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- 1. DUE IN 14HOURS FROM NOW . Base your answers just on the article’s text as well as on the teachings in the classroom, no other sources nor your personal opinions are of interest. Short Definition of these terms in a blank sheet: · The trilemma phenomenon · The nutcracker dilemma · First mover vs Fast follower · Industry (or product) lifecycle · Diffusion of innovations: early adopters, late adopters. · Brand hallo effect · Trickledown effect · Free-rider effect Prepare powerpoint of max 10 slides on this case: 1. Your work and the general discussion are based on the following scientific article Bo‑ Seong Yun, Sang‑ Gun Lee and Yaichi Aoshima (2019) An analysis of the trilemma phenomenon for Apple iPhone and Samsung Galaxy. Service Business 13: 779–812. DOI: 10.1007/s11628-019-00405-5 To make your presentation and be able to contribute to the class discussion, you have to read the following sections: 1, 2, 3, 4.1, 6, and 7.1 only.
- 2. Prepare and answer correctly the questions given. QUESTIONS What do APPLE need to do in order to increase their reputation for innovation? How can the cheap offerors, late comers, get more profits from their operations? How can SAMSUNG improve on their customer experience? On a separate blank sheet briefly answer questions, and then report in the powerpoint. Vol.:(0123456789) Service Business https://doi.org/10.1007/s11628-019-00405-5 1 3 E M P I R I C A L A R T I C L E An analysis of the trilemma phenomenon for Apple iPhone and Samsung Galaxy Bo‑ Seong Yun1 · Sang‑ Gun Lee1 · Yaichi Aoshima2 Received: 20 February 2019 / Accepted: 12 June 2019 © Springer-Verlag GmbH Germany, part of Springer Nature 2019
- 3. Abstract Although fast followers have been making huge investments on their expansion strat- egies to surpass first movers and dominate the market, they have encountered the tri- lemma of being unable to simultaneously obtain high market shares, high business profit rates, and high brand innovativeness. This study used the Trade-off model and Diffusion of Innovation theory to statistically examine the trilemma phenomenon in the global smartphone market and revealed that during the early stage of market entry, a company should actively source and use bigmouth consumers and killer app developers, invest limited resources to expand its target market with the aim of sales profits, and develop specifically for innovation. Starting from the later stage of its market growth period, a company should establish some alternative strategies for responding to the possible reduction in the efficacy of marketing expenses. Keywords Trilemma · Smartphone · First mover · Fast follower · Diffusion of innovation · Innovation effect · Imitation effect 1 Introduction The global smartphone market is characterized by the fierce competition among Apple, Samsung, Huawei, Xiaomi, Lenovo, Oppo, VIVO, etc. These companies tend to provide unique customer value through their own models to obtain competi-
- 4. tive advantages (Woodruff 1997), and the results are represented as business profits * Sang-Gun Lee [email protected] Bo-Seong Yun [email protected] Yaichi Aoshima [email protected] 1 Sogang Business School, Sogang University, 35 Baekbeom-ro, Mapo, Seoul 04107, Korea 2 Institute of Innovation Research, Hitotsubashi University, 2-1 Naka, Kunitachi, Tokyo 186-8601, Japan http://crossmark.crossref.org/dialog/?doi=10.1007/s11628-019- 00405-5&domain=pdf B.-S. Yun et al. 1 3 on the profit-and-loss statement (Magretta 2012). Moreover, the companies may execute various strategies for the purpose of long-term survival rather than profit creation (Cadogan et al. 2002). In such cases, trade-off will occur between the stra- tegic factors (Porter 1996). Thus, companies control the determinants of various strategic factors’ performance to achieve their management goals (Gruca and Rego 2005) and take these determinants into consideration when determining their future
- 5. business direction (Skinner 1969). Likewise, “profit” and “survival” are the two themes of the ultimate objective—namely, strategy execution. Depending on which theme a company chooses, its strategic decisions may change and it may encounter a trilemma due to the trade-off between the strategic elements. In the global smartphone market, the fast follower Samsung Electronics was found lacking in the trilemma phenomenon in terms of market share, business profit rate, and brand innovativeness while chasing the first mover Apple, as shown in Fig. 1. Based on its management philosophy, Samsung strategically emphasizes surviving by controlling the market instead of skillfully pursuing profits. As a result, Samsung Electronics has spent huge advertising and research and development (R&D) expen- ditures since starting to target both the premium-end and middle‒low-end mar- kets. In addition, while Apple is evaluated as a leading-edge innovation company, Samsung Electronics has failed to receive an evaluation worthy of its investments, despite having input more resources than Apple. Furthermore, due to the entry of third-party competitors that have advantages on price, not only Samsung’s market share but also its ranking as an innovative company and the keyword search volume, an indicator of brand innovativeness, have been decreasing since 2014. Fig. 1 Trends of market share, business profit rate, and brand
- 6. innovativeness 1 3 An analysis of the trilemma phenomenon for Apple iPhone and… With such a phenomenon, people may ask “Why would fast followers fail to acquire a high business profit rate and brand innovativeness despite having gained an outstanding market shares?” or “How can companies escape from such a tri- lemma?” To answer these questions, this study used Skinner’s (1966) trade-off model and accounting principles to examine the relationships among the three fac- tors of the trilemma: market share, business profit rate, and brand innovativeness. We also estimated the dynamics between market share and business profit rate, as well as the positioning of brand innovation, by conducting a longitudinal analysis of the changes in innovation and imitation effects in terms of product sales and the key- word search volume using Bass’s (1969) Diffusion of Innovation model. Therefore, in this study we applied the hypothesis testing method, which is commonly used in theory establishment, to a case study to determine the competitive aspects of differ- ent players in the smartphone market and the changes in their strategic performances as well as the occurrence and cause of the trilemma. We also
- 7. investigated the strate- gic implications for fast followers to break through the nutcracker trilemma. The paper is organized as follows. In Sect. 2 we present a thorough review of relevant literature. Section 3 establishes a hypothesis for identifying and analyzing the trilemma phenomenon. Section 4 describes the data and analysis methods used to test the hypothesis. Section 5 presents the results of hypothesis testing. Section 6 analyzes the cause of trilemma occurrence and discusses preventive and counter- measure. Section 7 describes the significance and management implications of the study and discusses the limitations and future research of the study. 2 Literature review 2.1 The nutcracker phenomenon and the trilemma The nutcracker phenomenon refers to the critical situation in which a walnut gets in between the up and down sides of the nutcracker. Similarly, Samsung has got itself in between Apple, which created the smartphone market and continues to hold a dominant position in the high-end market, and budget product- oriented third parties that joined the market late. Samsung entered the smartphone market rapidly, cour- tesy of its insights into the preexisting mobile phone market and predictions about the future, and it has maintained the highest market share since
- 8. 2011 due to its fast response and risk management. That is to say, although Samsung is a fast follower, it performs various strategies, including huge investments in marketing, new market penetration, and new product releases, at a faster pace than Apple to increase its shares in the global market based on its intention to dominate the stage. However, Samsung has recently been experiencing the nutcracker phenomenon, whereby it is being squeezed by Apple on the upper side and the third parties with competitive prices on the lower side. As a result, Samsung has been facing a bottleneck in new demand creation since the market started entering its maturity stage. In particular, the threat is reinforced by Apple’s strong customer loyalty and increment of scale. Based on these conditions, this study classified Apple as a first mover, Samsung as a fast follower, and the other players as third parties. B.-S. Yun et al. 1 3 Skinner’s (1966) Trade-off model suggests that because a company can gain a competitive advantage from giving up another competitive advantage, it should concentrate its resources and capabilities on one vital element (Hayes and Wheelwright 1984; Hill 1985). Although Samsung entered
