Samsung Is Crushing Apple in 1 Major Way

It's long been suspected, but only recently confirmed: When it comes to advertising, Samsung (NASDAQOTH: SSNLF  ) is crushing Apple (NASDAQ: AAPL  ) . Newly released documents from the firms' ongoing patent trial paint a troubling picture for Apple's advertising strategy -- the company knows it's getting beat.

Not only is Samsung outspending Apple, but it's putting out quality ads that have impressed even Apple's top management. Obviously, Samsung's willingness to spend is a threat to Apple, but it's also a challenge to Google (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) .

Spending an "obscene" amount of money
In an internal slideshow, Apple noted that its competitors were spending an "obscene" amount of money on advertising. While it didn't name Samsung in particular, it was definitely referring to the South Korean tech giant.

Samsung's advertising budget is many times that of its competitors, most notably Apple. Last year, Samsung spent $4.3 billion on ads, more than 5% of its annual revenue. Apple, in contrast, spends less than 1% of its revenue on advertising -- in total, about $1 billion last year, according to Ad Age.

Playing from behind, Samsung's advertising budget may be necessary. Although Samsung ships more phones than Apple, it sells fewer high-end handsets: While Apple sold about 150 million iPhones last fiscal year, estimates suggest that Samsung shipped only half as many high-end Galaxy S4s and Galaxy Note IIIs.

Not just quantity
Of course, spending a lot of money on advertising is no guarantee of success -- consider the extensive, yet seemingly worthless, ad campaign for the original Surface tablet. Still, there's more to Samsung's advertising than spending a lot of money: Its aggressive ads targeting Apple fanboys have been widely praised.

Even Apple's management admits that Samsung has done a terrific job of marketing its products. In an email exchange with Apple's advertising firm, Apple's Senior VP Phil Schiller compared Samsung's advertising to an athlete "in the zone," admitting that it was "pretty good."

Google's other hardware partners feel the squeeze
It isn't just Apple that's exposed to Samsung's massive marketing budget: Google's other hardware partners, shipping devices that are arguably more of a competitive threat -- it's easier to switch from one Android-powered handset to another -- have been largely pushed out of the market.

HTC, for example, has seen its share of the U.S. smartphone market erode to almost nothing in recent quarters, while other would-be Android manufacturers, including Sony, have struggled to gain a foothold. The latest flagships from both firms are arguably better than Samsung's current offering, yet it would be quite a shock if either firm was able to outsell Samsung this year.

Investors and tech enthusiasts may be familiar with Android brand, but the average person is decidedly less so. They may be more familiar with Samsung's Galaxy brand than Google's Android, if search trends are any indication. Google has reportedly begun requiring its handset partners to display "powered by Android" during any Android device's boot-up period -- an odd requirement, but one that makes sense in light of Samsung's branding dominance.

Samsung's competitive advantage
A recent survey from ChangeWave Research suggests that Samsung's flagships have gotten (and continue to get) more popular over time. Samsung's customer loyalty, meanwhile, isn't as great as Apple's but, with 58% of previous Galaxy owners opting for another Samsung, is relatively impressive: Even by offering better hardware, Samsung's Android-powered competitors haven't been able to dent the demand for its flagships.

More than larger screens or cheaper phones, Samsung's biggest advantage -- over Apple and to some extent others -- may be its advertising budget. It's difficult to ascertain exactly how much Samsung has been helped by its ad spend, but it's definitely had a positive effect.

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Read/Post Comments (8) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 13, 2014, at 2:22 PM, zippero wrote:

    Sam, Samsung just announced it's significantly cutting its ad budget this year because it already expects profits to fall this year and continuing to spend billions on advertising just digs a bigger hole. You really should get the latest on Samsung's doings before you write your articles. Samsung also expects Galaxy S's and Notes to contribute far less to its profits this year than in previous years because it's getting squeezed by Apple at the high end and Chinese OEMs at the low end. In such a difficult environment, advertising has limited effect.

  • Report this Comment On April 13, 2014, at 2:48 PM, MartinMTurner wrote:

    Advertising spend is no measure of anything.

    Until now, it seemed that Samsung's advertising budget was producing results. However, this week's revelations over the true sales of Galaxy Tabs in their first year, as compared with what Samsung claimed the sales were, must cause impartial observers to look again. The actual Tab sales tally much more closely with the figures we have about web usage and buying patterns. Even applying a moderate discount to the sales of Samsung's other devices would suggest that its advertising spend is far less effective than Apple's is.

  • Report this Comment On April 14, 2014, at 8:42 AM, Cintos wrote:

    Engendering a sense of "Success" is typically the goal of "obscene" marketing budgets. If you can't engineer your way to success, perhaps you can advertise your way there? Mad Money 101. Mr. Market has been more responsive to that "obscene" budget than the actual customer base.

  • Report this Comment On April 14, 2014, at 8:53 AM, GaryDMN wrote:

    No wonder the press loves Samsung.

  • Report this Comment On April 14, 2014, at 9:22 AM, JKramarz321 wrote:

    In this aspect, they can crush all they want.

    Samsung has always been a fan of "fake it till you make it", stuffing product channels, like they did with the Galaxy Tab lineup. Let them keep announcing numbers for "products shipped", rather than "products SOLD".

  • Report this Comment On April 14, 2014, at 9:55 AM, homesaler1 wrote:

    I am telling you that if Apple would move all or some of its manufacturing back to the US (as well as many other companies) and have a huge push toward "made in the USA" it would go farther than any form of advertising in their number one market. Chris

  • Report this Comment On April 14, 2014, at 9:58 AM, homesaler1 wrote:

    I have owned Samsung products including TVs, phone and tablet. I now have iPad and iPhone 5s. Apple is superior in quality/user experience and far superior in customer service. I will never buy a Samsung product again -- especially a TV.

  • Report this Comment On April 14, 2014, at 4:04 PM, jafutral wrote:

    "Samsung Is Crushing Apple in 1 Major Way"

    Yeah, Samsung sues bad reviewers claiming it might have a negative impact on sales! If only Apple had thought of that first!

    Joe

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