Growth Opportunities in the Saturated Global Smartphone Market
Concepts of Market Saturation
Market saturation occurs when the majority of potential buyers in a current market already use a product or service. In other words, demand in the current market is satisfied or is nearly satisfied. At that point, business owners can only maintain high sales by creating a new product or service, or by finding new markets for their current offerings.
Market Share and Saturation
Market share is the percentage of potential customers that a single company serves. When a company has a 25 percent market share, it's considered to be in a dominant market position, according to the book “Small Business Marketing for Dummies,” by Barbara Findlay Schenck. A 40 percent market share means the market is saturated -- in other words, the dominant company serves 40 percent of a market’s potential customers. The remaining 60 percent of customers belong to all of its competitors combined.
Effects of Saturation
When a company’s dominance results in market saturation, several negative situations can develop, according to Schenck. First, new competitors might decide to capitalize on the market opportunity. Second, the dominant business might grow comfortable with its lead and become complacent -- for example, by relaxing its quality standards. Third, sales might decrease if existing customers don’t need to make new purchases as often as new customers. As a result of all these situations, the dominant company might stagnate unless it creates a new product for its current customers or finds a new market for its current products.
Over-expansion is another common cause of market saturation. For example, if a business opens too many locations, customer demand might not be sufficient to keep them all afloat. To move forward, the business either must increase demand in some way -- for example, by offering significantly different products to attract new customers -- or it must retreat, closing enough of its locations to ensure that the remaining locations can be profitable.
Saturation from High Competition
Market saturation also can occur when it’s easy for competitors to jump into a market. For example, suppose a segment of consumers begins to demand a specific product. One supplier currently meets the need, but the supplier has no means of preventing others from emulating its business. Competitors will jump on the opportunity to meet the need themselves. The price of the product will plummet as companies compete for potential customers. Profit margins will shrink until the market can’t support any new entrants. At that point, the market is considered saturated.
Growth Opportunities in the Saturated Global Smartphone Market
The global smartphone market declined 2% annually in 2018 and is expected to remain flat in 2019. Replacement cycles are lengthening, and the lack of breakthrough innovations is making it difficult to attract buyers. Mature markets like China, the US, and Europe, are showing few signs of recovery. Competition is increasing even in emerging economies like India as OEMs expand aggressively. In such a scenario, localized offerings, as well as an appropriate channel and marketing mix, have become crucial to stay relevant.
Even in this sluggish market, there are pockets of growth. Chinese OEMs, especially, have been quick to identify these areas. The saturation in the home market has led the Chinese players to look for newer growth arenas overseas. This has created a wave of disruption and smartphone adoption in emerging economies like India, South East Asia (SEA), and the Middle East and Africa (MEA). Extensive product innovations and effective marketing strategies have helped some OEMs to achieve exponential growth across price bands, in both overseas and the Chinese market.
Clearly, the discovery of new markets and new pockets of growth is essential for smartphone brands to grow. Counterpoint has identified some such growth areas. We have split these across price bands, geographies, and product features. Let us take a closer look at these areas:-
- Significant Growth Seen in Emerging Markets as Mature Markets Slow
One of the key reasons for the slowdown in the global smartphone market was the sluggishness in mature markets. Even the collective smartphone shipment growth in emerging markets was not enough to offset the decline in the mature markets. However, there are some countries which are still getting the attention of the smartphone supply chain and OEMs. India is one such example as it was the fastest growing country for smartphone sales among other emerging smartphone markets. Exhibit 1 highlights other such geographical regions where the smartphone segment continues to grow.
Exhibit 1: Smartphone YoY sell-through growth by regions – 2018
*APAC Ex China India and Japan. Source: Counterpoint Market Pulse
- Mid and Premium Segment Smartphones
The growth momentum is shifting from the entry-level segments to higher price bands. Increased use-cases and mature smartphone users upgrading their devices are driving this trend. The premium segment (>US$600) and mid-segment (US$151-US$300) have both registered high positive year-on-year (YoY) growth in 2018
There is also a trend of increasing average selling price (ASPs) of smartphones across the globe. In fact, global smartphone ASP in 2018 grew at the fastest ever pace of 11% YoY.
The maturity levels of the market have influenced the shift in price band preferences. Premium flagships from OEMs are raising ASPs in mature markets like North America, Japan, Korea, and Western Europe. In emerging markets, ASPs are increasing because of higher-priced devices in the affordable premium segment. Examples of such devices include OnePlus, older iPhone models, and models with higher ASPs from brands like OPPO, Vivo, Xiaomi, and Huawei.
The premium and the mid segment have emerged as the new pockets of growth in terms of price bands. All the key OEMs operating in these segments grew their sales. The diffusion of high-end feature from premium to the mid-segment is making it a viable option for buyers of entry-level and mid-high segment smartphones.
- Key Features Driving Growth
OEMs have been focusing on differentiating their offerings by chalking out new product categories across price bands. Features such as full-screen displays, dual-cameras, biometric security, and support for AI, are beginning to make inroads to the mid segment. Camera, AI, memory, and display are the key growth driving features.
Our forecast for the smartphone market in 2019 is flat, but we believe as the Chinese economy recovers in late Q2, the overall smartphone market will stop the negative growth starting from H2 2019. We believe the growth opportunities will remain hidden like last year, and only a handful of companies will succeed in gaining growth this year again.