- 9. the market as the second mover about one year later than Apple, it rapidly attracted the mar- ket’s interest and created demand through strategic large-scale marketing invest- ment and technological innovation. As a result, it won a market share advantage within only three years after entering the market. However, from a long-term perspective, the competitive advantage of the market share contradicts the busi- ness profit and brand innovativeness. That is, fast followers may experience a trilemma caused by the trade-off among market share, business profit rate, and brand innovativeness. A dilemma is the difficulty of being ensnared between two options, while a trilemma involves three options that companies struggle to pursue simultane- ously. This study offers an examination of the trilemma among three factors, which, as mentioned, are market share, business profit rate, and brand innova- tiveness. To become a leading company in the smartphone market, a market player needs to manage these three factors as a priority. 2.1.1 Market share aspect Kotler and Singh (1980) stated that frontal attack, flanking attack, encirclement attack, bypass attack, and guerrilla attack are the methods used by market chal- lengers to attack the leader for market shares. Relying on its
- 10. powerful resources, Samsung used an encirclement attack to surround Apple from both the front and the side after entering the market. When the smartphone market started entering its growth period, Samsung released its premium Galaxy Series to promote a high margin‒large sales policy, enjoying the brand halo effect because its prod- uct prices were set higher than other same-level products in the low-end mar- ket. However, it then had to start making use of both a large- scale marketing investment strategy and a high quality‒low price strategy concurrently, thanks to the appearance and growth of Chinese third parties. The proportion of budget phone sales for Samsung Electronics at that time was around 70%, and the aver- age smartphone sales price remained half the price of Apple’s products until recently, which seems to have become a low-margin structure. The historical flows that fast followers have experienced in the smartphone market reveal the dilemma between market share and business profit rate. Mean- while, the impact on the business profit rate reduces the capacity and possibility of investment in technological innovation. Consequently, not only said rate but also brand innovativeness are more likely to be negatively affected if fast follow- ers in the smartphone market concentrate only on raising market shares. Further- more, if the business profit rate suffers due to such a dilemma,
- 11. it will decrease the investment capability and possibility of technological innovation and eventu- ally negatively affect brand innovativeness. 1 3 An analysis of the trilemma phenomenon for Apple iPhone and… 2.1.2 Business profit rate aspect In regard to the relationship between market share and profit rate, some research- ers argued that companies with a high market share will also have a high profit rate because of economies of scale (Buzzell et al. 1975), whereas others mooted that there is no definite relationship between the two (Hamermesh et al. 1978). In this study, the latter phenomenon was found in the smartphone market. A majority of companies spend on marketing to increase their market shares, one of the main objectives of marketing activities. In particular, as seen in the case of Samsung, fast followers can increase their market shares in the short term by inputting huge mar- keting costs to keep pace with the first mover’s initial innovative acceptance level and to maximize the imitation effect. However, moving up an increment in market share would not guarantee a high profit rate. Furthermore, because advertising mes-
- 12. sages are designed to have emotional appeal based on social necessity or personal needs rather than focusing on products’ innovative functions (Hong and Tam 2006), the degree to which consumers recognize the association between marketing cost and brand innovativeness will be low. In the accounting field, most existing studies on the expansion of a company’s profits or market value have been focusing mainly on R&D and advertising costs (Chambers et al. 2003; Lev and Sougiannis 1996; Minasian 1969; Shevlin 1991). Most researchers argued that R&D and advertising costs both have a positive effect on a company’s profits or market value. In particular, Bublitz and Ettredge (1989) demonstrated that R&D cost has a long-term effect on profit rate, while advertis- ing cost has a short-term effect on the same. Additionally, Chung (2016) conducted an empirical study to show that the R&D expense of a company in the high-tech industry will lead to a marginal increase in the company’s persistent earnings and profit growth. According to Kudyba and Diwan (2002), IT investments by compa- nies improve productivity and lead to an increase in profit rate as time goes on. To increase brand innovativeness in the smartphone market, one of the high-tech sectors, it is obvious that companies should spend as much on R&D as possible. However, existing studies showed that the payback on R&D
- 13. expenses will require a relatively long period, and the increase in profit will be marginal, meaning that the business profit rate will experience a negative effect in the short term followed by a positive effect in the long term, with an uncertain payback. To conclude, although a trilemma exists between business profit rate, market share, and brand innovative- ness in the short term, it will be weakened in the long term. Ultimately, there is a dilemma between business profit rate and brand innovativeness in the short term, and R&D expenses will last for a long and indefinite period until socially recognized brand innovativeness appears. 2.1.3 Brand innovativeness aspect Ouellet (2006) defined brand innovativeness as the consumer recognition of a brand that tends to participate in and support new ideas, creativity, and experiments. Consumers also believe that companies with high brand innovativeness are expert, attractive, and trustworthy (Aaker 2007). Because innovativeness is the prerequisite B.-S. Yun et al. 1 3 of a firm’s competitive advantage, survival, and performance (Rhee et al. 2010),
- 14. businesses need to apply high-level innovation, which can dominate or change the market, to obtain high brand innovativeness. Therefore, Samsung must break a rela- tively higher first mover barrier than other companies to exceed Apple’s brand inno- vativeness, which is the existing dominator of the application network effect and technological dependency as a market creator. Fast followers enter a potential market more quickly than first movers to gain positive consumer recognition of brand innovativeness, and they can attack first movers by investing in R&D to continuously develop innovative products. However, although Samsung has instigated high marketing and R&D costs for longer than Apple, its ranking as a global innovative company falls behind that of said rival. Moreover, Apple dealt a fatal blow to Samsung’s innovative brand with the patent litigation at 2011, leading to a long-lasting effort on the part of Samsung to catch up. As a result, Samsung failed to gain a brand innovativeness that matches up to its scale and efforts, indicating that it has fallen into a trilemma wherein market share, business profit rate, and brand innovativeness contradicting one another. 2.2 Diffusion of innovation theory The concept of innovative diffusion has been mostly applied to research on adminis- trative innovation (Haunschild and Miner 1997; King and
- 15. Anderson 1995; Mahajan et al. 1988; Rogers 1983) and technological innovation (Al - Gahtani 2003; Jarvanpaa and Leidner 1998; Lee et al. 2013; Straub 1994). Rogers’s (1983) Innovation Dif- fusion model divides innovative consumers into several categories and defines the process of how innovative diffusion is conveyed to the members of a social system over time and through certain channels. Further more, depending on the consump- tion time of new products, consumers can be divided into several sections based on normal distribution. The categories include innovators (the first group that adopts new products), opinion leaders or early adapters (a group that adopts new products relatively quickly), early majority (a group that has doubts about new products and thus adopts them after the majority has done so to avoid risk), late majority (same as early majority), and laggards or late adapters (groups that are last to adopt new products after adoption has diffused); the diffusion appears as an S-curve according to accumulated demand. Bass (1969) suggested a diffusion model that uses the innovation and imitation coefficients to describe the diffusion process of innovative products. As presented in Table 1, this model explains the process of social innovation of certain specific factors based on innovation adoption and the two sides of imitation, and it is widely used in a variety of fields as a demand prediction methodology.
