Case Analysis of Nokia

 

 

 

 

 

 

 

 

CASE ANALYSIS OF NOKIA

 

 

 

 

 

 

 

 

 

 

 

March 8, 2006

 

A. Current Situation

  1. Company Overview

            NOKIA prides itself as a leader in the mobile telecommunications industry through its capability of continuously providing a wide range of mobile communications devices and applications that reflect technological innovations and creativity. The company seeks to connect people to other people by providing a mobile device for communications and give access to people to important information through its various software applications. NOKIA offers a variety of innovative mobile devices that combines functionality and creativity through various designs, materials, colors and sizes to fit the taste of majority of people. NOKIA also provides built-in software applications for business and pleasure such as games, music, imaging, internet applications and other forms of media. The aim of the company is to connect people with ease through its easy to use mobile devices and accessible application with just one click or touch of a button. It also aims to provide functionality by integrating various applications in a single mobile device such as combining mp3/mp4, camera, video, hand-held pc, mobile phone into a NOKIA device to provide a combination of features to customers. The company also aims to provide mobile phones with state of the art designs by constantly creating new models that reflect technological leadership of the company as well as capture and express the personality of its users. Finally, the company aims to empower customers by providing various models of its devices and application options from which customers can choose. It empowers customers by giving them alternative products and services.

            NOKIA classifies its products into four divisions that coincide with its four business groups. The first division is Mobile Phones. This business group seeks “to make user-friendly mobile devices with many features for different segments of the global market. It currently offers mobile phones and devices based on the three global cellular technologies: GSM/EDGE, CDMA and TDMA” (Nokia Corporation, 2005, ). The second division is Multimedia that aims to develop high-tech mobile devices and applications by continuously inventing and innovating on new models and systems. The third division is Enterprise Solutions. This business division targets the needs of businesses and institutions by providing “business-optimized mobile devices for end users to a broad portfolio of IP network perimeter security gateways and mobile connectivity offerings” (Nokia Corporation, 2005, ). The fourth division is Networks that endeavors to provide physical and technological infrastructures for communications and service platforms to the different operators and network service providers in its various markets. This division “focuses on the GSM family of radio technologies, including GSM, EDGE and WCDMA networks, core networks with increasing IP and multi-access capabilities, and services” (Nokia Corporation, 2005,).

 

            NOKIA classifies its global market into the five regions of Europe, Africa, Middle East, Asia-Pacific and the Americas. In terms of market segmentation, the company aims to capture individuals and businesses, people in different age groups whether in school or working, people in different economic classes by developing affordable mobile phones, people of different genders, and people of different cultural backgrounds by extending its services in different regions.

 

2. Competitor Analysis

 

            Based on Porter’s Five Forces the most important competition consideration for NOKIA is the degree of rivalry. According to  (1998), the intensity of competition affects the profitability of a company. Competition comes in different forms in terms of price, product differentiations and marketing strategies. Thus, depending upon the nature of the competition, companies seek to strengthen their competitive advantage relative to their competitors to obtain a respectable market share. Competitive advantage exists when a business is able to obtain a level of profitability that exceeds the industry average due to the delivery of products similar to competitors at a lower cost or providing distinguishably better service at a similar cost with competitors ( 1998b).  NOKIA has rivalries in the mobile phone industry. In Asia-Pacific, NOKIA shares the mobile phone market with its strongest competitors Sony Ericsson and Motorola. There also other players in the market such as Siemens, Samsung, Philips and Panasonic that provide less competition. NOKIA enjoys a respectable position relative to its competitors because it is the leader in many markets dislodging Motorola from its previous status (2001). According to  (2001), the competitive advantage of NOKIA is brand personality and it has to work hard to maintain its competitive advantage.

3. Performance of the Company/Organization

 

At the end of 2004, the company documented record-breaking sales of 643 million mobile phones relative to 490 million in the previous year. The increase in sales is attributed to the rise in new subscribers in the Latin American region and the countries Russia, China and India due to the affordability and accessibility of network connections. The company further increased its sales to 2 billion by 2005 and 3 billion in 2010. (Nokia Corporation, 2005) In February 2006, NOKIA issued its financial report (Nokia Corporation, 2006) documenting a 16 percent increase in net sales from 29,371 EURm in 2004 to 34,191 EURm in 2005 translating to a corresponding 13 percent increase in net profit of 3,192 EURm in 2004 to 3,616 EURm in 2005.

 

In terms of sales by market, NOKIA reports that Europe is its biggest market contributing 42 percent to sales followed by Asia-Pacific with 18 percent. China proves to be the biggest contributing country to NOKIA sales with 2,023 EURm, 2,678 EURm and 3,403 EURm in 2003, 2004 and 2005 respectively [see Appendix]. (Nokia Corporation, 2006) Through its continued profitability, the company has established 15 manufacturing facilities in 9 countries. It also conducts research and development projects in 12 countries. Its aggregate sales come from 150 countries. (Nokia Corporation, 2005) NOKIA faces the challenge of maintaining its competitive advantage and market share while expanding into emerging markets.  

