131-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 StrategyStreet.com.) 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.

Posted 8/24/09

Update:

The two erstwhile leaders in the mobile handset market no longer exist in 2022. Both Research In Motion, renamed Blackberry in 2013, and Nokia had full operating system and handset capability in 2009 and led the industry. In fact, Nokia introduced a smart phone in 2002 and had the market to itself for five years until Apple introduced its iPhone in 2007.  Neither company focused on the growing, Performance Leader, market segment of smart phones. This Performance Leader segment became the industry Standard Leader over the next several years, while neither Nokia nor Blackberry products kept pace on Function and Convenience.  The Nokia brand is owned by HMD Global, a company founded by former employees of Nokia, but is a mere shadow of its former self. In 2022, Blackberry stopped all support for its previous products and sold its patents and trademarks to an investment company.

Manufacturers’ market share of smartphone sales in the United States is led by Apple and Samsung, with a market share of 56 percent and 22 percent respectively, as of the fourth quarter of 2021. After Apple and Samsung are Lenovo and OnePlus, with market shares of eight and two percent respectively.

The 2009 market leaders both failed their customers because they did not keep pace with the movement to smart phones. Failure is a major cause of shifting market share in most industries, but particularly in hostile markets. See HERE and HERE for more explanation.
8/22

***