“Just chalk it up to marketing.” That’s how a lot of pundits have explained Apple’s success over the years, indicating that the company devotes a lot of its resources to, and greatly depends on, marketing to sell products.
But according to a new report from Asymco analyst Horace Dediu, Apple spends far less on marketing than the competition does. In fact, when it comes to these kinds of expenses, Samsung spends more than anyone…
Taking a look at Samsung’s operating profits over the past few years, Dediu discovered that its margins are roughly 17%. That means that out of each handset it sells, Samsung only pockets about 17% of what it sells it for.
“One could argue however that a 17% operating margin from a group that is now leading in volume and price is still a bit weak. At its peak Nokia enjoyed a 25% operating margin, RIM 30% and HTC 27%. Apple’s iPhone operating margin is around 45%.
I think a large part of the margin story is a relatively high level of spending on SG&A (Sales, General and Administrative) which includes advertising, sales promotion and commissions. In the case of Samsung Electronics, as sales has grown these expenses have grown in proportion. As a percent of sales SG&A have held relatively steady at around 17%.”
The Asymco analyst attributes a large part of Samsung’s low margins to its high SG&A expenses, which, as he states above, includes advertising, sales promotion and commissions. And a majority of that pertains to cell phones.
So one of the more remarkable aspects of Samsung’s success has been their willingness to increase promotional spending. Considering that their other divisions don’t require as much “marketing expense” (semiconductors, LCD certainly, and TVs and Appliances to a lesser degree due to a smaller sales growth) we can imagine that the vast majority of this promotional spending has been in support of their mobile brands, Galaxy in particular.”
I have to admit, it does seem like Samsung ads are everywhere these days. I open a magazine, and there’s a Galaxy S III ad. I’m watching TV, and there’s Lebron James pitching the Galaxy Note II — I wonder how much that one cost.
But Samsung’s marketing strategies are obviously working. In the latest comScore study, the Korean manufacturer is still the lead mobile vendor in the US. And it goes back and forth with Apple for top smartphone vendor.