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Skyline Business School |
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Skyline Business School |
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Issue:3
OPTICAL MARKETING
Samsung spends a billion dollars a year on marketing.
Here's how it knows it's putting every dollar in the right place.
When Eric Kim took over Samsung Electronics global
marketing operations in 1999, he accepted a daunting challenge: build the Korean
manufacturer's brand into a force that would rival industry leader Sony in revenue, profit
and prestige within five years.
At that point, Samsung was arguably the biggest consumer electronics maker that consumers
had never heard about. The company had completed for three decades as a behind-the-scenes
supplier of computer monitors and semi-conductors to more powerful multinationals.
Kim was required to make Samsung a household word, and one synonymous with innovation and
quality, for which he was given a marketing budget of a billion dollars. Kim and his team
had to ensure that the company's budget would reap maximum returns on each dollar spent.
Samsung thus faced a complex challenge of selling 14 product categories in more
than 200 countries, the company had to optimize its marketing investment across 476
category-country combinations.
SIZING THINGS UP
Samsung needed to evaluate where its marketing resources should be invested worldwide. As
it began evaluating it faced a problem of information deficit. Management needed to
compare not just the growth prospects of diverse categories in diverse countries, but also
the growth prospects of the countries themselves. Samsung needed to analyze country
specific statistics-like population level, GDP per capita and growth forecasts - as well
as category data like penetration rates, market share, profitability and media costs.
Samsung's goal was to place all the data for making informed allocation decisions in
a single easy-to-access site called M-Net.
The data included:
· Overall population and population of target buyers
· Spending power per capita
· Category penetration rates
· Overall growth of categories
· Share of each of the company's brands
· Media costs
· Previous marketing expenditure and
· Competitor metrics.
It also collected benchmark data, which would help compare its spending industry
investment thresholds in each country and for each type of media (television, print,
radio). Samsung built a reallocation technology into M-Net to facilitate managers'
analysis of the data.
COMPUTER - GENERATED TRUTHS
The analysis revealed that there were serious mismatches between the amount of marketing
support some product and regions were receiving and the relative growth and profit
potential of those products and markets. Samsung made three critical discoveries:
1. It was significantly over investing in two regions that offered
relatively low growth potential. These regions were North America and Russia, which
received 45 percent of Samsung's global marketing budget but had a profit potential of
only 35 percent.
2. Samsung was significantly under investing in two regions that offered higher growth
potential. These regions were Europe and China, which received 31 percent of Samsung's
global marketing budget but had a profit potential of 42 percent.
3. Samsung discovered it was devoting more than half of its total marketing budget
to just three categories worldwide - mobile phones, vacuum cleaners and air-conditioning
units. As important as these categories were, that meant that other categories - including
camcorders, DVD players, refrigerators etc were being starved of the support they needed
to realize their significant growth potential.
ORGANIZATIONAL AND POLITICAL HURDLES
The result of the analysis Samsung executives valuable insight into where they
should and shouldn't spend on marketing. But making changes in a complex organization is
rarely as simple as determining the best logical course of action.
In a typical multinational, there are countries or categories that historically have
contributed a large proportion of the company's total revenues but now are essentially
"tapped out" because growth has stagnated or the market has become stagnated.
Yet, because of the size and past success of the domain, the manager of that business
still wields considerable power - and often exercises that power to secure more marketing
resources than the domain merits. It's difficult for senior executives to counter those
demands because they lack the objective data to show that the company as a whole would be
better served by moving some resources to other areas.
Most companies' compensation systems reward category and country managers based on local
gains, not system wide optimization. In many companies, the traditional approach to
entering a new market has been to send an executive to a country to build a successful
business - and to measure that success by the executive's profit and loss.
Samsung adheres to the highly centralized, command-and-control model that is
traditional in Asian companies. The company did have a measurement and rewards system that
encouraged category managers to grow their own businesses without regard for others. That
Kim knew would make it politically difficult to reallocate the marketing budgets in the
ways suggested by his team's computer-aided analysis. Any attempt to reduce a particular
category's budget would surely spark resistance from the category manager, who - under the
existing reward structure - would rightly argue that headquarters was undermining his
ability to succeed.
Samsung conducted 121 meetings and workshops to present it's new marketing allocation
project. It helped the team gain support of business-unit marketing executives by
involving them in the decision-making process. After all findings were validated and
changes were identified, the marketing allocation project was launched.
THE WORLD'S FASTEST-GROWING BRAND
The marketing allocation project, combined with the launch of a new global
branding campaign in 2001 and the introduction of attractive new products, has generated
considerable benefits for Samsung - not the least of which are continued growth in key
countries and categories and enhancement of the Samsung brand.
Samsung is among the top five leaders in the global market for mobile phone handsets. It
has also made significant gains in the market for camcorders, flat-panel computer
monitors, DVD players and digital TV's - all categories that Sony currently leads.
Samsung also has experienced marked increases in its global brand equity. According to a
recent study by marketing consultancy Interbrand, Samsung now has the fastest-growing
global brand. Between 2001 and 2002, the company's brand value increased 30 percent to
$8.3 billion moving from 42nd to 34th place worldwide.
MARKETING SCIENCE APPLIED
Misallocation of marketing resources is endemic to many large companies -
particularly those producing branded consumer products. Interviews with senior executives
at more than 20 leading global companies revealed widespread frustration on this matter.
Samsung's experience tells us that it is not impossible, a company willing to take
a more rigorous and analytical approach can pinpoint its most promising opportunities to
sell specific product categories in specific countries - and determine how best to
allocate scarce marketing resources to support them.
Not long after Kim took the reins as Samsung's global marketing chief, the company's chief
financial officer challenged him to prove the value of its $1 billion marketing
investment. With his analytical approach to marketing allocation, Kim met that challenge.
Finally, Samsung's results underscore the value of aiming high with any attempt to
optimize marketing investments.
If Sony isn't looking over its shoulder yet, it should be.
Reviewed from Harvard Business Review
by Rahul Roy, BBA - MAHE,
Level 1
Comments and questions: info@skylinecollege.com
URL: http://www.skylinecollege.com
