Strategic Marketing

Case Nokia

Index
Summary 1 2 3 Problem statement .............................................................................................................. 2 Customer analysis ............................................................................................................... 3 Environmental and market analysis ................................................................................... 4 3.1 3.2 3.3 3.4 Market and submarket size ......................................................................................... 4 Market trends .............................................................................................................. 4 Market profitability ..................................................................................................... 5 Environmental analysis ............................................................................................... 5 Technology ........................................................................................................... 5 Economics ............................................................................................................ 5 Culture .................................................................................................................. 6 Demographics ...................................................................................................... 6

3.4.1 3.4.2 3.4.3 3.4.4 3.5 4 5

Conclusion ................................................................................................................... 6

Competitor analysis ............................................................................................................ 7 Internal analysis.................................................................................................................. 8 5.1 5.2 5.3 Financial performance, profitability and sales ............................................................ 8 Brand association ........................................................................................................ 8 New product Activity ................................................................................................... 8

6 7 8 9

SWOT .................................................................................................................................. 9 Strategic options ............................................................................................................... 10 Implementation ................................................................................................................. 11 References

Strategic marketing Nokia case Group 1.06

1 Problem statement
Market definition The mobile-handset industry is the largest consumer electronics market in the world with nearly three billion users worldwide. Growth was primarily driven by an increase in subscriber base in emerging markets. With the upcoming challenges, a decline in growth is forecasted towards 2008. The industry is matured with increasing competition causing reduced prices which drives margins down. This results in the following problem statement: How can Nokia maintain its market leadership position in the turbulent mobile phone market after 2007?

Strategic marketing Nokia case Group 1.06

2 Customer analysis
Large mobile phone markets are Europe, Asia and China. The industry grew at an average of 50% between 1996-2000, but dropped to 19,2% in 2000-2001 because of a matured demand in the markets of Europe and the US, which are well-developed and leave little room for further development. The emerging, high-growth markets in the Middle-East, Southeast Asia, Africa, China and India, give more opportunity for development of low-cost handsets. At matured markets, the opportunities lie in the development of smartphones with new functions and improved design. Differences between the US market and the European and Asian markets are that in the US, phones are often bought in packages, through the mobile network provider. In the European and Asian markets, it is custom to buy the phone separately. Segmentation of Nokias customers, based on mobile phone usage, income level and lifestyle: Live Connect AchieveExploreFirst time users, voice related, (low economic class + very high economic class) Less features, low price Ease to use and good design (evolved users looking for functionality, features and connectivity. (gprs, camera, music) For business environments (smart business tools and manage work-life balance), full internet capabilities and normal keyboard. Newest technology and style.

Table 1: Customer segmentation (Jain & Rathore, 2008)

Nokia can target each group separately, to meet the demands for mobile phones. The market of developing countries has an expected growth of a billion new subscribers between 2008 and 2010. Companies want to offer low-cost handsets there. In the matured market, profit can be gained by introducing the smartphone, where the superior features will make people replace their current phones. Nokia was the first company that realised phones would become fashion items. Consumers can choose between phones so phones would differ at the hand of the consumers taste or needs.

Strategic marketing Nokia case Group 1.06

3 Environmental and market analysis

3.1 Market and submarket size
The mobile phone market had a 16% increase with 1.15 billion units, from 2006 to 2007. In 2011 a market size of about 200 billion $ is expected. The mobile phone market was rapidly increasing from 1996 to 2000, but after that growth increase slowed down. Global Mobile device market volume by Geographic Area (in million) 2007 284 126 173 254 170 130 % change 3% 19% 34% 34% 6% 10% 2006 276 106 129 189 160 118 % change 16% 68% 29% 27% 13% 15% 2005 238 63 100 149 142 103

Europe Middle East & Africa China Asia-Pacific North America Latin America

Table 2: Global mobile device market volume (Jain & Rathore, 2008)

Europe is expected to have little growth in, just like North America. The Middle East & Africa and Latin America see a decline of growth, greatest opportunities lie in China and AsiaPacific. The graphic below explains why some markets have growing markets, and other declining markets.

