Samsung Case Study

Question 1:

Since, Samsung Electronics' ("Samsung") entrance into the DRAM production market in the 1980's, it has developed and continued to strengthen a number of key proficiencies that have left it with three key competitive advantages over its direct competitors. In an industry with higher barriers to entry, due to high capital and R&D costs, Samsung holds a market leadership position due in larger part to the quality of it products, the diversity/customizability of it products, and its ability to maintain cost leadership in manufacturing through various process innovations.

As you can see from Table 1 the DRAM production market is an industry where product lifecycles are very short and prices drop very quickly. We defined the three product lifecycles as; 1.) The first lifecycle has a high price, lower volume and an advantage for the first movers although there is also a need to invest a lot in R&D, 2.) The second sees more competitors enter, productions improvements and increase in volume (after ~1 year after launch of the product) reducing prices further, 3.) The third phase (a couple of years since inception) the product is commoditized with little benefit from further R&D, lower barriers to entry and also lower prices and profit margins.

Samsung has been able to become the market leader and the most profitable manufacturer in all the three lifecycles of the product due primarily to the competitive advantages outlined below which increased the willingness-to-pay and price, while also decreasing their cost, allowing them to achieve profit margins drastically higher than their competitors:

Quality

Samsung's ability to produce higher quality products resulted in a higher willingness-to-pay and price point.

Since defective memory could destroy a products entire value, and because it was hard to detect, OEM's would pay a premium for a reliable supplier. In the 1990's Samsung refocused their corporate culture on producing high quality products, and between 1995 and 2003, the company won awards for reliability and performance from most major customers, and became the supplier of choice.

In Exhibits 7a-7j, we can see that Samsung is able to sell its product at a price above that of its competitors. For example, the average price of DRAM in 2003 was $5.68 compared to a weighted average of $4.96 for its competitors. This is a 14.5% premium that OEM's were willing to pay for Samsung products and quality certainly played a significant role.

Diversification/Customization

The second competitive advantage that has contributed to a higher willingness-to-pay and price point was Samsung's ability to diversify and customize their