Samsung has seen declining profits and demand for its Galaxy smartphones since 2013. There are several reasons for this, including increasing prices which reduced demand according to the law of supply and demand, as well as increased competition from cheaper substitutes from other manufacturers. To address this problem, the document recommends that Samsung focus on research and development to create truly unique and innovative features, offer a range of low and high-cost Galaxy phones to compete at different price points, control supply levels to avoid saturating the market, and only advertise genuine product attributes to rebuild brand loyalty.

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Samsung Galaxy Smartphones Decreased Demand
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Introduction
Samsung Electronics is one of the Korea's top electronics companies and was
founded in 1938. It has grown from small business to be one of top leading electronics
and Technology in the world.It makes many kinds of consumer devices, including DVD
players, digital TVs, and digital still cameras; computers, color monitors, LCD panels,
and printers; semiconductors such as DRAMs, static RAMs, flash memory, and display
drivers; and communications devices ranging from wireless handsets and smartphones to
networking gear. However, they are mostly popular for their Smartphones (Galaxy),
which is considered as one of its mains products. Samsung Galaxy includes categories
such as Galaxy Note series, Galaxy Tab Series and Galaxy S series.
Samsung from several years are relying mostly on its smartphones sale to
maximizing its profit, as other products sales are showing decline such examples include
home appliances and LCD TV (Metodiev, 2014). Unfortunately, currently Samsung are
struggling to sustain their sales and profit from Galaxy smartphones. What could be the
problem? And how could it be solved? The current paper analyses the economic problem
facing Samsung galaxy sales, the solutions available and the extent of improvement these
solution can avail.
The Problem
Samsung profits have been on declining demand since 2013 (Costello, 2013).
Despite the company being the greatest in the world when it comes to production of
smart phones, the pressure that it continues to receive from the market can no longer be
denied. In this year second quarter Samsung Galaxy smartphones has shown even huge

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profit and demand dropfor its smartphones (Fried, 2014). As you can see below the chart
clearly shows the Samsung profit have been going down from year 2013 and was worst
in the second quarter of this year.
There are various reasons for this downfall. Firstly, Samsung Galaxy was
introduced first as a budget phone with high end attributes for business. The price on
introduction was therefore low. However, as the sales of the product chain increased, new
models of Samsung galaxy came with escalated prices which also affected the demand of
the products. As noted by the law of demand, an increase in price automatically results in
an decrease in quantity sold and thus demand (Frank, 2008). In addition to this, when
Samsung raised its prices, it increased the number of substitutes since such substitutes as
the iPhone, Google Nexus, Sony Xperia and HTC Desire that formerly had higher prices
than the galaxy found an economically flat playing ground. In this regard thus, the
demand for Samsung Galaxy phones was slashed by these substitutes more easily since
they shared all the attributes. According to Krugman (2009) in increase in number of

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substitutes results in a relatively elastic demand and therefore the increase in price has a
tremendous effect on the units sold. In addition to this, other Samsung’s competitors, who
are mostly based in china, are producing phones that have features that are essentially
similar to those of Samsung. They are however, offering these phones at prices that are
much cheaper and affordable. This has; therefore, beat the purpose of purchasing
Samsung phones that are unnecessarily expensive and shifted people demand from its
smartphones to their rivals’ cheaper smartphones. Essentially, thus, Samsung is suffering
firstly the effects of lower priced substitutes that thus reduce its demand coupled with
increased price of its products to reach luxury substitutes.
Other economists have also argued that brand loyalty has also been compromised
since the release of the S chain of galaxy models (Case & Fair, 1999; Fibich, 2005).
According to this school of thought, consumers feel cheated since the differences in the
phones since the release of S3 has been negligible. The advertisements poised are thus
considered to overrate the gadgets thus injuring the consumer relationship with the brand
and thus demand for its products. According to Manjoo (2014) the strategy of using
quality as a reason to increase price and demand has been poorly employed by Samsung
since it has only been psychological. The problem is that consumers have realized this
and they have started shunning ‘the lie’.
The Solution
The main problem as noted is the fact that the increased elasticity of demand
brought about increased number of substitutes has brought the main problem to Samsung
sales. To address this, firstly, Samsung must invest more on research and development to
ensure the production of genuinely unique features in their galaxy phones, feature that

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will give them a competitive edge over others. Meanwhile, Samsung should expand the
scope of their smartphone markets by providing both low cost galaxy phones and high
cost ones. This is to ensure that Samsung competes both with the low cost substitutes and
high cost substitutes. However, the organization should be careful to ensure that its high
quality phones are sold at price lower than the high end competitors. This will ensure that
it enjoys two particular competitive advantages; high quality and relatively lower prices.
The favor of quality will thus improve demand while the law of demand will apply for
the reduced prices. While one would argue that reduced prices will reduce revenue, it
important to note that reduced price will increase the quantity sold and the firm will enjoy
economies of scale.
While advertising, the firm should also ensure that the galaxy phones are not
overrated and the qualities quoted are the exact ones available. This will ensure brand
loyalty and therefore improved demand. In this regard the sustainable demand of the
products will be generated and thus the organizational performance. The firm could also
introduce the use of such gadget incentives as headsets and other complimentary
equipments.
In addition to these Samsung should also be careful with their supply of the
products to the market. According to Klein (1983) mass distribution of product are often
associated with reduced demand as the surplus existence of the product if it is not basic
makes it redundant and thus reduces its value. Supply and demand are inversely
proportionate and therefore a new distribution strategy of an upcoming model that
ensures just enough products in the market is critical to improving sales. This strategy is
already successfully employed by Apple and HTC.

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Conclusion
While Samsung suffers reduced sales due to increased substitutes, increased
prices and adverse competitions, solutions exist. Samsung can improve their status in the
market by reducing their prices lower than their high end competitors and introduce a
new product line of cheap phones that can combat the cheaper substitutes. In addition, the
firm can also improve its innovativeness and only advertise genuine attributes of their
gadgets. Samsung can also control their supply system so that the market is never
saturated by Samsung galaxy products. While the improvement may be slow, the
adoption of these strategies will ensure that Samsung at least gets back to its original
sales volume if not enable it enjoy the grown world population and improved disposable
income.

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References
Case, K. & Fair, R. (1999). Principles of Economics (5th ed.). Prentice-Hall.
Costello, S. (2013, June 7). Slowing demand reported for Samsung's Galaxy S4. Mobile
World Live. Retrieved October 19, 2014, from
http://www.mobileworldlive.com/slowing-demand-reported-for-samsungs-galaxy-
s4
Fibich, G. (2005). The Dynamics of Price Elasticity of Demand in the Presence of
Reference Price Effects. Journal of the Academy of Marketing Science, 33(1), 66-
78.
Frank, R. (2008). Microeconomics and Behavior (7th ed.). McGraw-Hill.
Fried, I. (2014, July 7). Samsung Q2: Sluggish Tablet Demand, Slowing Smartphone
Sales. Recode. Retrieved October 19, 2014, from
http://recode.net/2014/07/07/samsung-says-second-quarter-tablet-sales-sluggish-as-
smartphone-growth-slowed/
Klein, L. R. (1983). The economics of supply and demand. Baltimore, Md.: Johns
Hopkins University Press.
Krugman, W. (2009). Microeconomics (2nd ed.). Worth.
Manjoo, F. (2014, April 18). In the Battle for Best Smartphone, Apple Still Beats
Samsung. Bits In the Battle for Best Smartphone Apple Still Beats Samsung
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