Monday, August 24, 2009

Nokia Scores...and Fumbles

Nokia is an industry Standard Leader who struggles at the high end of the market.

Nokia demonstrates its grasp of the mass market with a recent pricing innovation in India. In that country, Nokia owns half the market. In order to encourage further growth in the market, Nokia plans to roll out new handsets in twelve rural Indian states. In these states, the company has allied itself with a microfinance organization that is buying the handsets from Nokia and selling them to women in rural areas on the installment plan for 100 rupees a week. 100 rupees is equivalent to about $2. These weekly installments continue for 25 weeks, for a total cost of $50 per phone. Nokia’s program makes phones more affordable to these new customers by providing them an extended payment option.

Nokia is not without its struggles, however. In the smart phone market, the company is beginning to lose share at a rapid rate. While still an industry leader, Nokia’s smart phone market share has fallen from 47.5% a year ago to 45% today. Apple and Research In Motion are the beneficiaries of Nokia’s share slippage.

This smart phone market is important to all industry participants. Smart phones are growing their share of the market. The Standard Leader phones are declining in sales, while smart phones continue to grow. They now account for 14% of the total handset market, up from 11% last year. These smart phones are Performance Leader products with substantial margins. They increase company profitability as well as growth.

One problem Nokia seems to be facing is that its applications don’t have the same ease of operation as do Apple’s offerings. Apple’s applications work better with one another than do Nokia’s. And Nokia has been slow to bring new functions to the market.

Nokia may be suffering from a phenomenon we call Price Point Bias. (See Audio Tip #89: Price Point Bias on Price points, other than the Standard Leader price point, often cause Standard Leaders problems in an industry. Marketing oriented Standard Leaders dislike Price Leader products because they view them as trojan horses for lower market prices. Many also believe that low priced products depreciate the quality of the company’s brand name. At the opposite extreme, Standard Leaders dominated by an operations culture dislike Performance Leader products. They view these products as disruptive to the smooth flow of operations and to the low costs that smooth-running operations create.

For more information on this phenomenon, see StrategyStreet/Diagnose/Products and Services/Innovation for Customer Cost Reduction/Price Point Bias.

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