Business Administration Course

Home Assignment 6 Amelia Perales Egea

Home Assignment 6:

Nokia Misses Smartphone Boom as Customers Flock to IPhone 4

(Extracted from Bloomberg BusinessWeek, June 16, 2010)

As Apple Inc. struggles to meet demand for the latest version of the iPhone,
Nokia is still waiting to ship its only model that may compete. The Finnish company
has announced just one handset, the N8, from its new high-end line based on revamped
Symbian 3 software, while Apple’s recently unveiled iPhone 4 is flying off virtual
shelves with 600,000 pre-orders and other vendors like HTC are rolling out models with
Google Inc.’s Android software.

“The smartphone revolution has started and Nokia is not there,” said Helena
Nordman-Knutson, a Stockholm-based analyst at Oehman. The N8 “will be old when
it’s out because everybody has taken the next step.” The world’s largest mobile-phone
maker yesterday lowered revenue and margin forecasts, citing competition in the high-
end smartphone market and showing that its fortunes in the application-rich iPhone
segment may not turn before 2011. Chief Executive Officer Olli-Pekka Kallasvuo has
struggled to deliver on a touchscreen model on a par with the Apple device.

Nokia said in April that the N8 will be shipped sometime in the third quarter. It
is also slated to introduce a second line of high-end devices running the MeeGo
operating system developed with Intel Corp. at an unspecified date this year.

Investors punished Nokia, sending its shares down 9 percent to 7.22 euros in
Helsinki yesterday, the lowest level since March 9, 2009. The stock drop put the market
value of Nokia at 27 billion euros ($33.3 billion), below the $34.4 billion of rival
Research In Motion Ltd, the manufacturer of blackberries and Apple’s $240 billion.
Nokia yesterday said its second-quarter handset revenue and margins will be “at the
lower end of or slightly below” its earlier forecast range of 9 to 12 percent.

Sales in the devices and services division may fall below 6.7 billion euros in
the second quarter, Nokia said. The lowered outlook is “an implicit statement that the
Symbian user experience won’t be fixed this year and MeeGo won’t arrive in time to
make a difference to 2010 either,” Gartner Inc. in time to make a difference to 2010
either,” Gartner Inc. analyst Nick Jones said in e-mailed comments. “The smartphone
unit is in trouble and has been for basically two years now,” said Tero Kuittinen, an
analyst. “The question is whether they can stabilize the situation there and I think they
have a shot at doing it in the second half of the year.

Nokia held on to its smartphone market share of 41 percent in the first quarter
as it introduced cheaper models and trimmed prices. It expects its share of industry
handset revenue to decline this year, after earlier saying it would increase. It still
expects unit market share to be flat.

The less-than-perfect implementation of the company’s strategy might prompt

calls for management changes, he said. “It’s looking now as if 2010 won’t be the year in
which Nokia’s problems get fixed and I suspect investors are running out of patience

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and will want to hold someone accountable,” he said. “That makes me wonder if the
recent reorganization may not be the last of the executive changes we’ll see in 2010.”

“It’s not about volumes anymore -- the competition is taking place over the
money,” Nordman-Knutson said. “Of course you can take market share by redefining
the smartphone segment and adding volume through massive price reductions.” The
market share of Symbian, Nokia’s main smartphone operating system, fell to 44.3
percent in the first quarter from 48.8 percent a year ago, according to market researcher
Gartner. Although mostly on Nokia phones, Symbian is also used by Samsung
Electronics Co. and Sony Ericsson. IPhone’s share rose to 15.4 percent from 10.5
percent, while Android soared to 9.6 percent from 1.6 percent.

The N8 will enter the market at 370 euros, about a third lower than the 550-
euro price tag of the N97, last year’s flagship device. The company has unveiled low-
end smartphones phones costing as little as 135 euros this year. Nokia allowed some
handset reviewers to demo the N8 at events in London and Singapore this week. The
events were followed by a spate of blog posts on the device. “Nokia has put together a
growling multimedia powerhouse, but the OS is so far from being fully baked; we can
still see the dough,” Engadget, a closely followed blog said. SlashGear, another popular
blog, said the device was “decently peppy,” adding that it “isn’t perfect yet.”
A. Assuming you are the Marketing Director and you have to develop a new
Strategic Plan for Nokia for the next 3 years, carry out and justify a situation
analysis using the SWOT tool.

SWOT analysis that corresponds to Nokia Company in smartphone market is

described as follows:

STRENGTHS

• Brand position

It is one of the top 20 brands in the world

• Market share

Although Nokia has loosed around 14% of market share it
is still the largest cell phone vendor, with double the market share of
nearest competitor ([1])
• World presence
It is present in 150 countries. Its operating system,
Symbian is the leader in Asia, Africa and South America. [2]
• R&D amortization

Its size should enable Nokia to amortize R&D costs
getting cost advantages.