Figure 1: Product Life Cycle (QuickMBA)

3.2 Market trends

There are trend differences between the emerging markets and the matured markets. The emerging markets demand Ultra Low cost devices whereas the mobile device has become the life tool of the modern consumer on the matured market, where all consumers carry their phone 24/7 and use it extensively.

Strategic marketing Nokia case Group 1.06

3.3 Market profitability

Bargaining Power of suppliers The bargaining power of suppliers is low because manufacturers try to be independent from suppliers by having their own production facilities and keep technology in-house. Threat of Potential Entrants Existing manufacturers are setting tall barriers, for new entrants it is very difficult to compete in this market. This is because existing firms like Nokia spend huge amounts of money on R&D, therefore having a great advantage which will be hard to overtake for new companies. Competition among existing firms Five players on the mobile phone market hold a 80% share of the total sales. The competition causes prices of devices to drop, so companies focus on large markets i.e. the emerging markets because of the large amount of potential customers. Companies are competing for market share because in emerging markets a greater market share will ensure a greater profit. Threat of substitute products There is no substitute product at this moment for the mobile phone. According to (Aaker D. A., 2007), substitute products compete with less intensity than the primary competitors do. Bargaining power of customers The power of the customer is high because the manufacturers have to adapt their products to customer needs. Otherwise, consumers will find alternative mobile devices from other firms.. Distribution systems Handsets are often sold through providers or other third parties. This can be declared by the retail channels the providers and third parties have. Mobile handsets can also be offered as unlocked phones, which is more expensive for the customer.

3.4 Environmental analysis

3.4.1 Technology Handset manufacturers invest a huge amount of money in R&D to keep initiative and come up with innovative product solutions to maintain or increase the brandvalue. The fast progress made in technology causes the product life to be short. Manufacturers must reduce their time-to-market, resulting in faster development and faster manufacturing. 3.4.2 Economics Consumers in emerging markets will not pay the same amount of money for devices as consumers in matured markets. Therefore the demand for low-end handsets is higher in emerging markets. Manufacturers are replacing their production sites from high-wagecountries to low-wages-countries (India, China etc.) in order to remain their margins.

Strategic marketing Nokia case Group 1.06 3.4.3 Culture In the matured market consumers want to have the newest products and features, causing short shelf-life of the products. The opposite holds on the emerging markets where customers want cheap products. Consumers spend less time on their computer, using their mobile phones as replacement for the computers. The mobile device becomes the life tool of the modern consumer. 3.4.4 Demographics There are one billion more potential subscribers in the emerging markets for mobile phones between 2008-2010.

3.5 Conclusion
The profitability is highly dependent on the market share, because of the high competition between handset manufacturers. The threat of substitute products or new entrants on the market has little or no effect on the profitability because of the power the five largest players have. Because of the one billion new subscribers in emerging markets the mobile phone market can be seen as very attractive. Even if Nokia has only 20% market share in the emerging markets profit would still be high.

