Samsung Case Essay

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Michael Raith STR 421 Spring 2007 Final exam answer key Part I: Case “Samsung Electronics” (75 points) Note on grading: some of the questions may overlap a bit, for instance Q1 (a) and (b), or Q2 (a) and (b). Consequently, some people provided answers in one question that I was looking for in another question. No worries, I generally took those answers into account and adjusted the scores for those questions accordingly. 1. (20 points) Samsung’s competitive advantage I: (a) (5 points) To what extent does Samsung have a cost advantage over its competitors? To what extent does it have a benefit (differentiation) advantage? Provide numbers. This question (only 5 points) was meant to get an overview of Samsungs extent of competitive advantage. Some of you went into more detail here. To the extent those details overlapped with (b), I counted them as part of the (b) answer According to Exhibit 7a, Samsung’s costs per (256MBit equivalent) unit are lower by $1.39, or 24.4%, than those of its average competitor. They are lower by 10% than SMIC’s costs, which is Samsung’s lowest-cost competitor. An indirect way to tell that Samsung has a benefit advantage is by its ability to charge higher prices than its competitors. According to Exhibit 7a, Samsung’s prices per chip are on average higher by $0.72 than those of its competitors, or by 14.5%. Remember that price is not the same as WTP, it’s usually considerably lower especially in competitive industries. But Samsung’s higher prices do suggest that customers have a higher WTP for Samsung’s chips. What explains the price premium? P.2 mentions that OEMS would an “upwards of 1%” premium for superior reliability, which Samsung surely offers, but that’s only 1% (5-6 cents), not 14.5%. Maybe Samsung’s reputation premium is much higher. That could be the case because memory chips are an experience good, i.e. a good whose quality

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