- 16. Bass (1969) classi- fied innovators and imitators based on the independence of product consumption, defining early consumers of new products as innovators and those who follow the innovators in making purchases as imitators. He integrated the innovation and imi- tation effects into a single model by suggesting a mixed-effect model that consists of both Coleman’s et al. (1966) external effect model to deal with innovators and Mansfield’s (1961) internal effect model to deal with imitators. This study applied 1 3 An analysis of the trilemma phenomenon for Apple iPhone and… Ta bl e 1 R es ea rc he rs
- 20. en t e ff ec t o f a dv er - tis em en t o n th e ne w fi na nc ia l s er
- 36. r n ul l h yp ot he se s an d C ol em an , B as s/ M an sfi el d, a nd
- 61. to m od el th e co ns ec ut iv e or de r o f m ar ke t e nt ry J M ar
- 62. k R es B.-S. Yun et al. 1 3 Ta bl e 1 (c on tin ue d) R es ea rc he rs R es
- 80. o di ff er en t r ol es (s pe ed a nd sc op e) , b . H ie ra rc hi ca
- 81. l l og lin ea r m od el fo r v ol um e an d va le nc e J B us R es
- 99. K T, L G U + ) Se rv B us 1 3 An analysis of the trilemma phenomenon for Apple iPhone and… Bass’s (1969) Diffusion of Innovation theory because it focuses on the competition between first movers and fast followers instead of product lifecycle. In existing studies, researchers have subdivided Bass’s (1969) Diffusion‒Inno- vation model into three models: external-influence, internal- influence, and mixed- influence (Venkatraman et al. 1994), as shown in Table 2. External-influence shows the innovation effect, internal-influence interprets the imitation
- 100. effect, and mixed- influence covers both effects. On the basis of the external-influence model, the diffusion process is only derived from information coming through the external channel of the social system (Cole- man et al. 1966). Thus, it assumes that the diffusion speed at time t depends only on the number of potential adopters in the social system at the same time. Mansfield’s (1961) internal-influence model is appropriate for verifying the hypotheses on imi- tation that diffusion happens in certain local societies due to the interaction effect through communication channels between previous and potential adopters. The mixed-influence model consists of both the internal- and external-influence models (Bass 1969), and its cumulative distribution depends on coefficients p and q. The mixed-influence model is widely used to reflect both external and internal effects concurrently in the most general form (Venkatraman et al. 1994). 3 Hypothesis The purpose of this study is to determine the occurrence and cause of the trilemma in the global smartphone market and to suggest its strategic implications. So, we conducted a case study on two companies, Apple and Samsung, in global smart- phone market. Although there is a limit to theorization when using this methodol-
- 101. ogy, we chose the hypothesis testing method, which is commonly used in theory establishment, for the purpose of taking an objective approach rather than achieving the research goal. Therefore, the hypotheses in this study are not for theorization but instead to examine the facts of a particular case study. Based on the trade-off and innovation diffusion models, this study proposed three hypotheses (H1–H3) to compare the factors of the trilemma in the global smartphone market between first movers and fast followers. Based on Porter’s (1980) Industry Lifecycle theory, we segmented the time period into the embryonic stage, the earlier growth stage, and the later growth stage to sug- gest six sub-hypotheses under H1 and H2 (H1.1–H1.3, H2.1– H2.3). Meanwhile, to Table 2 Innovation‒Diffusion model Model Formula Elements External-influence dN(t)/dt = p[m − N(t)] N(t): accumulated number of users at time t p: coefficient of the external innovation effect Internal-influence dN(t)/dt = qN(t) [m − N(t)] q: coefficient of the internal imitation effect Mixed-influence dN(t)/dt = [p + qN(t)] [m − N(t)] m: total number of consumers in the social system
- 102. B.-S. Yun et al. 1 3 examine the strategic competitions between the two companies that are related to the factors of the trilemma, we added six more hypotheses (H3.1– H3.6) to compare the changes in innovation and imitation effects arising from the changes in product sales and the keyword search volume, together with the difference in the Boston Con- sulting Group (BCG)’s 50 Most Innovative Companies Ranking. This was because product sales is a reflection of market share and revenue scale, while the keyword search volume reflects investment in marketing and innovation. Brand innovativeness is a relatively appropriate concept for investigating the stra- tegic competition between the two companies that are exposed to the trilemma due to the following characteristics. Because brand innovativeness is a kind of customer awareness (Ouellet 2006), it is considered as the degree of belief or attitude, and it can become a subjective factor that underpins behaviors (Engel et al. 1995). As such, it can be used to explain customers’ purchasing behaviors. Moreover, although brand innovativeness itself can be considered as a nonfinancial performance of a company, it can be applied to the process that affects financial performance, includ- ing market shares and sales profits. The keyword search volume is the quantitative
- 103. result of customers’ brand awareness with an action of searching before the actual purchase. Because product sales can be discerned from the product purchase volume after searching, it is a comparatively objective tool with which to integrate the three factors of the trilemma to examine the competition with a focus on brand innovative- ness. Therefore, we made the following hypotheses in the following sections. 3.1 Market share Market share refers to the percentage that counts toward a company’s sales out of total sales of a product in the competitive market. Companies usually increase their market share by spending on marketing. This is supported by many previous stud- ies on the impact of advertising cost on sales (Bass and Clarke 1972; Little 1979; Zufryden 1987). Furthermore, many researchers commonly assume that improving brand attractiveness, such as through quality improvement and cost reduction, will increase market share (Bell et al. 1975). Urban et al. (1986) argued that later entrants can potentially increase their mar- ket shares by developing low-price excellent products and forcefully spending on advertisements. Schnaars (1994) also stated that later entrants will succeed by using the low-price, high-quality, and high-market power strategy to take on their early counterparts. Although Samsung is a later entrant, it entered the
- 104. market only one year later than Apple. Because Samsung successfully developed the more cost-effec- tive Galaxy Series in comparison with Apple’s iPhone in a short time frame, while spending three times more on advertising costs than its rival for a long time after releasing said series, it secured a high and sustainable market share. Kerr and Bruun (1983)’s free-rider effects and Apple’s price umbrella policy can possibly be used to interpret Samsung’s attainment of its market share. Later entrants may avoid the risks and costs of early entrance, enjoy a free- rider effect in the mar- ket by having the opportunity to intensively invest in marketing (Schnaars 1994), and thereby gain the advantage of increasing their market shares. Moreover, Apple’s 1 3 An analysis of the trilemma phenomenon for Apple iPhone and… previous CEO Steve Jobs decided on the price umbrella policy, stating that the com- pany should pursue a heavy increase in profits even though this would reduce its market share. Apple therefore subscribed to the management style of emphasizing the business profit rate over market share, giving Samsung a chance to expand in the
