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How Product Lifecycle Management makes a difference in your industry: 
AEROSPACE
AUTOMOTIVE
CONSUMER
CONSUMER ELECTRONICS
DEFENSE
EDUCATION
INDUSTRIAL EQUIPMENT
HIGH-TECH ELECTRONICS
LIFE SCIENCES
PLASTICS
SHIPBUILDING
TELECOM
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Value Opportunity Two: Protecting Product Position By Kevin P. Hopkins The experience of consumer electronics leader Samsung demonstrates that creating and deploying intellectual property throughout a product line can deliver significant market advantage. One of the most serious threats to a product’s revenue-generating potential is for the product to become viewed as a commodity. Once seen in this light, a product’s specific characteristics begin to matter little to most consumers, and other factors, like price, tend to dictate purchase decisions. And for commodity products, prices almost always seem to head in one direction: down. As a result, profits shrink and revenue falls, even if volume remains steady. The South Korean electronics giant Samsung faced just such a challenge in the late 1980s and early 1990s. When Samsung first entered the consumer electronics market, it had aspirations of becoming “the next Sony.” With a broad line of high-quality, lower priced electronics products, Samsung quickly captured buyers’ attention—and a growing share of their wallets. But the consumer electronics market is fiercely competitive, and rarely kind to upstarts like Samsung. The company soon discovered that it had to race just to keep up with the rapidly changing features of its competitors’ products, and within a few years found itself positioned in the low-end of the television, microwave, and computer markets, offering mostly “me-too” technology and generating low margins. The result? By the late 1990s, Samsung was losing millions of dollars a month. Samsung Puts Product First Samsung responded to this challenge by pursuing an approach reflective of what product development software maker PTC calls its second Value Opportunity, “Protect Product Position.” (As discussed in previous columns, PTC’s Product First Roadmap defines paths and strategies that companies can take to create and capture value.) By focusing on innovation and the development of proprietary intellectual property, Samsung was able to distinguish its products from those of its competitors, and to restore both higher margins and a stronger position in the marketplace. Samsung took a number of steps to spur this turnabout. First, the company decided to break out of the commodity mold by developing new and innovative features that would reposition its product line at the higher end of the market. At the same time, the company resolved to push the technology envelope itself, rather than merely following the lead of its competitors. As evidence of this effort, the number of patents filed by Samsung increased 400% during the second half of the 1990s, from 400 per year to almost 1,600 annually. Finally, it launched a series of mutually beneficial strategic alliances with such proven technology innovators as Dell, Apple, and Sprint PCS. Samsung also reoriented the way in which it managed the employees who were responsible for its continued innovation. The company began to recruit globally, giving it access to the best product design and engineering talent in the world. And it reconfigured its internal promotion system so that job promotions and salaries were based much more heavily on merit, thereby rewarding those Samsung employees who contributed the most to the company’s innovation and financial success. To tell the world about its change in product strategy, Samsung adopted an aggressive new approach to marketing that clearly portrayed a new high-end image. A vivid example of this approach can be seen in Samsung’s stunning new product showcase web site, which not only looks attractive, but offers some very high-end merchandising features, like fully navigable 3-D models of many of its products. The Strategy Pays Off In just the few years that Samsung’s new product-focused development strategy has been in place, it has already paid off handsomely. Average gross margins on its products, once stagnant, have tripled, from 10% to 30%. Earnings jumped tenfold in a single year. And Samsung is now widely regarded within the consumer electronics industry as a technology leader, not a follower. The key lesson from the Samsung experience? Quite simply, innovation is a key to growth. Investing in the development of proprietary intellectual property and properly leveraging this intellectual property throughout the product line gives consumer-focused companies a significant market advantage. That’s a basic tenet of PTC’s Product First strategy: protecting product position through innovation and intellectual property pays big dividends. Does it work? Just ask Samsung. PTC’s Product First Roadmap highlights this and eight other Value Opportunities, which we will continue to explore in upcoming columns. |
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Copyright 2003, by The McGraw-Hill Companies, Inc. |