WEAKNESSES

• Bad recent image

Being the market leader and its increase role in
Symbian is giving Nokia a bad image.
• Slowness to adopt new ways of thinking

Nokia has loosed market
share in the smartphone market due to its initial reticence to bet on crucial
tendencies, like touch-screens.

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• No good at software

Although Symbian’s web browser is solid and

stable its usage leaves a lot to be desired and the interaction with multiple
open windows is difficult and uncomfortable. [3]
• Increasing dissatisfaction levels with its smartphones (N8 terminal, e.g.)
• Weak market share in UUEE and Europe [2]

OPPORTUNITIES

• Huge presence in developing countries

Geographically, there exist new

growth markets where cell phone adoption is still taking place. India
market, for example is one of them. Nokia is the leader in those markets [2]
• Increase market share through distribution channels

Owing to the
fact that in most of the countries mobiles are sold through mobile operators,
Nokia can use its infrastructure business to obtain alliances with mobile
operators reducing the bargaining power of them.
• Low brand fidelity in most smartphone users

The 56% of the
smartphone users do not have decided the brand of its next smartphone.
Nokia in a future can increase its market share at other brand expenses as
Apple or Blackberry.

THREATS

• Rapidly changing industry

In cell phone market there exist a constant

push to innovate and launch new products.
• Threats of new players
Google has just entered in the smartphone
market, while Microsoft might enter in smartphone market in short-time
period.
• Rivals are increasing their market share
IPhone and Blackberry are
increasing their market share in smarphone all over the world while,
although Nokia is still the market leader, Nokia is losing its market share.
• Difficulty to change O.S

Nokia has difficulties to change the operating
system of their smartphones due to some reasons: one, that it staff is
specialized in Symbian operating system and change it can result expensive
and can take long-time period; and most important, Symbian is almost
property of Nokia and has invert huge quantities of money to develop it.

Strategic Plan for Nokia:

Nowadays smartphone segment is rapidly growing, penetrating into mobile

market at a very fast rate. Although it is a market leader in the world mobile industry,
Nokia development in smartphone market is far away comparing with its nearest
competitors, as Apple or Blackberry. Therefore the strategic plan for Nokia in the next
few years should be decisive for its position in the mobile market.

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Smarphone buyers choose a product by its innovation or fame more than by its
price. Taking into account these, the SWOT analysis above and the stars products of its
nearest competitors, the new strategic plan for Nokia for the next 3 years should be
focused in differentiation more than in cost advantage. This differentiation strategy can
be done following these steps:

• Reducing its product portfolio
Nokia is launching lots of products

comparing with its competitors, however, it is not doing any good to
increase its market share. Increase product portfolio means here increase
overall costs and decrease profits margin. Therefore Nokia has to reduce its
products, determine a few amount of them, focusing in developing and
improving them in order to turn the attention of customers and
telecommunication operators to its products, likes Apple does with its
iPhone terminals.

• Changing the name of their terminals
Nokia needs to change the

name of their portfolio products in order to connect emotionally with
customers, making them easy to remember as well as differentiate them
from the rest of smartphones already in the market.

• Focusing in a specific market segment
Considering three different

types of users depending in the principal usage of their mobile terminals,
i.e. entertainment-focused users, communication-focused users and
information-focused users, it can be observed that existing smartphones
terminals and applications have been mainly developed for communicate
and entertain. Therefore Nokia can enter in the market through innovation,
stealing the existing market share of PDA’s (a product that in a near future
can be dead) developing, for example, features that help customers to
capture information as well as remember it easily, making possible to
associate Nokia smartphones with a brain extender.

• Improving the image of its operating systems
Although Symbian has

not a good image nowadays, Nokia Company has made huge inversions
recently and has the property of this operative system. Some of its future
efforts, therefore, have to be done in order to improve Symbian weaknesses
and restore customer confidence. Maemo, the other operating system of
Nokia, is relative new and has a better position in the customer opinions;
continuing developing it can enforce the strength of Nokia brand.

• Listening to the market innovation

Smartphone industry is a recent

industry that is constantly evolving, so Nokia has to listen to the market in
order to analyze new products and identify possible inflection points in
order not to lose market share as happened in the past with the touch-
screens of mobile terminals.

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B. Besides the former long term plan, you have been asked to develop and
implement a short term action to improve Nokia Performance in the line of
product of smartphones. Analyze the current Marketing Mix for this line
explained in the text and propose one or two ideas for each Marketing Mix
dimension that can be carried out. Discuss the impact of these proposals.