B. Assessment of Current Marketing Operations (6-8 pages)

  1. Strategic Marketing Issues

a.      Customer segmentation

NOKIA segments its international market through geographic regions, customer types and buying behaviors. In terms of geographic regions, NOKIA has five markets, which are Europe, Africa, Middle East, Asia-Pacific and Americas. Based on its reports, the company still gains almost half of its sales in its home-base Europe followed by Asia-Pacific because of the sales contributions from China. In terms of customer types, the company segments its market into stable markets where it was able to maintain its leading position and emerging markets where the company targets to expand its business particularly in Latin America.  In relation to buying behaviors, NOKIA segments its markets according to usage patterns as well as size of orders. The company brings out different upgraded models every season and it also offers a variety of basic functional phones and luxury phones to meet different lifestyles. NOKIA develops its value chain to coincide with its market segments. According to  (1998b), customers expect to receive value in the product and service purchased from the company. The value that customers expect from a product or service are lower cost or lower price for an excellent product or service and optimum benefits to customers. Market segmentation of NOKIA fits the market environment since it is focused on expected demand. NOKIA makes sure that it develops and produces its mobile phone devices and application according to expected demand from its market segments ensuring that its products are bought relative to its competitors.

    b. Market Selection/Focus

            In a given market, NOKIA applies differentiated market segmentation. The company distinguishes the market according to different variables. First is selection based on the demands of individuals and business firms that explain its development of mobile devices applications that fits covers individual needs and those that provides business applications and software. Second is selection based on lifestyle such as basic functionality and fashionable mobile devices coinciding with differences in cost. Although, NOKIA seeks to conquer different segments of the market, the company relies more on individual demands for its sales when compared to business needs while in the second selection variables the company develop mobile phones that are both functional and fashionable but leaning more towards affordability. The company expects to increase sales by conquering large markets like what it has done with in China. This means that the company leans towards developing phones affordable to the general population but competes with the products of its competitors. These methods of market selection work in terms of long-term growth because the company is able to capture a respectable market share in emerging markets.   

 

            NOKIA enters new markets by entering into joint venture and partnership agreements with operators and service providers in the market as well as through exportation and direct foreign investment in countries hosting its satellite production operations. The company is known worldwide which makes it easier for the company to choose and gain efficient business partners.

c.      Value positioning

 

 

NOKIA positions its products based on the tagline ‘We call this human technology’ and ‘Only Nokia Human Technology allows you to get more out of life’ ( 2001) creating the impression on the minds of consumers that NOKIA is a company in touch with humanity because it seeks to enhance interpersonal relations through affordable, accessible, functional and creative mobile phone devices and applications. Through these taglines viewed in its different advertisements, the company successfully differentiates its products relative to its competitors because it was able to provide a human face to the company and the NOKIA brand that its strongest competitors were not able to do. The company was able to move the market to consider their choice of NOKIA phones as an expression of their personality and their lifestyle.

 

NOKIA considered the market environment in its product positioning decision because as mentioned earlier, its strategy is directed towards demand ( 2000). By linking personality and lifestyle with its mobile phone devices and applications, the company has created a market for its different phone models differing in features and price. This means that the company has a sure market for its wide range of products from its basic functional phones to its high-end fashionable mobile devices. The product customization implemented by NOKIA ensures that there is a phone fit for everyone. 

 

d.     Recommendations

In relation to market segmentation, NOKIA has distinguished the market into segments that effectively works towards increased sales. The company developed different mobile devices and applications that address the differing demands of the various segments of the market. There are mobile phones targeting individuals and there are also devices fit for business use. NOKIA mobile phones are affordable to provide access to the mobile technology to people in the lower income groups and there are also high-end phones to fit the lifestyle demands of people in the higher income groups. In creating value, NOKIA used its mode of market segmentation to offer both low cost and great benefits to its customers. Thus, NOKIA just has to maintain its market segmentation strategies to achieve continuous growth in the long run.

 

In terms of product positioning, NOKIA provides devices that reflect different personalities and lifestyles to ensure product sales in different segments of the market. Although, these resulted to the production of different models giving customers different alternatives the company was not able to create the ultimate mobile phone equipped with a complete state of the art features and applications. Comparing NOKIA mobile phone models shows that there are improved features in new models, but there are also deleted features of previous models. This may be part of the company’s marketing strategy to ensure that all its phone models are sold but for customers looking for the ultimate phone, they just have to choose based on preferred design and features.