- 105. latter area. However, in contrast to this argument, if market shares are estimated for each time segment, first movers are expected to have higher market shares than fast followers during the embryonic stage. Although industry growth is slow during the embry- onic stage, the entry barrier is very high (Porter 1980). Thus, unless first movers are shunned by the market at the time, fast followers will find it practically difficult to acquire higher market shares than first movers within the same period. Furthermore, if Rogers’s (1983) Innovation Adoption Curve is applied to Porter’s (1983) Industry Lifecycle theory, 25% of the consumers in the market during the embryonic stage are innovators, who tend to compare products before making purchases if the prod- ucts of fast followers are not more innovative than those of first movers. Based on these arguments, the following hypotheses are proposed: H1 Fast followers have higher market shares than first movers. H1.1 During the embryonic stage, first movers have higher market shares than fast followers. H1.2 During the early growth stage, fast followers have higher market shares than first movers. H1.3 During the later growth stage, fast followers have higher market shares than
- 106. first movers. 3.2 Business profit rate The business profit rate is the ratio of business profits to sales, which is calculated by subtracting business expense from business revenue. Thus, assuming that sales figures and business revenue are fixed, the business profit rate will be influenced by business expense and will change according to the company’s cost structure. Although Apple’s market share is lower than Samsung’s, the former has an over- all better business profit rate than the latter, as shown in Fig. 1. This is because Apple has a better cost structure, while both companies have similar sales. From 2011 to the third quarter of 2017, the average quarterly sales of Apple was 47$B, while that of Samsung was 45$B. Because Apple chose mass production with less variety to key into the premium-end market, whereas Samsung prepared a variety of product lineups and chose a low-quantity production of diverse items to target the emerging market, the former possesses a more efficient cost structure despite the two companies’ average quarterly sales being at a similar level. Moreover, Samsung has to manage a range of factors, such as low employment flexibility and depre- ciation of idle equipment, due to direct production, marketing to the broad market,
- 107. B.-S. Yun et al. 1 3 administering customer services through its own network, and so on. Conversely, Apple bears a relatively lower burden of expenses because it uses OEM production and outsources its customer services to retain optimal cost management conditions. As stated, the argument that first movers have a higher business profit rate than fast followers would still hold during each segmented period. During the embry- onic stage, fast followers can develop their products and enter the market at a lower cost than first movers thanks to technology imitation. However, because Samsung entered the market only one year later than Apple, we could hardly expect that imi- tation could have brought it a high cost efficiency within such a considerably short time. Because smartphones have different architectures than traditional phones, even fast followers have to invest hugely in innovation. Furthermore, even though fast fol- lowers entered the market during the growth period, they could hardly break away from the low-price strategy to continuously respond to the innovative brand of the successful first movers. Because the effort to create a business ecosystem and secure command of the external platform is a highly important part of
- 108. competition and innovation management due to the nature of smartphone s (Gawer and Cusumano 2014), fast followers, which have to pay a high cost compared to first movers, have a disadvantage in terms of continuously improving their business profit rate. There- fore, the following hypotheses were formed: H2 First movers have a higher business profit rate than fast followers. H2.1 During the embryonic stage, first movers have a higher business profit rate than fast followers. H2.2 During the early growth stage, first movers have a higher business profit rate than fast followers. H2.3 During the later growth stage, first movers have a higher business profit rate than fast followers. 3.3 Brand innovativeness Brand innovativeness is defined as a brand’s level of innovation in terms of con- sumer awareness (Barone and Jewell 2013, 2014) and the extent to which consum- ers recognize that the brand can provide new and useful solutions to satisfy their requirements (Eisingerich and Rubera 2010). Brand innovativeness rests on how successfully a company can convince customers of its brand (Pappu and Quester
- 109. 2016). Fast followers are able to acquire positive consumer recognition of brand innova- tiveness by entering not only the existing market but also the potential market more rapidly than first movers to enforce large-scale marketing. They can also challenge first movers’ brand innovativeness through R&D and constant product development, and Samsung is one example of this. In contrast, Apple continues to seek advantages of first such as R&D and patent advantages, innovation image and evaluation, brand 1 3 An analysis of the trilemma phenomenon for Apple iPhone and… loyalty, and product recognition. Moreover, Apple filed a patent lawsuit against Sam- sung on April 15, 2011, damaging the innovative image of fast followers. Likewise, companies who execute different activities do improve their brand innovativeness according to their position in the market, but as a result Apple is holding a dominant position in brand innovativeness, as shown in Fig. 1. This is because Apple has not only successfully earned worldwide attention and stamped its innovative image on a large number of potential consumers’ brains, but also focused on the premium-end
- 110. market and consistently promoted its brand loyalty enhancement policy to ensure that consumers recognize it as an innovative business. Based on these factors, the following hypothesis is advanced: H3 First movers have higher brand innovativeness than fast followers. 3.3.1 Innovation effect of first mover Shih and Venkatesh (2004) used both “diversity of usage” (product’s multipurpose) and “amount of usage” (product’s use time) to address the usage-diffusion pattern. The importance of diversity of usage, which is the discovery process of a new prod- uct’s value, is rated more highly than amount of usage. Apple’s market case supports this perspective. It added the platform ecosystem concept to its existing personal digital assistant (PDA) and positioned itself well in the market through the release of the iPhone, which broadly expanded its diversity of usage. The firm innovated the architecture of the PDA, which had limited diversity of usage, and created a plat- form-based business ecosystem to launch the iPhone, which has the advantage of a broad expanse in diversity of usage. Coleman et al. (1966) argued that diffusion is derived only from information coming through the external channels of the social system, assuming that diffusion speed depends on the number of potential consumers in said
- 111. system at the time. Apple formed its innovative consumer group along with the coalescence of the early smartphone market, which occurred about one year earlier than Samsung’s entry into the arena. These initial adopters increased the innovation effect on Apple’s product sales because most of them used information from external channels. That said, the innovation effect on Samsung’s product sales is expected to be lower than that on Apple’s product sales because Samsung spread its demand by interacting with potential consumers while existing adopters had already been gathered in the market. Therefore, the following hypothesis is proposed: H3.1 First movers have a higher innovation effect on product sales than fast followers. Strong (1925) described the advertising effect using the AIDA model, which stands for Attention → Interest → Desire → Action. Thereafter, Mem- ory was added before Action, and the model was upgraded to AIDMA (Attention → Interest → Desire → Memory → Action). Rogers (1983) argued that the adoption process of new products undergoes five stages, B.-S. Yun et al.