As in the text the Nokia product that has been presented is the N8 smartphone,
here Marketing Mix is going to centre in this specific terminal

1. PRODUCT

N8 smartphone has an impeccable and risky design with metallic

colours that try to differentiate of its competitors but that cannot satisfy the
average customer.

Its principal features are:

• GSM/EDGE 850/900/1800/1900 – WCDMA 850/900/1700/1900/2100
• Capacitive touch-screen of 3.5″ with a resolution of 640×360 pixels.
• 12 MP camera with Carl Zeiss optic and Xenon flash. It records videos in
HD quality (720p, 25 images per second)
• 16 GB internal memory that can be expand to 48GB through a microSD
memory card.
• Free Twitter, Facebook y Ovi Maps applications.
• WLAN IEEE 802.11 b/g/n
• FM radio with RDS.
• Bluetooth 2.1.
• 3.5 headphone output.
• HDMI output.
• 1200 mAh battery.
• Symbian3 operating system.

It has to be emphasized that its operating system, symbian3, improves

the system performance, giving better speed, better graphic interface and
response quality than devices with previous versions of Symbian operating
system.

2. PRICE

Initial price of Nokia N8 is 370€, about a third lower than the initial
price of its predecessor Nokia N97 and lower also than one of its principal
competitors, iPhone 4 (that can be acquired from 600€)

3. PLACE

There are some different distribution channels for the N8 device. One of
them, used in the launch of the mobile terminal is through its web page. There
anyone can reserve a N8 mobile phone to be the first in having it.

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In many countries distribution will be taken through telecommunication

operators. Therefore its final price will depend of these operators.

4. PROMOTION

To promote it Nokia allowed some handset reviewers to demo the N8 at

events in London and Singapore this week. The events were followed by a spate
of blog posts on the device.

Another way the company has used to promote the device is street
marketing [5]. The slogan of this marketing campaign is: “It is not technology. It
is what you can do with it” and it is focused in announce the creative
possibilities that this smartphone offers.

Some ideas that have not been reflected above can be applied to each
Marketing Mix dimension:

1. Product
A simple but eye-catching packaging can differentiate the

products from others in the store. Interchangeable phone frames can attract
attention to young customers. The development of new application that has
still not presence in rivalry products, as some applications to find and store
concrete information could be other idea to develop.
Main weaknesses of the existing product is its operating system, that,
although has been improved from its latest version, doesn’t fulfil market
present expectations. One of its main strength, however, is the quality of
the camera and the optic of its lent.

2. Price
Initial price here is one of the best options possible. A price lower
than other smartphones, like IPhone but higher enough to maintain the
desire of first customers.
Payment in instalments facilities or initial discounts in some telecom
companies can attract the attention to doubtful customers

3. Place
The possibility of acquire the device initially through its web page
can increase the curiosity and desire of some customers.
It is essential in this case to show the device in shops, directly to
potential customers, to be able to compare the terminal with other
smartphones that already exists in the market.

4. Promotion
Young customers represent a big part of the market share of

smartphones. Therefore, the idea of street marketing is perfect to announce
and show the N8 smartphone.

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The objective here is associate the device with something new and
necessary. The final product has to be associated with a device new, cool,
fashion, easy to use, innovator and, therefore, indispensable for the
customer avid of new technology devices. Advertising and sponsoring
should be channelled to this principal idea.

C. Explain briefly the matrix of Generic Business Strategies that any company
could try to use. Situate all the companies that appear in the text (Nokia and
its competitors) in this matrix. Justify your answers.

Porter's Generic Strategies [7]

Advantage

Target Scope

Low Cost Product Uniqueness

Cost Leadership Differentiation

Broad
Strategy Strategy
(Industry Wide)

Focus Focus
Narrow Strategy Strategy
(Market Segment) (low cost) (differentiation)

According to M. Porter, there are two basic sources of CA: cost advantage and
differentiation. By applying them in a broad or narrow scope three generic strategies
result:
1. Cost Leadership Strategy

This generic strategy calls for being the low cost producer in an industry for a
given level of quality, selling its products either at average industry prices to earn a
profit higher than that of rivals, or below the average industry prices to gain market
share.

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This strategy is more appropriate when the market has a large number of
suppliers with highly standardized products, or low number of customers with high
bargaining power, or when the switching cost are low.

Each generic strategy has its risks, including the low-cost strategy. For
example, other firms may be able to lower their costs as well. As technology improves,
the competition may be able to leapfrog the production capabilities, thus eliminating the
competitive advantage. Additionally, several firms following a focus strategy and
targeting various narrow markets may be able to achieve an even lower cost within their
segments and as a group gain significant market share.