Strategic marketing Nokia case Group 1.06

4 Competitor analysis
Until 2004, 6 big players controlled the mobile handset market. In 2007, 5 players in the industry had over 80% of all mobile handset market. Many handset-makers were choosing emerging countries for setting up manufacturing facilities. Handset-makers were looking for technologies to lower the developing and distributing costs. Intense competition in the industry shortened product life cycles to 6 or 9 months. This gives handset-makers less time to exploit the popular models. The most intense competitor is Samsung. The emerging markets Nokia targeted, Samsung also aimed with affordable and stylish handsets with internet access. With this product type, Samsung took over the position of Motorola, as second largest mobile phone vendor. Other important competitors are Motorola and companies from countries with emerging markets, for example Taiwan and China. Motorola lost market share to Samsung, because Samsung changed its strategy to low-end products, thereby anticipating the needs of the customers. Motorola did not adapt to the changes in the market and lost market share. Companies from countries with emerging markets are important competitors because they have the advantage of using the local markets to create their own brands and attract their own customers. In the emerging markets the new entrants form a threat, because the market is not established yet and it is relatively easy to start a new company, because of the low wages in these countries and the price-focus. On the matured market, there is also a threat of new entrants. This market could be attractive for companies with new technologies or knowhow on technology. These can form a threat to the current market, because the consumers on this market are sensitive for highly fashionable items. However, there are entry barriers, which make it difficult for companies to enter the market. For the emerging markets, an entry barrier is the strong brand names of the existing companies. The established companies have a strong brand name, which can be a difficulty for new companies to overcome. The mobile telephone market also requires a high starting investment, which makes it unattractive to potential entrants. Third, to be able to compete on this market, a lot of knowhow is required in order to keep up with the other companies. When a company does not have this knowhow, it will be very difficult to obtain this and establish itself in the market. Other entry barriers could be formed by distributor agreements and supplier agreements, which the new company cannot use, and economies of scale, which can have a big influence on the price and therefore sales. The competitors in this market can distinct themselves from others by closely monitoring the changes in the market, and adapt to these changes by using the new technologies they develop. Innovation is a key success factor for a company in the matured mobile phone market. For the emerging market, the key success factor would be the price, because there is a lot of focus on low prices in this market.

Strategic marketing Nokia case Group 1.06

5 Internal analysis
Nokia changed its core business from a variety of products like rubber boots, cables etc. towards telecommunications. It redefined its outlook as: telecom-oriented, focused, global, value-added.

5.1 Financial performance, profitability and sales

An essential part of the internal analysis is the analysis of the finances of the company. Changes in the financial position of Nokia can indicate changes in growth and development of the market share. Since 2005, the net sales of Nokia have increased from 34,191 million in 2005 to 51,058 million in 2007. The operating profit has grown from 4,639 million in 2005 to 7,985 million in 2007. The growth of the net sales and the operating profit is a good indicator of how the customers of Nokia see the companys products and services. In 2006 sales profit was 67% in 2007 sales profit is 66%. The net profit margin was 10% in 2006 and becomes 14% in 2007. This means that costs are quite stable but that the net profit of the company is still increasing. Therefore more shareholder value is created. In 2007 Nokia had a market share of 37.8% in the world wide mobile sales. The company had only 9.8% of the US market. Nokia was more focussed on the low-costs emerging market. Because of a lack of innovation they lost market share in North America on the matured market. The US market has a demand for smartphones and Nokia havent got the retail channels to gain new market share. The costs for producing one phone (69) in comparison to the declining salesprice (96 towards 86) means that margins are getting smaller. The majority of Nokias manufacturing process is in-house and in high-wages countries. Therefore Nokia cannot make costs go down.

5.2 Brand association

According to Interbrand, a leading brand consutancy Nokia was ranked fifth in the best global brands. Because Nokia is almost for 20 years in the business they have business knowhow. Thats why customers see Nokia as a reliable player on the market.

5.3 New product Activity

Nokia was the first company to launch smartphones in 1996 but because of their focus on the low-end market (emerging market) they lost market-share on the high-end (matured market).

Strategic marketing Nokia case Group 1.06

6 SWOT
Opportunities and threats result from the external analysis, whereas the internal analysis shows the strengths and weaknesses for Nokia. Below, the most important ones are named. Confrontation matrix
S1 S2 S3 W1 W2 W3 -Table 3: Confrontation matrix