- 112. 1 3 awareness → interest → evaluation → trial → adoption. Moreover, Engel et al. (1995) stated that belief and attitude are the subjective possibilities of action and that the decision-making process of common consumers can be divided into need recogni- tion → information search → alternative evaluation → purchase → post-purchase evaluation. Many researchers proved in their models that attention, interest, and the cognitive process are included in the stages occurring before purchase behavior. Therefore, a keyword search, which is able to estimate the cognition degree of inno- vative brand, can be a precondition of a production sales increment. Similarly to how the market creator Apple was recognized by innovative adopters at an earlier stage than Samsung, first movers are expected to have a greater innova- tion effect on the keyword search volume than fast followers, which is identical to Hypothesis 3.1. Thus, the following hypothesis is advanced: H3.2 First movers have a higher innovation effect on the keyword search volume than fast followers. Coleman et al. (1966) assumed that interaction is not active between innovative adopters and potential adopters in the early market, meaning that only the latter exist in said market. As such, the innovation effect will occur if
- 113. potential adopters pay attention to and create demand for new products. According to Strong’s (1925) advertising effect model and Rogers’s (1983) adoption pr ocess of new product, new and innovative products attract attention from the first movers who created the market; as such, the innovation effect on the keyword search volume is expected to be stronger and to occur more rapidly than that on product sales. In other words, although the innovative product is recognized and receives attention from most potential adopters through mass media around the release date, only a tiny minority will actually make the purchase and be transferred to the adoption group. Consider- ing these factors, the following hypothesis is proposed: H3.3 Innovation effect of first movers on the keyword search volume is stronger than that on product sales. 3.3.2 Imitation effect of fast followers Mansfield (1961) suggested that the driving force of diffusion is mimetic activities within the social system because diffusion occurs as the interaction effect through the communication channels between existing and potential adopters in a particular region. The reason is that an individual tends to rely on someone else’s decision if he or she believes that the other person is an expert with a higher level of knowledge (Cialdini and Trost 1998).
- 114. The existing consumers in the market can be classified into buyers of Apple and buyers of Samsung. Both types can be considered as the seed group of imitation in Mansfield’s (1961) social system or the professional group with a high knowledge level as suggested by Cialdini and Trost (1998). Along with the release of new prod- ucts, the targets of Samsung’s large-scale marketing investment input are not only 1 3 An analysis of the trilemma phenomenon for Apple iPhone and… its own buyers but also the existing innovative consumers of Apple. This can be a strong accelerator of purchase imitation through the word-of- mouth effect or social regulations. As such, the following hypothesis is propounded: H3.4 Fast followers have a stronger imitation effect on product sales than first movers. Fast followers can overcome the innovation effect of the initial attention captured by first movers by maximizing the imitation effect to increase market share. Sam- sung is one such case. Table 3 (ASYMCO 2012) presents said firm’s overshooting on the keyword search volume through a large-scale marketing
- 115. expense for several years after entering the market to triple or quadruple the share held by Apple. Sam- sung spent more than $4 billion on advertisements in 2012, about 1.3 times more than Coca-Cola, one of the top companies in the consumer goods industry in which brand management through advertisement is highly important. On this wise, for the purpose of survival rather than profit, Samsung encourages imitative activities by strategically using the word-of-mouth effect and social standards. Thus, similarly to Hypothesis 3.4, fast followers are expected to have a stronger imitation effect on the keyword search volume than first movers, leading to the following hypothesis: H3.5 Fast followers have a stronger imitation effect on the keyword search volume than do first movers. That is, diffusion lies in imitation, which mainly occurs among innovative and early adopters (Rogers 1983) and will manifest in earnest when the market enters a group period after the initial stage due to word of mouth and social standards. Because Samsung targeted both the premium-end and middle‒low-end markets, it must participate in fierce cost-oriented marketing competition throughout the entire arena at a time when hardware competition in the industry is reaching the end of the growth stage and the difference in quality is reducing significantly, as shown in
- 116. Table 2. There has been an exponential increase in the keyword search volume of Samsung Galaxy, which is significantly more influenced by the imitation effect than the innovation effect due to the nature of the growth stage. Similarly to the logic of Hypothesis 3, the keyword search appears before the product purchase stage. Because Samsung’s customer loyalty and repurchase rate are comparatively weaker than those of Apple, the imitation effect on product sales is expected to be weaker compared to the exponential increase in the keyword search volume. As such, the following hypothesis is presented: Table 3 Comparison of advertising expenses Unit: $million Company 2010 2011 2012 Samsung 2750 3023 Over 4000 Apple 691 933 1000 B.-S. Yun et al. 1 3 H3.6 The imitation effect of fast followers on the keyword search volume is stronger than that on product sales.
- 117. 4 Methodology 4.1 Data collection In this study, accessible data was collected and used to explain each factor of the trilemma. We integrated and used data on market share, business profit rate, and product sales from the Internet Data Center (IDC), Gartner, Strategy Ana- lytics, Bloomberg, and Trend Spectrum. However, to ensure that data accuracy in case intersections or gaps exists between data, we applied the triangulation technique, which involves cross-validation with secondary data such as the com- panies’ presentation information and other online particulars to ensure usage of the most appropriate data. It is most appropriate to use primary sources relating to consumers’ recogni- tion degree for analysis because brand innovativeness indicates how innovative consumers consider a brand to be. However, because of the impossibility of obtaining time series data for the past ten years, we used highly reliable second- ary sources that contain the most appropriate data. The BCG magazine’s “50 Most Innovative Companies” (SyncForce 2018) ranking has evaluated the evalu- ation scores, total shareholder return (TSR), sales growth, and profit growth of leading companies to select fifty global innovative companies each year since
- 118. 2005. It puts the emphasis on a more innovative evaluation than MIT Technol- ogy Review’s “50 Smartest Companies,” and evaluates innovation from more diverse perspectives than Forbes’s quantitative evaluation “World’s Most Innova- tive Companies,” running since 2014. As such, its data was considered the most appropriate for this study. However, to more thoroughly examine the competi- tion process between companies, we also evaluated product sales and the keyword search volume. We acquired data from Google Trend Service and calculated the keyword search volume using Google keyword search, which captures about 80% of the global search market. “Apple iPhone” was used as Apple’s keyword and “Sam- sung Galaxy” as Samsung’s keyword. For the period prior to the release of Gal- axy, the keyword “Samsung Omnia” was used instead. A higher keyword search volume was generally assumed to be the result of a company’s high marketing expenses. If a company’s target market grows in size, it needs to spend more on marketing to cover the increasing number of potential customers for the purpose of increasing market share, and thus the number of instances of the keyword found will increase due to the rise in interest. In this study, we used the cumula- tive sums of each period of the two companies as the total number of consumers
- 119. in the social system (see the m in the “Elements” column in Table 2) to compute the coefficients of the innovative diffusion model. Table 4 shows the datasets used in this study. 1 3 An analysis of the trilemma phenomenon for Apple iPhone and… Ta bl e 4 D at as et Pe ri od B us in es s
- 175. e st ud y pe ri od 1 3 An analysis of the trilemma phenomenon for Apple iPhone and… 4.2 Data analysis In this study, we used R to conduct a t test to test the quarterly data of Samsung and Apple, which verified Hypotheses 1–3. The starting time of the test was the quarter when each company launched its first smartphone. The ending time of the test for Apple was the fourth quarter of 2016, while that for Samsung was the fourth quarter of 2017. Although we used data from 2007 to 2016 for Apple and from 2008 to 2017 for Samsung to conduct t tests, we omitted 2011 because BCG’s innovative companies ranking was not published that year.
- 176. For H1.1–H1.3 and H2.1–H2.3, the embryonic stage was defined as the period from the first to the eleventh quarter after the release of a smartphone. During such a stage, the industry’s growth speed is low and entry barriers are high, while there are few kinds of products and the market is less competitive. The strong- est third party, Huawei, entered the market at around the eleventh quarter after Samsung released its first smartphone. The growth stage refers to the time from the twelfth to thirty-third quarter when the demand for products begins to grow rapidly. Most competitors enter the market during this period, leading to lower market entry barriers and strong price competition. Because the growth period is long, we divided it into the early and later stages to ensure a diverse analy- sis. However, the shakeout, maturity, and declining stages were excluded because they deviate from the topic of this study. To verify Hypotheses 3.1–3.6, we first calculated the two companies’ innova- tion and imitation coefficients of product sales and the keyword search volume using the mixed-influence model of the Diffusion‒Innovation effect, and then determined the appropriate analysis period to conduct an independent sample t test. Innovation and imitation coefficients were computed using SAS, while the t test for hypothesis verification was computed using R. Venkatraman et al.
