samsung promoted the flattening of channels and began to introduce provincial agents and direct retail channels (such as Gome, Suning, D.Phone, Leyu and specialty stores, etc.). The three channel models coexisted for a long time.

In this transformation, Samsung will reduce or even terminate its cooperation with national/provincial agents and introduce FD platform providers. This is an important measure for Samsung to further flatten its open channels. FD is the abbreviation of Fullfillment Distribute, which means provincial direct-controlled distributors. The FD model is a compromise between the provincial agency system and the direct supply model. Under this model, Samsung signs a sales agreement with FD, including indicators such as sales volume, market share, marketing and after-sales service. The third and fourth-level customers offline of FD are mainly developed by Samsung. The biggest difference from provincial agents is that FD only bears the responsibility of building a provincial-level capital and logistics platform, and does not bear the functions of stocking, sales, marketing and promotion that other distributors need to bear, and makes money by rebates. The FD model enables Samsung to strengthen its management of terminals and control product prices.

The FD channel model was first introduced by Nokia in 2003. It is a great innovation in mobile phone sales channels. At its peak, FD accounted for more than 60% of Nokia's mobile phone sales in China. It was once regarded by the industry as the most complete and efficient mobile phone channel model in China. However, Nokia's decline in the domestic market is also closely related to FD. Since 2009, due to many reasons such as fines for parallel trading, Nokia's channel system has been plagued by conflicts of interest and accusations of refusal to sell. Since the end of 2011, Nokia has gradually cancelled FD provincial agents, and the FD channel model that has been implemented in China for 8 years and is proud of has become history.

2. Samsung’s channel system has to change

In the case of serious product homogeneity and similar price-performance ratio, the channel system determines the sales scale. Starting with the channel system is one of the important measures for Samsung to reverse its decline, whether it will succeed or not is not discussed for the time being.

In the 3G era, operators controlled the discourse power of the mobile phone industry chain, which was mainly reflected in the leveraging of resources. Since entering the 4G era, the three operators have reduced their marketing expenses, resulting in a slowdown in the sales of operator channels. Manufacturers have turned to traditional open channels and e-commerce channels, which have gradually become the main channels for terminal sales.

Compared with e-commerce channels, the cost of the middle links in traditional open channels is relatively high. It is not easy for overseas manufacturers to develop e-commerce in China. Apple, HTC and others have not made any progress in this regard, and they mainly rely on the strength of channel dealers. Samsung has little experience in e-commerce channels, almost zero, so when facing the overall changes in the channel trend, Samsung first considers working hard on open channels.

Channel flattening is an effective measure to reduce intermediate costs. In this process, it is necessary to balance the relationship between one's own capabilities and the scale of channel coverage. Cutting off national and provincial agents can reduce this part of the cost space. If Samsung directly supplies everything, it will not be able to handle logistics and funds, so it introduced FD as a capital logistics platform. Another benefit of doing this is that Samsung can further control the peripheral channels, understand the market sales situation more timely and effectively, and control inventory turnover.

Another important reason is that Samsung is competing with large channel dealers for the right to speak. In the face of the Internet's disintermediation trend, national distributors are also transforming, reducing intermediaries, and increasing direct supply. For example, Tianyin, China Mobile Terminal Company, China Unicom Huasheng Company, Tianyi Terminal Company, etc., through B2B platforms or direct supply systems, vigorously expand small and medium-sized customers, intending to bring customers to control manufacturers. Only by seizing the right to speak can we maintain flexibility in sales strategies. Developing FD is also a battle for the right to speak between Samsung and large channel dealers.

3. Challenges Samsung will eventually face under channel changes

The key to the success of the FD model is that the product must have a certain brand premium and bring real benefits to the channel dealers; the product shipment scale must be large enough to meet the channel dealers' product supply. For Samsung at present, these two points can still be achieved. What is worrying is that in the minds of consumers, Samsung's brand value is gradually weakening.

Channel transformation can bring benefits to Samsung, but it also makes Samsung face challenges from three aspects:

1. The impact of the flatter Internet channels. In the low-end price segment, such as the market below 1,000 yuan and 2,000 yuan, Samsung will be impacted by Internet brand products. Internet brand products have flatter operating channels, low intermediate costs, and high cost performance. Compared with the reformed Samsung, it still has a cost advantage.

2. Coming into direct competition with manufacturers that originated from open channels. Under the FD model, Samsung will strengthen its control over third- and fourth-tier customers, and will come into direct competition with manufacturers that originated from open channels such as OPPO, VIVO, and BBK. Samsung's entry into the other party's main market is a huge challenge for both parties.

3. Challenges in channel control. Nokia's failure is a lesson for us. The development of operator channels and e-commerce channels has made price control and channel diversion more serious. If Samsung fails to control it well, it will cause channel disputes, which will affect inventory turnover at the least and may even repeat Nokia's path. At the same time, it should be noted that channel partners whose relationships are broken during channel changes may also become obstacles to Samsung's sales.

4. Some suggestions for Samsung

It is difficult to predict whether the reform measures can help Samsung turn the corner. What is certain is that the reform will inevitably involve the redistribution of interests and affect the interests of some people. Samsung must make a good balance. In this regard, I have three suggestions:

1. Don’t “discard the donkey after it has done its job”; promote the transformation of core channel partners

Samsung's position in the Chinese market is inseparable from the power of national and provincial agents. Although from a commercial point of view, free trade means each party gets what it needs. But you should also think about who is helping you to distribute new products when they are launched, and who is paying for you to deal with them when the tail goods are piled up. It takes a long time to cultivate the trust and loyalty of the channel, but it can be lost overnight. The trading logic of killing the donkey after it has done its work and lack of trust is also not conducive to the promotion of the FD model in the later stage. The resources and capabilities of national and provincial agents in various provinces are often not inferior to those of FD. It is possible to consider promoting the transformation of national and provincial agents and making choices by province.

2. E-commerce channels are becoming more flat, and more attention should be paid

E-commerce channels can eliminate the need for intermediaries and save costs. Xiaomi has achieved amazing results with e-commerce sales. At the same time, Xiaomi.com has become the third largest e-commerce platform in the industry. Traditional mobile phone manufacturers such as China Cool Union have launched Internet brands and increased cooperation with e-commerce platforms. It is expected that the share of domestic e-commerce channels will reach 20% by the end of this year. Although Samsung has its own e-commerce platform and sells products on other e-commerce platforms, the level of effort is still weak and the direct contribution to Samsung is very small. E-commerce channel investment should be increased as soon as possible to further promote channel flattening and sales localization.

3. Further strengthen the construction of the fan system

Fan marketing is an important way to increase brand premium. Apple products are a clear example. Under the leadership of Xiaomi, domestic mobile phone manufacturers have also built fan systems, with Apple fans, Mi fans, Huawei fans, and Hammer fans appearing one after another. In June this year, Samsung also established the "Star Member Club", which has developed hundreds of thousands of members, but the publicity volume is still relatively small. How to cultivate fan loyalty and use the power of fans for word-of-mouth marketing is a topic that Samsung needs to focus on.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.