O1 + +

O2 ++ + +

O3 + + --

T1

T2 ++ + + + -

T3 + + --

Opportunities 1. The emerging markets are demanding Ultra Low cost devices. 2. There are one billion more potential subscribers in the emerging markets for mobile phones between 2008-2010. 3. Consumers on matured markets want smartphones with new functions and improved design. Threats 1. Markets that have shown major growth in the past, are now slowing down in growth. 2. Customers have a high power, because it is easy for them to buy a device from an alternative firm. Therefore, the manufacturer needs to be highly adaptive to the demands of the customer. 3. Innovations are going fast in the mobile phone market, the products have a short life cycle and therefor the manufacturers need to have a short time-to-market. Strengths 1. Nokias core business is telecommunications only, they can therefore entirely focus on this market. 2. Nearly 20 years of experience in the mobile market gives Nokia an advantage to the other competitors on the market. 3. Nokia is one of the most appreciated brands on the global market, this could be a major influence on choices consumers make. Weaknesses 1. Nokia cannot fully keep up with the new innovations 2. Nokia is too focussed on low-end (emerging) markets, which could cause them to lose focus on the matures market. 3. The location of production is in high-waged countries, which causes more costs for Nokia.

Strategic marketing Nokia case Group 1.06

7 Strategic options
Following the major chances and problems derived from the confrontation matrix, there are the following four strategic options: 1. Nokia has to use their focus on their core business to win a as much as possible market share on the emerging markets for new subscribers. 2. Nokia has to use their focus on core business to come up with new customer solutions for the matured market. 3. Nokia has to relocate parts of the production in low-wage countries in order to maintain profit and meet the demand coming from the emerging countries (ultra-low costs) 4. Nokia has to fasten their time to market to be able to meet the demands of the customers on matured markets. The choice of strategy is based on several selection criteria: Time planning: it should be possible to implement the strategy before 2008, because that is when the most new subscribers will enter the market. Influence on problem: the strategic option should be able to solve the problem stated in the first chapter. Potential: the market which will be targeted with the strategy should have high potential on gaining customers as well as profit. Means: it is important that Nokia has the means which are required in order to be able to implement the strategy.

Nokia should relocate parts of the production facilities to low-wage countries, so costs are reduced and leadership in the mobile industry after 2007 is maintained. By moving production locations from very high-wage countries to low-wage countries, Nokia will be able to cut its costs on a big level. This way, they will be able to sell more phones on the emerging market and at the time make more profit on the matured markets. With a billion new subscribers entering the emerging mobile phone market, the low production costs could make sure that Nokia maintains leadership. Since Nokia already has production facilities in low wage countries and also operates on that market, it is easier for them to move their production facilities to these countries. Because of this, the time deadline of 2008 should be made.

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Strategic marketing Nokia case Group 1.06

8 Implementation
Promotion On the emerging markets Nokia should come up with commercials adapted to different cultures and behaviour. Because Nokia has to focus on several countries especially on China and India. They have to make sure consumers know what Nokia has to offer. The consumer has to be familiar with Nokia. The commercial would be most effective on Internet, Billboards and television. Price It is important that the product offers good value for money. Nokia need to maintain the lowprice position in the market because that is what it is known for. They should produce phones in the price segment from $25-$10. Place (Distribution) To have low consumer prices, Nokia should replace the production from high-wage countries(Germany, Finland) towards low-wage countries(India, Taiwan, China). For Nokia it is easier to find a location where the knowledge already is available because it will help reduce investing costs. To win market share and gain profit Nokia can open concept stores in strategic areas like Shanghai, Beijing, New Delhi. This way potential consumers can experience Nokias products. Nokia should make sure that providers are willing to offer subscriber packages with Nokia handsets in it. On organisational level, the head office would be located in high-wage countries, because the experience lies there, but most production facilities relocate to low-wage countries. Product Nokia should ensure that the quality of the product will not be affected by this strategy. Therefore European quality personnel should set up production in the low-wage countries. Nokia should develop different user interfaces to ensure ease of use.

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Strategic marketing Nokia case Group 1.06

9 References
Aaker, D. A. (2007). Strategic market management. West Sussex: John Wiley & Sons, Ltd. Jain, S., & Rathore, S. R. (2008). Nokia (A): A Stable Player in a Turbulent Industry. QuickMBA. (sd). Product Life Cycle. Opgehaald van QuickMBA: http://www.quickmba.com/marketing/product/lifecycle/