- 177. (1994)’s nonlinear analysis was used to analyze the Diffusion‒Innovation model. In addition, we did not use a cross-sectional methodology, which has been the main methodology in previous research to have featured the Innovation‒Diffusion model. Instead, to increase the validity of the vertical research methodology, we followed the following standards and processes to investigate the process of and reason for changes in the innovation and imitation effect on product sales and the keyword search volume. ①A t test was conducted for the period starting from the eleventh quarter after each company released its product, which is the minimum time required by the Innovation‒Diffusion model, while a relatively free period was set for white noise. However, because this model can be explained based on errors, while white noise can be supported over a certain period due to the lack of specific patterns, the coefficients were still included in the analysis results as long as they did not significantly deviate from the pattern. ② Prior to the t test, the Shapiro–Wilk normality test was conducted to test normality, and an F test was conducted to compare two variances for homoscedasticity. ③ Hypotheses were verified by two sample t tests in the case of normality being satisfied or by Wil- coxon rank sum test with continuity correction and vice versa.
- 178. B.-S. Yun et al. 1 3 5 Results Table 5 presents the results of testing the hypothesis. Throughout the entire study period (11Q–recent), Diffusion of Innovation theory was applied in case the null/ alternative hypothesis white noise model was not supported (15Q–26Q). Because the changing speed of coefficients tends to decrease gradually, the results from 15Q are comparatively more conservative than those from 11Q. Although most of the white noise tests of Apple over the early analysis period (15Q–18Q) were supported, the t value lay between 1.5 and 2.0. Considering the research purpose, understanding the diffusion‒innovation pattern was more important than computing the results of certain periods. We included the same period in the verification to ensure effectiveness due to the gradual decrease of coefficients. Therefore, because the coefficients have a continual pattern, we included some supported white noise testing results for reference. The results of the hypothesis tests are presented in Table 6. H1, H2, and H3 were all supported, evidencing that trade-off exists among the three factors of
- 179. the trilemma (market share, business profit rate, and brand innovativeness) in the smartphone market. The sub-hypotheses H1.1–H1.3 and H2.1– H2.3, which were segmented by time period, were all supported, indicating that a trade-off rela- tionship exists between market share and business profit rate except during the embryonic stage. H3.1–H3.6 were all supported, except for H3.1, H3.4, and H3.6. Because the explanations of the supported hypotheses are the same as when the hypotheses were proposed, the discussion will be focused on the not supported hypotheses. The hypothesis that first movers have a greater innovation effect on the key- word search volume than fast followers (H3.1) was not supported. This was because the smartphone would no longer be treated as a radically innovative product after the fifteenth quarter since launching. That is, market players com- pete for market shares through gradual product innovation, such as version up, to prepare for the growth period of the market at the same time. However, Fig. 2 shows that the innovation effect of Samsung during the elev- enth quarter was 0.0114, while that of Apple was 0.0162, about 1.4 times higher. Despite the inclusion of white noise, the gap has reduced slowly from the past to the present. That said, the difference between Apple’s and Samsung’s innovation
- 180. effects on product sales became larger as the time period approached the early stage. In conclusion, although first movers had a stronger innovation effect on product sales than fast followers during the early phase of the smartphone mar- ket cycle, most of the advantages possibly thinned out when the market entered its growth period. In line with their explanation of the innovation and imitation effects on new technologies’ diffusion. Mahajan et al. (1988) demonstrated that innovators adopt new products due to their usefulness and ease of use, whereas imitators adopt them based on word of mouth and the subjective norm. H3.4 was not supported, indicating that fast followers do not impose a stronger imitation effect on product sales than first movers. Samsung’s Galaxy Series had already succeeded and settled in the market in 15Q 2011, the early period of 1 3 An analysis of the trilemma phenomenon for Apple iPhone and… Ta bl e 5
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- 273. 1 3 hypothesis testing. Nevertheless, Apple’s imitation effect on product sales was maintained at a similar level as that of Samsung because a group of Apple’s inno- vative adopters, who had been formed to a greater degree than its Samsung coun- terpart, actively started spreading the news via word of mouth and the subjective norm. Thus, Apple enjoyed an upward product repurchase rate, which also led to its success, on the coattails of its technological dependence and loyal custom- ers. In other words, while Samsung engaged in huge marketing expenditures to expand through imitations, Apple maintained itself on a similar level as its rival’s imitation effect by managing its repurchase rate and loyalty. As of July 2013, Apple recorded a repurchase rate of 78%, 26% higher than that of Samsung. Fur- thermore, Apple’s record on customer switching is 33%, three times higher than that of Samsung, implying that Apple’s customers are more loyal (FORTUNE 2013). Based on Fig. 2, the imitation coefficient of Samsung’s keyword search volume has a far higher pattern than that of Apple. In contrast, the innovation coefficient of Apple’s keyword search volume has a far higher pattern than that of Samsung. In summary, the two companies’ innovation and imitation effects on product sales are
- 274. almost identical, but Apple’s innovation effect and Samsung’s imitation effect on the keyword search volume are stronger. The results signify Apple’s advantage as a mar- ket creator that it can affect the overall innovative diffusion, while the fast follower Samsung has input considerable resources and efforts to catch up with the market share of the first mover. H3.6 was not supported, meaning that the imitation effect of fast followers on the keyword search volume was not stronger than that on product sales. This may be due to the consumers who undertook keyword searching had moved from early adapters to the early majority during the study period. That is, new innovative products in the early market receive attention from potential consumers due to their curiosity, whereas the early majority using keyword searches in the market growth period are Fig. 2 Comparison of innovation and imitation coefficients 1 3 An analysis of the trilemma phenomenon for Apple iPhone and… more likely to actually intend to purchase rather than merely being curious. To inves- tigate the validity of such logic, we also examined whether the innovation effect of
- 275. fast followers on the keyword search volume was stronger than that on product sales. However, the results again show that the difference was not statistically significant. In summary, Fig. 3 summarizes the analysis of the Innovation‒Diffusion model in the smartphone market. However, a strong innovation or imitation effect does not unconditionally indicate high product sales or keyword search volume. ①First mov- ers and fast followers impose same-level innovation and imitation effects on product sales. However, first movers exert a slightly higher innovation effect on product than fast followers in the early period, and the difference then disappears when the mar- ket enters its growth period. ②The difference between first movers’ and fast follow- ers’ innovation effects on product sales disappear earlier than the difference between their innovation effects on the keyword search volume. ③The innovation effect of first movers on the keyword search volume is high, whereas the imitation effect of fast followers on the keyword search volume is also high, and the difference is huge. ④The diffusion effect on the keyword search volume is more sensitive than that on product sales. 6 Discussion 6.1 The swamp of the trilemma The graphs in Fig. 4 illustrate the trends of Samsung’s and
- 276. Apple’s product sales and keyword search volume. After launching its Galaxy Series, Samsung devoted huge marketing expenses to overshooting the market attention and increasing prod- uct demands. As a result, its market share increased steeply after 2011, and its accu- mulated product sales overtook Apple’s starting in the third quarter of 2012. How- ever, beginning the first quarter of 2014, while Samsung’s product sales reached their congestion point, Apple was closing on it slightly. This was a signal that Apple would reverse its product sales competition with Samsung in the future. Besides, Samsung’s keyword search volume was on a decreasing trend after reaching the Fig. 3 Innovation‒Diffusion effect pattern models of first movers and fast followers B.-S. Yun et al. 1 3 maximum point, whereas the trend of Apple’s keyword search volume either increased slightly or stabilized at a similar level , strengthening the signal of Apple’s reversal. The blue solid line shows that Samsung’s accumulated keyword search volume remained on a higher level based on its accumulated product