2. Differentiation Strategy

A differentiation strategy calls for the development of a product or service that

offers unique attributes that are valued by customers and that customers perceive to be
better than or different from the products of the competition. The value added by the
uniqueness of the product may allow the firm to charge a premium price for it. The firm
hopes that the higher price will more than cover the extra costs incurred in offering the
unique product. Because of the product's unique attributes, if suppliers increase their
prices the firm may be able to pass along the costs to its customers who cannot find
substitute products easily.

Firms that succeed in a differentiation strategy often have the following

internal strengths:
• Access to leading scientific research.
• Highly skilled and creative product development team.
• Strong sales team with the ability to successfully communicate
the perceived strengths of the product.
• Corporate reputation for quality and innovation.

The risks associated with a differentiation strategy include imitation by

competitors and changes in customer tastes. Additionally, various firms pursuing focus
strategies may be able to achieve even greater differentiation in their market segments.

In smartphone market, Apple has clearly a differentiation strategy with its

iPhones. In fact, all Apple’s portfolio follows a differentiation strategy and customers
perceive them unique and better than its competitors. iPhone’s prices are the most
expensive ones in the market. Price of one model is only decreased when a new model
is introduced in the market.

3. Focus Strategy

The focus strategy concentrates on a narrow segment and within that segment
attempts to achieve either a cost advantage or differentiation. The premise is that the
needs of the group can be better serviced by focusing entirely on it. A firm using a focus
strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty
discourages other firms from competing directly.

Because of their narrow market focus, firms pursuing a focus strategy have
lower volumes and therefore less bargaining power with their suppliers. However, firms

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pursuing a differentiation-focused strategy may be able to pass higher costs on to

customers since close substitute products do not exist.

Firms that succeed in a focus strategy are able to tailor a broad range of
product development strengths to a relatively narrow market segment that they know
very well.

Some risks of focus strategies include imitation and changes in the target
segments. Furthermore, it may be fairly easy for a broad-market cost leader to adapt its
product in order to compete directly. Finally, other focusers may be able to carve out
sub-segments that they can serve even better.

Taking into account just the smartphone market, Nokia and HTC companies
are under a market strategy focused in differentiation [8]. Nokia, with N8 device try to
rise the same quality and innovation level as high level smartphones, adding new
applications and services (OVI services). HTC is trying to imitate with new terminals
the same market strategy as Nokia, adding also new services and applications to their
latest terminals.

D. According to the text, identify what are the major problems that Nokia has in
its main firm subsystems or functional areas. Which subsystems have the
most critical problems? Justify your answers.

Nokia has problems in all of the main subsystem of the company if we refer to
smartphone product.

1. Financing functional area
The decision that this functional area took to
invest huge quantities in the development of Symbian operating system was
converted into a problem when fails of Symbian in web communication
appear. After that, dissatisfaction of the customer increases, and, due to this
risky decision of investment, the difficulty of offer a device with other
operating system decreased Nokia market share.

2. Management
Due to the decision to use Symbian O.S in all of its

devices, human resources of the company are specialized in these. The cost
of changing the operating system is therefore high, as human resources
have to become a specialist is something new. As a result of these to offer a
competitive smartphone has taken the Company more money and time that
they expected.

3. Production
Adding to the design problems that first Nokia smartphones

had, and the disadvantage of Symbian O.S in front of Android or iOs, first
N8 smatphones suffered also a problem in their batteries; problem that was
caused due to a bad assembled in the product line [9] and that increases the
dissatisfaction of the customer decreasing the confidence in the brand.

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4. Sales and marketing
This functional area, with the function of decide the
product characteristics, among others, took the decision of not offer
terminals with touch-screen when smartphones with that characteristic
burst in the market. Touch-screens became important and almost essential
for most customers in a short period of time. Nokia finally had to research a
model with this characteristic, but, as it loses a precious time of research,
its final quality was always lower than its competitors-.

References:
[1] http://www.elmundo.es/blogs/elmundo/el-gadgetoblog/2010/09/15/pero-vamos-a-ver-que-
es-un-smartphone.html

[2] http://www.celularis.com/smartphones/sistemas-operativos-populares-navegacion-web-
movil.php

[3] http://goponygo.com/blog/moviles/symbian-vs-android-capitulo-3-conexion-web/

[4] http://www.celularis.com/noticias/quienes-son-los-usuarios-mas-fieles.php

[5] http://www.puromarketing.com/22/8568/apuesta-street-marketing-para-presentar.html

[6] http://blogs.nokia.com/nseries/2010/11/15/how-to-take-stunning-landscape-shots-with-
the-nokia-n8/

[7] http://www.quickmba.com/strategy/generic.shtml

[8] http://www.imatica.org/bloges/2010/09/200972602010.html

[9] http://pkeconomists.com/nokia-admits-n8-power-problem

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