Our client, Samsung, is

the second largest

wearable manufacturer.
Over the past 3y, BU
revenue and market share
have been growing, but
the profit is declining.
Why? And what can we do?

11
Verify the objective
“Do we have any specific profit target to
achieve?”

“Do we have any time deadline to reach it?”

“Are there any other objectives we should

know about?”
 Ask clarifying question

“Has the industry seen any major changes

recently?”

“Since revenue and market share are

growing, what about cost per unit?”

“Are our main competitors facing the same

issue?”

Coach: Antonello Congedo

Frame the problem

Deep-dive areas for data gathering

o Competitors list, differences and performance
o Substitutes
Industry o Recent changes (prices, M&A, new technology,
marketing, new product, …)
o Segmentation (B2B vs B2C, geography, …)
o Expectations and interest changes
Customers o Behaviors (preferred distribution channels, sales per
customer, willingness to pay, …)

o Current profitability: major segmentations and trends

Company (look at the issue tree below)

Coach: Antonello Congedo

Frame the problem

Profit

Revenue - Cost

Price x Volume

o Price discrimination o Major revenue stream: o Segmentation

o Trends & recent • Product mix o Trend & recent changes
changes • Customer segm. o Competitor benchmark
• Distrib. Channels
• Geography
o Trends & recent changes
Coach: Antonello Congedo
Samsung unit sold over the past 3y

Software Smartwatches Fit bands VR tools Others

2017 4M 2M 2020 8M 4M
5% 5%
25% 25%
40%
60% 20% 20%
5% 5%
30%
30% 30%
20%
10%
15% 20% 15% 20%

B2C B2B B2C B2B

Coach: Antonello Congedo

 Generate key insights
Main evidences:
Unit sold
Volumes increased by
2017 4M 2M 2020 8M 4M
1 100%
5% 5%
25% 25% Customer segmentation
2 & B2B product mix
40% didn’t change
60% 20% 20%
Big shift in B2C
5% 5% 3 product mix
30%
30% 30%
20% Hypothesis: fit bands or VR
10% tools are the least profitable
15% 20% 15% 20% products

B2C B2B B2C B2B Next step: do we know the

margin for each segment?
Software Smartwatches Fit bands VR tools Others

Coach: Antonello Congedo

B2C Average Selling Price ’17-20
$

600
Software
500

400

300 Smartwatches

200
Fit bands
100 VR tools
Others
0
2017 2020

Coach: Antonello Congedo

 Main evidence: -40% Price
decline for the most sold
product fit bands

Hypothesis: very low

profitability of fit bands
pushed client’s profit down

Next step: do we know the

cost for each product?

Coach: Antonello Congedo

Smartwatch cost segmentation: historical
trends & benchmark with main competitors
$

400

300 300 300 300

190
Profit 60 60 (48%)
(20%) (20%) 90
Marketing (30%) 120
& Sales 15 15 (40%)
G&A 30 45 15 15
15
Labor 45 45 15
60 60 45
30

60
Parts 150
120 120 120
60

2017 2020 Apple ’20 Huawei ’20 Xiaomi ’20

Note: Samsung software, fitness bands, VR tools and smartwatches have the same Cost Per Unit. Other’s CPU is 50$. Coach: Antonello Congedo
 Generate key insights
400
Smartwatch Cost Per Unit, $
Main evidences:
300 300 190 300 300
CPU didn’t decrease
Profit 60 60 (48%)
90
1 with higher volumes
Marketing (20%) (20%) 120
(30%)
& Sales 15 15 (40%)
30 Every main competitor
G&A 45 15 15
15 perform better than
Labor 45 45 15 2 Samsung in a different
60 60 45
30 cost item
60 Fit bands (-90$ per unit)
Parts 150
120 120 120 3 and VR tools (-120$) are
60 making losses
2017 2020 Apple ’20 Huawei ’20 Xiaomi ’20

Note: Samsung software, fitness bands, VR tools and smartwatches have the same CPU.
Other’s CPU is 50$.

Coach: Antonello Congedo

B2C profit dropped down by 190M$

B2C revenue,
B$ 1.74
0.05
(3%) B2C Revenue increased by 60% (+660M$)

1.08
While CPU remained the same (240$) the
Profit
0.24 total cost increased by 100% (+850M$)
(22%)
1.69

The profit margin dropped by 19pp, with a

Cost 0.85
net income decrease of -190M$
2017 2020

Coach: Antonello Congedo

 Product mix shift
• Retail customers shifted their preferences
towards fit bands
• A new product segment called Virtual Reality
tool has been launched in B2C segment

Mid case summary Price decline

– • Average price declines for fitness bands, going
from 250$ to 150$ (-40%)
Low profit reasons
Non-competitive cost structure
• Cost per unit not reduced although a revenue
boost of 100%
• Highest cost structure in the market
• Fit bands & VR tools cost higher than price

Coach: Antonello Congedo

 CPU, $
-120
(-50%)
240
A potential saving of 120$ Marketing
& Sales
15

45
per unit can be achieved G&A

by leveraging the Labor 60

120
competitors’ best practices 15
15

for each cost item Parts 120

30

60

As is To be

Coach: Antonello Congedo

Identified initiatives and associated
risks for each cost item

Cost items Levers Pot. impact Risks

o Reorganization
o Staff demotivation
G&A o HQ footprint optimization 30$ per unit
o Talent leaving
o Mgmt compensation opt.

o Increase automation
o Delocalize production o Hidden costs
Labor 30$ per unit
o Improve efficiency o Gov/unions reaction
o Plant footprint optimization

o Suppliers consolid./renegotiation
o Quality/cost optimization o Sales decrease
Parts 60$ per unit
o Eliminate wastes/inventory opt. o Flexibility loss
o Inhouse vs outsourcing

Coach: Antonello Congedo

Total impact on Samsung profit

1.2B$

Potential profit
increase

Potential saving per # units potentially

unit
x impacted

120$ 10M

All B2C and B2C products (excluding

“others”) can be considered be
impacted by the cost reduction initiatives
Coach: Antonello Congedo
Other initiatives

Initiatives Risks Next steps

o Lose mkt share in a o Deep dive on

o Exit (today -120$ per unit) fast-growing segment growing trends
VR tools
o Increase price o Weaker ecosystem o Volume drop
strategy forecast

o Increase M&S efforts for most

o Investment costs
High profitable profitable segments (B2B?,
o Opportunity cost o Gov/unions
segments software)
reaction
o Review pricing strategy
o Fast-growing market: look at new o Monitor fastest
trends to gain market share growing segments
New products/
o Introduce high profit accessories o Competitive reaction o Monitor startups
services
(colour bands, …) or services and new product
(extended warranty, apps, …) launches

Coach: Antonello Congedo

 Practice case – a top-down recommendation

For our profitability analysis the drop in

margins are due to a shift in product mix and a
price decline.
We achieved a potential impact of 1.2B$ (x25
boost), by developing saving initiatives among
3 main cost items.

• G&A: -67%
• Labor: -50%
• Parts: -50%

As next steps we would like to deep dive and

quantify the impact of 3 high-potential actions:
• Review of VR tools pricing strategy
• Focus on software segment
• Launch of high profitable accessories

Coach: Antonello Congedo