- 277. sales during the study period. Supposing that the accumulated keyword search volume was equivalent to marketing expense and that accumulated product sales equaled sales figures, the dif- ference between the accumulated keyword search volume and accumulated product sales can be considered a negative influence on profit. That said, Apple’s accumu- lated product sales always exceeded its accumulated keyword search volume, indi- cating that the difference between accumulated product sales and the accumulated keyword search volume can be regarded as the scale of impact to increased profits. Moreover, the bottom of Fig. 4 shows that Samsung’s keyword search vol- ume reacted more sensitively than its product sales. In contrast, Apple’s keyword search volume increased at a slower rate than its product sales. Furthermore, despite Samsung committing a consistently higher advertising expenditure than Apple until recently, its keyword search volume increased exponentially only until the third quarter of 2012 and then started a continual declining trend. Nev- ertheless, even though Apple’s keyword search volume was absolutely lower than Samsung’s, it recorded steady growth until fairly recently. Thus, the impact to increase the keyword search volume and product sales, which relies on marketing expense, would only be maintained until a specific point in time. Additionally,
- 278. Fig. 4 Trends of smartphones’ product sales and the keyword search volume 1 3 An analysis of the trilemma phenomenon for Apple iPhone and… first movers’ increase rate of product sales is higher than the increase rate of the keyword search volume, disproving that first movers have more friendly and loyal customers and a higher repurchase rate than fast followers. Figure 5 displays graphs of accumulated product sales and the keyword search volume, which are shown as the percentage to each company’s maximum level. Both the accumulated product sales and the keyword search volume of Samsung increased steeply, while the increase speed of the same factors were relatively slow for Apple. However, the gap between Apple’s accumulated keyword search volume and its accumulated product sales was larger. That is, although Apple spent less on marketing than Samsung, its product sales recorded higher amounts in comparison with its keyword search volume. Notwithstanding this, even though Samsung contrived to invest huge marketing expenditures, its influence on the keyword search volume was weaker than on product
- 279. sales. As a result, it gained the No. 1 market share through the steep increase in product sales, but it has paid a high price for it due to Apple’s advantages as a first mover and high customer loyalty. Ultimately, Samsung’s business profit rate was influenced nega- tively, causing the firm to fall into a trilemma. Not only marketing expenses, but also R&D costs and business profit, were affected. Samsung’s accumulated business profit was $B 176 from the first quar- ter of 2011 to the third quarter of 2017, which was less than Apple’s correspond- ing figure of $B 379. According to the global company R&D investment ranking presented by Strategy& (the global strategy consulting team at PwC) in 2016, Samsung advanced from eighth place in 2011 to second in 2015. In contrast, Apple was ranked eighteenth in 2015, its only appearance in the top 20. Neverthe- less, it has been ranked the most innovative global company by BCG from 2005 until the present. Meanwhile, Samsung was never able to exceed Apple on this score, despite attaining third place in 2012 and second in 2013. Consequently, the fast follower Samsung has gained the highest market share by spending wildly to overcome the first mover Apple’s advantages, but it fell into the trilemma and failed to guarantee itself a brighter future due to being plagued by the problems of business profit rate and brand innovativeness.
- 280. Fig. 5 Accumulated trends of product sales and the keyword search volume compared to the companies’ highest level B.-S. Yun et al. 1 3 6.2 Escape from nutcracker trilemma Trade-off relationships exist between the three factors that constitute the trilemma, meaning that all three cannot be satisfied at the same time. Thus, from a middle‒ long-term perspective, it is more practical to establish and achieve only one highly effective goal for each period. Signs of a deepened nutcracker trilemma include product sales reaching their limit, reduction in the keyword search volume, and a lack of space in improving the business profit rate. Because such indicators are occurring at present, fast followers must seek changes to survive in the market. Although the hypothesis verification and analysis results do not suggest a solution by which fast followers can escape the trilemma, said followers can seek prevention and response plans according to arguments in existing studies. Among the various concepts of strategy, the solution for the smartphone market can be found in Porter’s (1996) concept that “Strategy is the
- 281. creation of a unique and valuable position, involving a different set of activities.” Porter (1996) stated that when most market players have reached the frontier of productivity through imita- tions of best practice, improvements in quality and productivity may lead to short- term superiority but are ineffective for occupying the unique and valuable position due to imitation by competitors. Thus instead of driving the strategy forward, market players should determine what not to do to establish a unique and valuable posi- tion through a trade-off. Apple intends to penetrate the middle‒low-end market and reverse the current market situation by using new strategies such as the halo and trickledown effects. Based on the aforementioned arguments and market conditions, Samsung should not strongly insist on market shares in the future. Instead, it should concentrate only on certain segments and reduce expenditures on advertisements. The other solution is to focus on customer satisfaction in the selected segment. This is because, in comparison with the aggressive strategy that emphasizes market share expansion and new customer acquisition, the defensive strategy that concen- trates on maintaining existing customers and improving loyalty requires a smaller amount of marketing expense (Fornell and Wernerfelt 1987). Moreover, a firm’s long-term profitability depends on whether customers keep using its products (Bhat-
- 282. tacherjee 2001a, b; Gefen 2002) because sales will be induced by repurchases, and the cost of maintaining existing customers is cheaper than that of acquiring new cus- tomers (Reichheld and Schefter 2000). In particular, efforts to improve customer sat- isfaction, in specific regional markets or when the market passes its growth period, would eventually lead to a positive influence in terms of improving market share. Consequently, given that the gaining of customer satisfaction or loyalty will lead to a better outcome during a period with a higher imitation effect than innovation effect, fast followers must focus on managing customer satisfaction and loyalty when releasing new products to avoid the hardship of a lower profit rate than first movers in the future. Customer satisfaction and loyalty cannot be obtained simply through practi- cal efforts. According to Steve Jobs, Apple combined technology, design, and an innovative business model to create the smartphone market based on the philosophy of thinking only of customers. If you are a consumer and suppose all other con- ditions are identical, would you choose the product of a company that only thinks 1 3 An analysis of the trilemma phenomenon for Apple iPhone
- 283. and… about its customers, or would you choose the product of one that intends to become a leading company in the world? Assuming that completely identical products were launched by each company, the choice would depend on the consumer’s feeling about the companies. The feeling about one company would be “this company cer- tainty knows what I want,” while the feeling about the other would be “this globally leading company can definitely make a good product.” Although both feelings are positive, empathic and evaluative reactions based on users’ experiences are expected to influence their purchasing decisions, along with changes in their attitudes. There- fore, Samsung must change its current management philosophy to a new one that is appropriate for gaining customer satisfaction to continue surviving in the smart- phone market. Another practical alternative for fast followers could be to actively discover, man- age, maintain, and use the influential mouths of innovative adopters. Early adopters are relatively young and well-educated, are more familiar with mass media, partici- pate more in interpersonal communications, and have greater potential to become opinion leaders (Brancheau and Wetherbe 1990). Furthermore, according to the prior discussion, in the case of fast followers having to strategically input huge mar-
