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LG has lost a lot of its influence over the smartphone industry through years of declining
sales and profits, even as the rest of the industry achieved record growth.
To fix these issues, the mobile division now has a new president
And I went to Seoul, South Korea, to talk to a bunch of people from to see
how they plan to turn these negative trends around.
I'm Marton from TechAltar, you are watching the 34th episode of The Story Behind series,
and here's what I've found.
OK, before we start with the strategy, I really have to put LG's phones into context a little,
because I think we smartphone enthusiasts fundamentally get its scale wrong.
LG smartphones make up about 80 to 90% of LG's mobile communications business unit.
The rest is mostly audio products, wearables, and accessories.
This is one of five business units in a company called LG Electronics and last quarter it
was responsible for about 18% of its revenue.
Most of LG Electronics' revenue comes from home electronics like fridges, washing machines
and TVs, but they also sell things like Vehicle components.
And then LG Electronics is only one of many companies under the LG Corporation umbrella,
although it is the largest one, with about 40-50% of the revenues.
So overall, smartphones only make up somewhere between 5 to 9% of the total revenue of the
giant conglomerate known as LG Corporation.
Geographically, LG's two most important markets by far are North America and South Korea.
North America moves the most units, accounting for well over a third of LG's total shipments,
but here LG mainly sells lower end units with low prices and low margins.
In Korea it's the opposite: LG sells fewer phones, but most of them are flagships, and
therefore LG is more profitable here, accounting for over a third of LG's mobile revenue.
Talking of revenue, it has decreased for the company's mobile division by more than 20%
over the last five years, even though the market itself grew quite quickly.
Things aren't looking great.
Profitability seems even worse, where LG has been losing money for over 3 straight years
now as well.
2016 was their worst year, when the LG G5 performed spectacularly badly, and even before
that, LG's quality control problems, together with the increased competition from China
really put LG into a tough spot.
OK, so that's a super quick overview, and I think it's pretty clear that things have
to change for LG if it wants to turn things around.
Which the new president apparently wants to do.
So I talked to a bunch of people at LG, here are all the plans they would share with me.
Starting with products, there are two clear directions.
One is a returned focus on the basics, which they defined as ABCD.
Audio, Battery, Cameras and Displays.
LG will apparently stop focusing on being the first to bring random, risky technologies
to market, like modular designs or curved screens, which LG has done quite often in
the past, and will instead simply make sure that LG phones perform well in these core
areas.
Other companies like Samsung and OPPO had a similar change in mentality a few years
ago, and while we enthusiasts might prefer more experimental companies, it sort of makes
sense because smartphones are becoming a commodity and nowadays there is so little room for meaningful
differentiation now anyway.
The G7, which you can see my thoughts on right here, is a pretty good example of this new
strategy.
It's just an evolution of the G6, not something radically new.
Also a part of this push for fixing the basics is an increased focus on software updates,
which LG says they opened a dedicated new software development center for.
They claim to push for more consistent and faster updates in the future, which was definitely
one of LG's weaknesses so far, although we haven't seen any proof of that just yet.
ThinQ branded artificial intelligence enhancements are supposed to give LG devices a differentiation
going forward, but for now I've found LG's actual AI capabilities fairly unimpressive.
Mostly just AI based scene detection and image enhancements in cameras, and sadly nothing
LG told me about their future plans really seemed like a breakthrough, but I guess only
time will tell how far they can push with AI.
In terms of marketing, LG told me that the promotional budget of LG Electronics as a whole
was mostly focused on on promoting OLED and 4K LG TVs, but since they
have gained enough market share in those categories, they will start prioritizing mobile phones
this year.
LG signed up BTS, Korea's most popular boyband to promote phones starting with the G7.
LG claims that this is their most expensive advertisement deal to date, and while it won't
do much for them in, say, Europe, it could give them a nice boost in Asia and to some
extent in the US, which, as you might remember, is where LG actually makes money.
Over the last few years, LG's marketing was fairly weak and got drowned out by more aggressive
brands like Samsung, Apple and Huawei though, so we will have to wait and see how hard they
really push this year.
LG's most counterintuitive and interesting strategy though might just be to wait.
Given that since 2017, the global smartphone market has stopped growing for the first time
ever, and given that most smartphone makers still aren't profitable, smaller and weaker
companies are soon expected to either go bankrupt or get bought by larger, more wealthy ones.
Consolidation is kind of inevitable.
Just think of HTC, which is being sliced up by Google, Nextbit, which was bought by Razer,
or smaller Chinese companies like Gionee and Meizu, which are slowly losing market share.
And given that LG is a large, diversified conglomerate, it can simply afford to wait
until the competition bleeds out.
While outlasting competitors, isn't the sexiest strategy, it might actually work for LG.
OK, so those are all of their plans.
How do I feel about them?
Well, a little mixed.
First, I think a focus on the ABCD basics plus better software support is going into
the right direction.
I don't see spectacular battery life improvements or or fantastic software support from the LG G7 yet, but let's
give this new mobile president a little bit of time.
I also find it a little hard to imagine what LG could meaningfully do better in AI
than Google, who owns the OS, or Samsung, who at least has more users and money couldn't do
but I guess more AI and better AI on LG phones won't hurt either.
So, the product strategy, while not groundbreaking, is generally going into the right direction.
But the rest, I'm not so sure about.
See, a good place for a brand to be is either on the premium end, like Samsung and Apple,
or on the value end, like OnePlus and Xiaomi.
Both are perfectly valid business models.
Obviously to sustain a premium brand you need a sales, marketing and customer support structure
that convinces people that your products are worth the premium.
On the budget end, you can save on, most, of those and you can offer your devices for
less.
LG though, falls into this uncomfortable zone between the two.
They kind of want to appear premium, so they spend some money on these extras, but don't
commit to them fully, so consumers don't want to pay the premium prices.
Just look at their prices over time.
Here's the G6 on Amazon.
It's priced like a premium product at launch, rivaling the latest Galaxy phones, but then
gets discounted dramatically pretty much straight away, and in a few months it becomes a value
phone.
And it's a very similar story for other LG flagships.
I bought my G6, just 3 months after it was announced, for something like 380 Euros.
That's pretty much half price and this is a problem, because LG has to spend money like a premium brand,
but eventually sells phones with margins like a value brand.
This is obviously not a good business model, and LG really has to decide, at least in my opinion,
what they want to be.
If they want a premium brand, they should make a premium product and push it
just as hard as Samsung does.
If they are OK being a value brand, they should skip all the BS and start pricing
their phones like value phones right from the start.
To this end, LG telling us that they are finally taking mobile marketing a little more seriously could be
a good sign that they are actually becoming a premium brand,
but given their track record, I am a little doubtful.
The saving grace for LG for at least the next few years might come from the US government
being aggressive against ZTE and Huawei.
The US is LG's largest market by sales, and especially ZTE was already catching up with
them in fourth place, but with the recent tensions, LG might get a temporary pass.
So, really good timing for them!
But anyway, I am somewhat torn on LG's future overall.
They are still losing money, but the worst sales and profit declines seem to be over,
their device strategy is finally starting to mature, but they are focusing on a confusing
AI strategy, they finally say they will take marketing seriously, but none of their past
efforts suggest that they will succeed, and while LG certainly can afford to lose money
on smartphones until smaller competitors bleed out, or get banned, I don't see the fire,
the aggressiveness that other brands like Samsung or more recently, Chinese competitors
seem to have.
See, I can't really predict if LG will be able to turn its mobile business around, but I can
recommend a really, really, really good audiobook.
The Malazan Book of the fallen is my absolute favourite audiobook ever, and if you like
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