Smartphone sales confirm mid-market of ‘affordable luxury’ is disappearing

Consumer demand

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Another 3 months, another decline in global smartphone sales. And more pressure on mid-market players like Samsung, as China’s low-cost producers continue to gain market share. As the chart shows:

  • Samsung had 35% of the global market back in 2013, but was down to 23% in Q3
  • Its annualised volume fell to 262 million from 292 million in the past year
  • Apple’s delayed iPhone launch helped profits, but it faces “intensifying competition in Q4
  • Samsung also has to increase marketing spend this quarter, to fight off Apple and the Chinese

Samsung’s mid-market positioning is the key problem, as the world divides between low-cost and high perceived value:

  • Profitability leader Apple maintained market share at 12%
  • The top 3 Chinese players (Huawei, Xiaomi and Vivo) had a combined market share of 38%
  • Including OPPO, China had nearly half the global market at 46%, despite the US pressure on Huawei

But everyone else, including Samsung, are being squeezed. Market share for the  “Others” category was an all-time low of just 28% – down from 46% in 2016.

The problem is that total volume is now falling, as the chart based on Canalys/Strategy Analytics data confirms.

The smartphone market is another sign that the BabyBoomer SuperCycle is over. Volume is falling, and competition is becoming cut-throat as consumers become more careful with their money.

The low-cost segment is now the growth area, as cash-strapped consumers cut back on the mid-market – so-called ‘affordable luxury’. And Samsung’s “mass customisation” business model traps it in the mid-market:

  • It hasn’t the products to go up-market and compete with Apple
  • And its cost-base is too high to enable it to survive against Chinese competition

As the chart shows, mid-market was a great place to be in the SuperCycle. Global population was surging from 2.5bn in 1950 to over 7bn by 2010. And most of the growth was in the Wealth Creator 25 – 54 age range.

Their numbers trebled from 914m in 1950 to over 3bn. And their incomes were rising as they moved ahead in their careers. So they had the money to buy new toys like cellular phones, gaming consoles and then smartphones.

But now, everything has changed. The global population is no longer growing because more babies are being born.  Instead, it is growing because of increasing life expectancy.  People no longer die around pension age, as they did in 1950.  instead, a whole new generation is alive today, the Perennials 55+ generation:

  • There are 1.4bn Perennials today. And there will be 1.9bn by 2030
  • Their incomes go down as they retire
  • So they can’t afford to change their phones every time a new model comes along
  • Instead, they mainly prefer to buy low-cost if they need a replacement

Every company on the planet is being impacted by this change. Some will be smart and change their business models. Others will go bust as their hopes for a return to “business as usual’ are disappointed.

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