Despite the introduction of Samsung Electronics' Galaxy S6 and S6 Edge smartphones in the second quarter, U.S. smartphone demand actually dropped steadily in the quarter and was down 8 percent year-over-year compared to June 2014, according to a new report from research firm Argus Insights.
The biggest finding from Argus's report is that Samsung's flagship phones, which the company has been banking on to help turn around its mobile sales, failed to wow U.S. consumers. Samsung received a brief bump in sales, mindshare and buzz after the phones were released in early April but that quickly faded, according to Argus.
According to the report, Apple (NASDAQ: AAPL) and the iPhone 6 actually gained mindshare during the second quarter at Samsung's expense. "After an initial boost in demand just as Samsung's flagships were released, consumers became less and less interested," Argus states in its report. "Demand for the Galaxy S6 and S6 Edge began to drop shortly after their release. At this same time, Apple's iPhone 6 saw an increase in demand, despite being on the market for several months. Samsung's flagship phones failed to challenge Apple for more than a month, even with the aid of promotions. New Galaxy S6 and S6 Edge customers are becoming less satisfied as time goes on while their more obscure handsets are boosting brand delight."
Startlingly, Argus concludes: "Samsung's Galaxy S6 and S6 Edge launch was another failed attempt to challenge Apple's smartphone dominance, as consumers are not budging for more of the same. Smartphone manufacturers have yet to present novel features to greatly improve the consumer experience, and until this happens, consumers continue to flock to iPhones."
"Samsung secured a large portion of the consumer review mindshare in the U.S. smartphone market, seeing an influx in mindshare corresponding to the time at which the Galaxy S6 and S6 Edge were made available in April," Argus notes. "This boost was a result of interest in the Galaxy S6 and S6 Edge, predominantly contrived by retailer promotions, plus sustained interest in the Galaxy S5 and Note 4, all of which helped Samsung to earn back slipping consumer attention in the US market. This additional mindshare came at a time when overall consumer interest was falling, so the mild interest in Samsung's flagships did not help to increase demand."
Argus bases its findings on consumer reviews it collects from retailers around the world, including from Amazon (NASDAQ: AMZN), big-box retailers and carriers. However, instead of looking at sales channel data, Argus examines consumers reviews as well as social media posts to measure consumer demand and delight with products. "Review data itself is the best predictor of where the market is going," John Feland, Argus's CEO and founder, said in an interview with FierceWireless.
Feland said the year-over-year decline Argus observed can be largely attributed to rising smartphone saturation in the U.S. market. According to comScore, as of May, 76.8 percent of U.S. consumers had a smartphone. "For a long time, stories about saturation were just rumors," he said. "Now we're seeing the first breadcrumbs."
Feland said that Argus is "seeing a lot of upgrade fatigue" among consumers and that the year-to-year upgrades smartphone makers are making to their flagship phones are not enough to get consumers to upgrade.
"One of the things that happens in markets as they saturate is they start to fracture at the fringes," Feland said. In the U.S., smartphone makers over the past few years have focused on more niche devices--like Samsung's "Active" Galaxy phones that are waterproof and ruggedized, or phones like the Lumia 1020 with high-end cameras that are aimed at consumers that really care about photography.
"It's not to the point where people are getting smartphones in their Happy Meals, but we're almost there," he said.
Samsung fell victim to this upgrade fatigue, Feland said.
Feland added that when Argus dug into consumer review data it found that consumers had many issues with the Samsung phones, including defects, concerns with stability, reliability and poor phone call performance and battery life. While the S6 phones received rave reviews for their upgraded look at materials compared to the S5, that doesn't really matter if the phone is causing people issues when they use it, Feland said.
"Consumers are registering their complaints that the brand promise was not what they expected it to be," he said.
"Each of these handsets refreshes the brand and each of these handsets is a way to give the brand a new lease on life with consumers," Feland continued. "What happened with the S6 was that it peaked really early. A lot of times, there is a sustainment--it takes off and holds that brand up for months and months and months."
By June, Argus registered that demand for the iPhone 6 was increasing as demand for Samsung's phones were falling. Samsung has not released its second-quarter earnings yet, but earlier this month the company said it expects operating profit to drop in the second quarter, which would represent the seventh consecutive quarter of year-over-year declines in profit. Samsung likely underestimated how strong demand would be for its Galaxy S6 Edge smartphone and failed to change course in time during the period, analysts said. Yet Argus's findings indicate that, in the U.S. at least, consumer demands were not that high on the phone or its smaller counterpart to begin with.
While Apple and Samsung left the market in terms of mindshare and demand, smaller players Microsoft (NASDAQ: MSFT) and Asus actually led the market in terms of "delight," according to Argus.
"In the midst of shifting away from Nokia branding, Microsoft saw an increase in delight from the few consumers reviewing their Microsoft Lumia 640 and the Microsoft Lumia 535 handsets, crowning Microsoft as the most delightful of the quarter," Argus said. "The Asus ZenFone 2 was a top delighter as well, driving up Asus' delight to rank them among Apple and Samsung. Aside from the top delighters of the quarter, Motorola is leading the mid tier manufacturers like LG and HTC in delight, due to happy Moto X and Google Nexus 6 users."
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