  2. Tactical Marketing Issues

a.      Product/service development 

NOKIA products and applications are competitive in the market. This is due to the efforts of the company to build a brand name and influence customer perceptions. According to (2001), NOKIA has established a single corporate brand name that represents its products in the market and it has succeeded in introducing its brand name to the extent that it can market different mobile phone models with just a combination of numbers as specific model names attached to the NOKIA brand. The same authors also state that NOKIA uses three strategies in creating a brand name. First is brand personality or giving every mobile phone a distinct personality that coincides with different human personalities. The company developed waterproof and heavy-duty phones for sporty and adventurous people and incorporated music, camera and video into a phone to keep up with customers attuned to multimedia technological innovations. Second is product positioning by differentiating its products and applications from its competitors through its human technology. Third is product design with colorful themes for fun-loving individuals and corporate themes for business demands.

 

NOKIA adapts its products to foreign markets by integrating the unique demands of a particular foreign market. In entering China, NOKIA offered mobile phones with multi-language applications including Chinese. The company also considers the products of competitors in new markets and available technology.

b.     Pricing

The price of NOKIA mobile devices is based on the market factors ( 2000). NOKIA, like any other business set its price at a level that provides the greatest possible profit relative to costs. However, the company also considers market factors such as the changing price of technology as innovations are made, the price of its competitors and the price that people are willing to pay for its mobile phones.  In terms of technology, NOKIA obtains licenses to use the technology developed by companies such as Symbian and Java to incorporate imaging and games into its mobile phone. Accessibility of technology determines the cost of obtaining licenses. In this case NOKIA increases production cost by incorporating these software into its phones accounting for a higher selling price.  In terms of the price of competitors, NOKIA and other mobile phone companies keep their prices relatively the same for equivalent models so that people choose in terms of mobile phone features. However, NOKIA was able to provide basic functional and creative phones at affordable prices unlike its competitors whose affordable phones are functional but bulky or drab. The price that people are willing to pay is another basis of pricing. The company bases its price on market demand. This is the reason why the price of mobile phones models is high a few months after introduction but decrease as demand wanes and new models are introduced. NOKIA introduced its mobile phones as fashion items with some models going out of style as new models are introduced. NOKIA has a competitive pricing strategy because it is flexible and dependent upon important market variables.

c.      Distribution

NOKIA has three channels of distribution for its mobile phones. First is through exclusive NOKIA shops located in malls and in strategic areas in its different markets. These marketing channels provides the best buying experience for customers because the shops are assured to have the different models in different colors and customers are also assured of product quality through service warranties. Second are through operators and service providers that make available network connections for NOKIA mobile phone users. These channels of distribution provide convenience to NOKIA buyers because price discounts are usually given for mobile phone devices and network connections when purchased in a bundle. However, these channels of distribution are not exclusive to NOKIA since operators and service providers are likely to be providing network connections for other mobile phone manufacturers. NOKIA has to develop ways of achieving competitive advantage through these channels of distribution. Other marketing channels are independent distributors or retailers. Retailers are most accessible to large segments of the market but the company has to make sure that it chooses its retailers to protect its brand name. These marketing channels contribute to increasing the value of NOKIA products because these connect the company with its customers. The different channels of distribution provide different levels of product accessibility ( 2000) that fits the different segments of the market. NOKIA captures greater market share by supporting strong brand name with various types of marketing channels.

d.     Recommendations

 

NOKIA offers mobile phones with different personalities. A particular mobile phone has a distinguishing feature associated with a human personality. This means that NOKIA mobile phones are personality based. As a result, customers looking for a complete phone in terms of application features and design may not find the features they want in a single phone. Although NOKIA was able to diversify its products, it has this disadvantage.

 

NOKIA applies an effective pricing strategy that provides the company with revenue from the different market segments. Lower priced basic functional creative phones enable the company to gain market share and revenue from the lower income groups because their basic functional phones are also creative unlike other mobile phone producers.

 

Marketing channels in Europe and the United States have to comply strictly with industry standards in order to operate as distributors of different products. In the case of developing countries in Asia and Latin America, there are minimal standards for operations or standards are not strictly enforced. This increases the possibility of selling branded mobile phones that do not comply with international quality standards. This could become disadvantageous to NOKIA. The company has to coordinate with authorities in these markets to ensure that phones sold under its brand name comply with industry standards.

 

 

 

 

 

 

 

Appendix

 

 

 

Figure 1: Nokia Net Sales by Market Area in 2005

 

 

 

 

 

 

 

Figure 2: Nokia Net Sales in 10 major markets

 

 

 

 

 

2005
EURm

2004
EURm

2003

 

China

3 403

2 678

2 023

USA

2 743

3 430

4 488

UK

2 405

2 269

2 711

India

2 022

1 369

1 064

Germany

1 982

1 730

2 297

Russia

1 410

946

569

Italy

1 160

884

1 003

Spain

923

768

748

Saudi Arabia

897

750

547

France

870

604

867

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