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Note 7 backlash may affect Samsung festive sales in India

October 19, 2016 14:58 IST

Samsung Note 7All but 500 who booked Note 7 phones have bought older devices instead of cancelling their orders but Samsung may still lose market share this festive season.

Loyal Samsung customers in India continue to buy the Korean smartphone maker’s premium phones, despite the backlash over the exploding and now discontinued Galaxy Note 7 smartphones globally.

Sales of older Galaxy S7 and S7 Edge devices have shot up, after Samsung froze the launch of its Galaxy Note 7 phones in India due to the global outrage. In India, Samsung, which uses the Android operating system, dominates the premium phone market, but could lose market share to new rival Google, which has begun taking pre-orders for its Pixel phones, and Apple’s iPhone 7, which recently went on sale.

“What we have seen is that Samsung has been a beneficiary itself as the S7 and S7 Edge sales have gone up a bit in September. Those who have not been able to get the new Note, they settled for the older Samsung phones. The company has been pretty smart to get buyers to do that,” says Neil Shah, partner at Counterpoint Research.

In the weeks prior to the scheduled launch of the Galaxy Note 7 in India, Samsung is estimated to have racked up 20,000 pre-bookings for the device, showing healthy demand. However, by cross selling its older premium devices with attractive offers to these customers, sources say less than 500 customers were lost by the company.

Making it even more attractive

Samsung is offering pre-bookers of the Note 7 in India a free Gear VR headset and Level U wireless headset for free on the purchase of either the Galaxy S7 or S7 Edge. Apart from this the company is also giving these customers a $50 (about Rs 3,350) credit for Oculus VR content and a free screen replacement for a period of 12 months after buying either of its older devices.

While Samsung’s India unit has been quick on its toes to minimise the damage of the global blunder that will cost the company an estimated $17 billion, analysts expect Samsung’s market share in the premium segment to take a hit. From an earnings perspective, the drop in India shouldn’t have a big impact given that the overall premium smartphone segment (above Rs 30,000) is just 4 per cent of the overall market.

Last year, during the festive season quarter (October-December), Samsung had a share of close to 50 per cent of the premium smartphone market. This year, with the void the Galaxy Note 7 has created apart from an overall negative outlook of the company following the issue, that share is expected to fall to 40 per cent.

“Samsung used to command 45-50 per cent market share in the fourth quarter, but this time we’re expecting to see Apple control close to 60 per cent of the market,” adds Shah.

The iPhone 7 and 7 Plus will indeed eat into the share of Samsung, new rival Google with its Pixel phones could also do some damage. Apple, with its industry leading brand recall and aspirational fix with the iPhone might not be able to lure away a major chunk of die-hard premium Android enthusiasts. That said, Samsung’s eight-month-old hardware on the S7 and S7 Edge is still comparable to newer devices on the market, say experts.

A Samsung India spokesperson declined to comment for this report and mails sent last week to the company went unanswered.

A fast-expanding market

India has become the fastest growing smartphone market in the world and while sales are dominated by devices in the sub-Rs 15,000 bracket, the massive growth of the market means devices priced above Rs 30,000 are finding more buyers too. At the start of 2015, the country had close to 140 million smartphone users, and by the start of this year, that number had shot up to 220 million.

With a larger base of mature users in the market, buying their third or fourth device, the propensity to purchase high-end devices is increasing. This is precisely why Apple is making such a big bet on India with plans to open retail stores, and could even be mulling manufacturing the iPhone locally to offset high import duties.

For several quarters Apple has reported strong growth (upwards of 50 per cent) for the iPhone in India, making the country the only shining star as sales of its devices begin to fall globally. It’s much the same story for Samsung, which continues to be the largest seller of smartphones in the country and so far has led pretty much every price segment.

As for the negative impact of Samsung’s exploding phones on sales in lower end segment, a source within Samsung, who does not want to be named, says that the Indians who purchase these low-end devices are not as aware of the incident since they’re not fully exposed to the world media.

“It will be a battle to retain the trust of well-to-do premium buyers, but we’ve already managed to retain most of the customers that had pre-booked the Note 7. Only 2 per cent of the 20,000 pre-orders have been lost, so things are not looking so bleak,” adds the person.

Making up for last ground

  • The company got nearly 20,000 pre-bookings for the Galaxy Note 7
  • It sold older premium devices with attractive offers to these customers after global outrage over Note 7
  • To fill the void, It has stepped up marketing for its older Galaxy S7/S7 Edge
  • Analysts expect Samsung’s share in the premium smartphone market in Q4 to fall to 40 per cent from 50 per cent last year
  • Rivals Apple, Motorola and Google are expected to fuel demand in India’s premium smartphone category.
Alnoor Peermohamed in Bengaluru