Why Your Carrier Wants You to Buy a Samsung Galaxy Instead of an Apple iPhone

Samsung's heavy spending on sales commissions and kickbacks go a long way with winning over retail sales reps.

Aug 12, 2014 at 11:45AM

Chances are that when you're in the market for a new smartphone, you waltz into your carrier's local retail store to shop around. That fact has pretty big implications for Apple (NASDAQ:AAPL) and Samsung (NASDAQOTH:SSNLF), the two largest smartphone vendors in the world.

A year ago, Apple CEO Tim Cook was reportedly unhappy that only 20% of iPhones are bought directly through Apple Stores. Apple prefers that customers buy directly from Apple, since it can offer a better retail experience while potentially cross-selling other products within its ecosystem.

What do you recommend?

Kantar Worldpanel ComTech has released results from a new study on the smartphone purchase experience, showing that 64% of U.S. consumers still purchase devices in retail stores. Here's the important part: 63% of consumers received a recommendation to buy a Samsung from a sales rep.


In-store recommendations (Q1 2014)













Source: Kantar Worldpanel ComTech. Figures do not add up to 100% since recommendations are not mutually exclusive.

Of those who received a Samsung recommendation, 59% went with the recommendation and walked out of the store with a Samsung device, while only 6% opted for an iPhone. Overall, that means that retail sales reps have quite an influence during the smartphone buying process.

This isn't a new trend. A separate report from Informa Telecoms and Media in early 2013 had similar results. Why do retail sales reps pushing Samsung devices so aggressively?

Hey, big spender

There are several angles at play here. On one hand, carriers have to pay $110 more on average in subsidies for Apple devices compared to Samsung devices. On the other hand, Apple users consume twice as much data as Samsung users, which is what carriers are really selling at the end of the day. Besides, the domestic industry is quickly moving away from subsidies in favor of installment plans, so the real reason for a sales rep's preference must be elsewhere.

The answer lies in sales promotion and commissions. At this point, Samsung's massive global marketing machine is common knowledge. A big part of Samsung's marketing costs come in the form of these sales promotions. Indeed, Informa's report suggested that it was "likely that sales assistants see the Samsung devices as a safe bet to earn greater commissions."

In the first quarter, sales promotions totaled $1.5 billion. That one category of marketing costs in one quarter is more than the $1.1 billion that Apple spent on advertising throughout fiscal 2013. Meanwhile Samsung spent $7.8 billion in sales promotions in all of 2013.

This heavy marketing spending has attracted criticism that Samsung cares more about marketing than product development. In response, Samsung changed how it reports its marketing costs in order to reduce its reported total. Note that Samsung isn't actually changing its ways -- it's just changing how it reports its ways.

Verizon has previously maintained that its sales reps are not incentivized based on what device a customer chooses. Rather, its sales reps are incentivized to upsell higher data plans. The last thing that Verizon wants a customer to do is feel pressured to buy one device, only to return it in exchange for another device. In those scenarios, Verizon ends up subsidizing two devices for one service plan.

Don't expect Samsung to relent on marketing anytime soon either. When the South Korean conglomerate provided guidance last month, it said it had "executed marketing expenses somewhat aggressively to reduce channel inventories," and that results were hurt by "strong sell-out promotion." Some things never change.

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Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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