Asia

Samsung Widens the Gap with Sony in TV


Is "extreme shepherding" the latest craze out of Scotland or New Zealand? Making the rounds on YouTube these days is a goofy video of sheep covered with LED lights being herded around a hillside in the darkness. As the flock makes its way across the heath, viewed from afar the lights form and re-form into various shapes and ultimately bounce through fields like the old Pong video game.

But what looks like yet another oddball clip by some unknown group of college kids is actually a clever marketing ploy by electronics maker Samsung. The Korean company hired a British TV studio to make the short film as part of its campaign to launch a new flat-screen technology that uses LEDs (light emitting diodes) as its light source. So far, some 5 million people have watched the clip, which only mentions Samsung in the last 10 seconds or so.

This combination of smart marketing and cutting-edge technology has helped Samsung unseat Sony as the leader in the race to dominate sales of flat TVs. For several years, Samsung and Sony (SNE) were neck and neck in the race to sell LCD TVs. But as Sony has stumbled in recent months, Samsung has surged ahead of its Japanese rival. Last year, Samsung's U.S. share of TVs with liquid-crystal display screens hit 25.1% vs. Sony's 16.5%, according to market researcher NPD Group. "It looks like we've hit the sweet spot with consumers in our campaign to generate curiosity and interest in LED technology," says Sue Kim, Samsung's senior vice-president for marketing.

Tapping Into Sports Passion

Of course, Samsung isn't pinning its marketing push solely on Internet sheep videos. This year, it will spend more than $50 million on marketing in the U.S. alone, says Tim Baxter, president of Samsung's American consumer-electronics division. More than half of that U.S. figure went toward a deal with the National Football League and various promotions tied to it. "Sports is the best way to promote HD [high-definition TVs], and in the U.S., sports is the NFL," Baxter says. "We've really tapped into the passion of the fans."

Can Samsung maintain its lead? Many industry watchers believe the Korean company has significant advantages that will help it stay in the top spot for some time. For starters, Samsung has been one of the world's biggest advertisers over the past decade, building its brand into one of the most recognizable names on earth. And Samsung has been boosting its marketing budget: Last year, it spent 6.5% of its revenue on marketing, up from 4% in 2007. "Samsung has put a tremendous amount of money into creating brand recognition, and that is paying off," says TV analyst Riddhi Patel at market researcher iSuppli.

Samsung executives believe their company has found a winning formula that's backed by better financial health. Samsung has also managed to convince many product reviewers and consumers that the quality of its TVs is as good as that of Sony's. A recent Consumer Reports survey shows Samsung tops product ratings in four of the six main sizes of LCD TVs.

Yoon's Three Advantages

Sure, Sony still commands considerable consumer respect for its brand. And Yoon Boo Keun, Samsung's TV chief, acknowledges his company must work for years to match the kind of brand awareness enjoyed by Sony. But with Samsung taking a 20%-plus share of all flat-panel TV sales worldwide, "TVs will begin to play a key role in improving our brand value," Yoon says.

Yoon sees three factors that will keep his company ahead of the pack. One is a constant stream of innovative models created by six design centers in Asia, the U.S., and Europe. Samsung designers have been asked to come up with TVs that do double duty as a piece of living room furniture—something that looks good even when it's switched off, so customers won't want to hide it in a cabinet. Another initiative is a decade-long effort to improve Samsung's supply chain, so the company can respond quickly to fast-changing market needs and price fluctuations.

The third advantage is that Samsung is the only major player that develops and manufactures its own computer chips for its TV sets. That capability is gaining importance as companies try to let viewers tap the Internet and turn TVs into the centerpiece of home entertainment, for viewing, controlling music players, and reading all sorts of content. "In-house control of the chips will allow us to quickly handle complicated needs," says Yoon.

The Won's Plunge

Samsung's success has been helped by a dizzying fall in the Korean currency—especially when compared with the surging Japanese yen. In 2008 alone, the won lost 41% of its value against the yen, giving Korean companies a huge pricing edge. "The weak won and the high yen make it hard for Japanese companies to match Samsung's aggressive marketing spending," says Lee Hak Moo, an analyst at brokerage Mirae Asset Securities in Seoul. Samsung officials counter that the impact is limited because more than 90% of its LCD TVs are made outside Korea.

Nevertheless, the currency disparity is helping Korean companies weather the global financial storm much better than their Japanese rivals. Samsung, which is also the world's largest memory chip and LCD panel maker and the No. 2 mobile-phone manufacturer, is far healthier than Sony, which is forecasting a $2.7 billion loss for the year ended March. In 2008, Samsung posted a net profit of $4.4 billion and ended the year with cash reserves of $5.3 billion. For this year, Mirae expects Samsung's net profit to fall to roughly $2 billion.

With such ammunition, Samsung is pressing ahead with a fresh marketing blitz, which includes the sheep video. In April it is launching in the U.S. its new generation of high-definition LED-lit TVs. Samsung says this will offer greater energy efficiency (it cuts power consumption some 40% compared with older LCD TVs), a brighter, sharper picture, and a thinner screen.

Some wonder whether the strategy makes sense, given the economic downturn. The LED TVs will cost some $600 more than traditional LCD TVs of similar size. But Samsung believes even in these tough times, customers are ready to pay a premium for the right product. The company hopes that at least 10% of its targeted global sales of 22 million LCD TVs this year will sport the new technology. "We're not at all oblivious to the economic environment," says U.S. consumer electronics chief Baxter. "But we're still seeing consumers trade up, and that has made us confident that this is the time to introduce LED."

Moon is BusinessWeek's Seoul bureau chief. With David Rocks in New York

Moon_ihlwan
Moon is BusinessWeek's Seoul bureau chief.

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