There was a time when Samsung could do no wrong – records sales and record profits were the norm – but lately, it seems like the tide has turned and now Samsung just cannot catch a break. Sales are slow and profits are way down as Samsung officials sit there and scratch their heads. If sales aren't bad enough in other countries, on October 1, the South Korean Ministry of Science, ICT and Future Planning (MSIP) and the Korean Communications Commission (KCC) decided to start enforcing regulations pertaining to the Mobile Device Distribution Improvement (MDDI) Act…whoa, talk about big government.
What this boils down to, is the fact that in the name of competition, the South Korean government had set a ceiling on how much of a subsidy any carrier could give a subscriber buying a new device – it had been set at only $254, but the new regulations bumped it up to $324. If the carrier or retailer was caught subsidizing more than that, they could be penalized up to 3-percent of their annual revenue. Up until this point, they were giving excessive subsidies in order to lure potential customers in such a saturated market.
With the new regulations, the word transparency has entered their vocabulary – both online and offline retailers are now legally required to show the list price, the subsidy amount and the final selling price…making it easier for customers to see they are getting the same price no matter where they buy their new device. Before, based on a customer's age, where they lived, their carrier or plan they were on, the prices could all be different. Just a couple days into the new system have customers up in arms as the new subsidiaries are much less than expected and this is now making higher priced phones, like the Galaxy Note 4, too expensive for locals to buy. The Note 4 subsidy is only 111,000 won, or about $104, causing the final bill to the customer over $800 – so Samsung is not very happy about it as well.
Smaller retailers are being hit the hardest with sales being one-fifth of what they were a year ago – some of talking of closing their doors until subsidies are raised. Carriers must take a "wait-and-see" attitude, as they can really do nothing to persuade customers price wise – now they will have to compete on offering superior customer service and original marketing schemes to draw them in.
Please hook up with us on our Google+ Page and let us know how you feel about subsidies, as they affect everybody…as always, we would love to hear from you.