Will Samsung’s Ultimate Test Drive Reverse Its Smartphone Woes?

Samsung seeks to convert disillusioned iPhone users with its new "Ultimate Test Drive" program. There's just one problem with that plan...

Jamal Carnette, CFA
Jamal Carnette, CFA
Aug 24, 2015 at 5:20PM
Technology and Telecom

Any iPhone users out there want to know if the grass is greener? Source: Samsung.

Although Samsung (NASDAQOTH:SSNLF) is still No. 1 by smartphone market share according to Gartner's recently released worldwide figures, all is not well. The company's bifurcated smartphone strategy, where it competes against Apple (NASDAQ:AAPL) in the higher-margin luxury smartphone markets and a host of manufacturers in the razor-thin margin, entry-level markets, is showing signs of strain.

According to Gartner's data, Samsung's market share fell to 21.9% in the second quarter from 26.2% in the last corresponding period. Of the top five named companies, Samsung and Lenovo/Motorola were the only two that lost market share on a year-over-year basis. Samsung not only lost market share, but the company also sold fewer units to end users on a year-over-year basis, selling 5.3% fewer handsets, while the overall market grew 13.5%.

As for the high-end, Samsung recently released two new devices -- the Galaxy Note 5 and Galaxy S6 Edge+ -- that seek to compete against Apple's larger iPhone 6 Plus iteration. And apparently, Samsung is willing to put its money where its mouth is to compete with Cupertino.

Introducing Samsung's Ultimate Test Drive
In order to try to convert disillusioned iPhone users, Samsung is unveiling its Ultimate Test Drive. In a nutshell, the program allows Apple customers to use the Galaxy Note 5 or the Galaxy S6 Edge for just $1.00 for 30 days. According to Engadget, the company has confirmed the devices will include data and be "compatible with any U.S. carrier." On Samsung's promotional site, potential users browsing with an iPhone -- yes, you have to enroll using an iPhone -- can sign up to receive a phone, an activated SIM card, and a guide to set up your new device.

These test drives have been done before. T-Mobile offered a similar, albeit it shorter, test drive with its Un-carrier 5.0 rollout. Potential subscribers were allowed to use the then-current iPhone 5s to access T-Mobile's mobile network. And while the impetus behind that test drive was to put T-Mobile's network to the test and not the actual device itself, these tests seemed to be used to counteract the perception -- whether right or wrong -- that the quality of the proffered product was lower than that of its competitors.

Good idea, but is it a game changer?
Unfortunately for Samsung, this will probably fail to gain traction. It seems this program hinges on the aforementioned disillusioned iPhone users. There's just one problem here: There aren't many of them.

For the last year or so, Tim Cook has been hyper-focused in discussing Android switchers during the quarterly conference calls. Last quarter, Apple's third fiscal quarter, Cook reported Apple had its "highest switcher rate from Android ever." It stands to reason that a large portion of those switchers either came from Samsung phones, or -- at the very least -- were prime candidates for Samsung Galaxy upgrades.

Limiting this program specifically to Apple users could affect its success. During the same conference call, Cook reported iPhone users have the highest satisfaction rate of any smartphone brand, and 86% of them plan to replace their iPhone with another one. According to Cook, the next-highest brand is only at 50% for repurchase intent. Many times, the best offense is a great defense, and Samsung should work to mitigate its losses by improving its satisfaction rate.

In addition, Samsung should roll out this program to other luxury devices to consolidate high-end Android market share. The United States is becoming a slower-growth, refresh-dependent smartphone market where customer satisfaction will drive consolidation and market share.