- 284. keting expenditures to overtake the market shares of fast followers, they are able to obtain the highest profit until the middle of the market growth period. Thus, fast fol- lowers must take this into consideration when establishing their management strate- gies so as to eliminate the hardship over the profit rate. In addition, not only customers who have purchased smartphones but also app developers who work in the app market should be managed as “bigmouths.” This is because the activation of the app market has a significant impact on improving the smartphone market share because smartphones and apps have the characteris- tics of two-sided markets, which form a virtuous cycle of market expansion through a mutually complementary arrangement. Because the global economy is mov- ing toward the age of the service industry due to megatrends such as demographic changes, industrial mix change, convergence, and commercialization of processes (Lee et al. 2007), the activation of the app market is becoming an ever more pressing issue. Said activation began with the participation of developers. To retain such par- ticipation, motivations to participate in app development platforms must be strength- ened, accessibility should be enhanced, and various platform support policies should be implemented to allow developers to feel a sense of achievement (Lee et al. 2016). 7 Conclusions
- 285. 7.1 Summary Bower and Christensen (1995) addressed the fact that outstanding companies fail because, after performing the necessary work to achieve success, they overlook the competitors touting “disruptive innovation” and eventually fall into a dilemma. Nev- ertheless, Apple, the first mover in the smartphone market, never allows any disrup- tive innovation from fast followers. It continuously leaves the market share leader Samsung behind in terms of business profit rate and innovative brand, holding the B.-S. Yun et al. 1 3 top rank in the global market for over a decade. Besides, because Samsung is cur- rently entrapped in a nutcracker trilemma, its distance from Apple will possibly be deepened according to the trends of multiple indices and market signals. Figure 6 rounds up the reasons why such phenomena would occur. Samsung had no alternative other than to continuously increase its market share, even though it made great sacrifices until the time when market growth slowed. Although Samsung has laid out huge marketing expenditure s since entering the mar-
- 286. ket, it has failed to reach the level of Apple’s innovation effect on the keyword search volume, leading to a steady increase in its imitation effect and market demand in later stages. In addition, together with customer satisfaction and loyalty, this enabled Apple to gain a high business profit rate and the image of a global top innovative brand. Essentially, fast followers face significant barriers to attenuating the advan- tages of first movers in a short period. Fortunately, Samsung is sufficiently large to attempt a full range of material superiority. However, its targeting of not only the premium-end but also the middle‒low-end global markets has caused inefficiency and overshoot in business expense compared to first movers. Therefore, Samsung eventually failed to overcome the business profit rate and brand innovativeness bar- riers while having to surrender part of its customer satisfaction. This is the trilemma that has dragged down the company that holds the No. 1 market share and rendered its future uncertain. To conclude, although it is important for fast followers to raise their market share together with the indivisible factors such as quality, productivity, and technology, Porter (1996) suggested that they first determine what to give up and clarify what to concentrate on, before making their unique fits within the targeted scope. Only by doing so will fast followers be able to create their own DNAs of customer satis-
- 287. faction, which others would struggle to imitate, to avoid falling into the nutcracker trilemma. This is the big picture of avoiding and escaping from the trilemma. More- over, to decrease the high cost burden that may occur in the future, fast followers should actively discover and use the bigmouths among their innovative adopters in the early stage after entering the market. Meanwhile, in the case of fast followers intending to acquire their market share through high marketing expenditure, they should establish strategic plans after due consideration because the outcomes may Fig. 6 Trilemma of fast followers 1 3 An analysis of the trilemma phenomenon for Apple iPhone and… not be worth the input after entering the latter market growth period due to the more sensitive market interests in said phase. 7.2 Research contributions In this study, we examined the nutcracker trilemma that a company with the high- est market share in the smartphone market struggles to increase its business profit rate and become an innovative brand. Furthermore, we statistically examined the
- 288. phenomena of this trilemma to suggest an objective methodology and analyzed data on product sales and the keyword search volume by using the Innovation‒Diffusion model to suggest strategies for escaping the trilemma. While previous studies have been focusing on exploring whether to use quantitative or qualitative analysis to examine the competition aspects and causes of first movers and fast followers, here we investigated the related phenomenon by using corporate data and the Innovation‒ Diffusion model, settling for the quantitative method to discover the causes despite this being overall a case study. Moreover, unlike previous studies which mainly used cross-sectional analysis, we suggested a new methodology— longitudinal analysis— to examine the Innovation‒Diffusion model. Finally, we provided suggestions to fast followers in the smartphone market with which they can evade the nutcracker tri- lemma and derived strategical implications for the same fields therefrom, which can teach companies finding themselves in a similar situation, or fast followers in future industries, how to respond to the trilemma. 7.3 Limitations and future research needs This study has the following limitations due to the data used to study the research subject and the longitudinal analysis process of the Innovation‒Diffusion model. The first is the limitation of data acquisition and measurement
- 289. because these data could not perfectly describe the subjects and concepts. In addition to the fac- tor of product sales used in this study, market share can be estimated by a range of variables such as the scale of sales figures. In this study, we described marketing expenses, R&D costs, the production method, and other management methods as the related influence factors of the business profit rate. However, various accounts exist in accounting, and the cost structure is influenced by several factors other than those mentioned above. Although data that directly estimates consumer recognition to examine brand innovativeness would be the most appropriate to use, we deployed the best secondary information that was accessible because series data for this research purpose were impossible to be acquired. Therefore, we had to sacrifice a portion of the concepts’ clear explanations. Second, analysis of the Innovation‒Diffusion model requires initial data for a cer- tain period, although the analysis can only be performed from a later point in time. Thus, it is impossible to quantitatively examine the diffusion patterns since the ini- tial launch of each company’s smartphone (0–15Q), so some of the estimations rely on assumptions. B.-S. Yun et al.
- 290. 1 3 Third, in addition to continuously upgrading and diversifying their products, Apple and Samsung pursue a variety of tactical changes in accordance with envi- ronmental changes. However, in this study we failed to consider such distinctions between the two companies as a priority. Although the purpose was to narrow the scope of the study, it would have been more proper to consider those conditions together to explain the trilemma more thoroughly. Finally, although we settled for hypothesis testing, this was an attempt to objec- tively examine a particular case study of two companies within a single industry. This approach is weak from the theoretical viewpoint, and the analysis results can hardly be applied to other industries. Moreover, because the analysis only included the period before the market reached maturity, future researchers should be cautious about interpreting and utilizing the results. Future investigators may improve the reliability and provide more generalized strategic implications and management guidelines by applying the methodology to a variety of fields and periods. References Aaker D (2007) Innovation: brand it or lose it. Calif Manag Rev
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