When mobile phones first became popular at the start of the millennium, Nokia was the most known brand across the world. This changed with the arrival of the smartphones, when Nokia was pushed back to the margins, its place taken by the two of the market’s biggest players: Apple and Samsung. Nokia’s attempts in the smartphone market have included – most popularly – its Windows-based Lumia series, which has since faded away (Figures 1 and 2 below demonstrate the fading away of Nokia).
Figure 1: Nokia Position in the Smartphone Market in 2010
Source: Song (2011)
However, in 2017, Nokia announced its return to the smartphone with its own android phones. This move on Nokia’s part, industry observers believe, heralds the company’s valid challenge against Apple and Samsung. That said, though, such a challenge is not attributable merely to the launch of android phones, but what many believe to be Nokia’s competitive advantage, and its capacity to leverage those advantages accordingly. Particularly, the company’s competitive advantage rests in their feature phone business, which the company exploits in their supply chain management (SCM), pricing, and marketing strategies, as well as brand values.
Figure 2: Nokia’s Absence in the Smartphone Market in 2011
Source: Song (2011)
Nokia’s New Strategy
In the highly competitive global marketplace today, companies must go beyond just the immediate features of their products and/or services. Rather, it depends on a company’s strategies and response to the forces of and/or threats to competitiveness. In terms of competitiveness, Porter’s (2008, p.1) five forces play a major role: competition, the threat of new entrants, the threat of substitutes, the bargaining power of customers, and the bargaining power of suppliers. These forces significantly influence the decisions of HMD Global in relation to Nokia.
Briefly, the threat of new entrants is existent but still relatively low considering that the mobile phone market is already well-established. Moreover, the high amounts of capitals required to enter the market are a major barrier to entry. There is also little danger of substitute products as mobile phones have become essential to everyday living (Song 2011, p.6). The power of suppliers is also relatively low, with Nokia enjoying a generally better bargaining power, particularly in relation to hardware. In terms of software, however, with Microsoft being the supplier, Nokia’s bargaining power dwindles significantly. In terms of competition, Nokia faces significant challenge from large companies like Apple, Samsung, HTC, among others. This is especially so considering that Nokia has been a weak player in the mobile phone market, especially the smart phone market. Customer power is another major issue that Nokia faces. With the presence of many options to choose from, customers have a high bargaining power (Husso 2011, pp.28-32). Particularly, a number of factors determine buyers’ preference of mobile phones. Primarily, these are, first, good perception of phone quality, features and operation of instruments. Second, other than features, customers also tend to prefer attractive brand names, which makes it possible to install, recall and distinguish different competing products with the same traits. Third, price plays a significant role in a customer’s mobile phone purchasing decision. Fourth, customers also like add-on features, such as internet access, camera, games, and the ability to conveniently install and operate social media platforms (like Whatapp), among others. Fifth, there is also the important issue of sale services, which has to do with the response of the sales team (Prassad " Sahoo 2011, pp.615-616).
The company has responded in terms of marketing, value chain management, pricing, among others, and these efforts are so far working. The company has extended its feature-phone elements to drive its marketing strategies. Particularly, HMD Global has adopted Porter’s Generic Strategies: overall cost leadership (in relation to pricing), focus, and differentiation (Kotler et al. 2012, p.9).
a) Focus/Positioning
Nokia marked their apparent comeback with the launch of three Android smartphones (Nokia 6, Nokia 5 and Nokia 3) and four feature phones (Kharpal 2017, p.1; Law 2017, p.1). So far, the response was positive. Nokia 6, which was initially released in China sold out fast (Spence 2017, p.1). When the same handset was released to a wider market, exclusively through Amazon, it was sold out in a matter of minutes and the subsequent stocks have been selling fast (Law 2017, p.1; Spence 2017, p.1). However, again as noted above, this promise of success does not have to do with the mere fact that Nokia has released an Android phone. Rather, it also has to do with the company’s spot-on competitive advantage, and competitive strategies that have enabled the market to leverage their competitive advantage to the optimum (Auchard " Rosenthal 2016, p.2). Besides, there are many companies releasing Android phones at the moment and none have enjoyed the success of Nokia 6 even though one could argue that their phones are just as good – or perhaps better.
The company primarily banks on the young customers, and for whom Android phones are the most preferred (Law 2017, p.1). As Ajey Mehta (Nokia’s Vice-President and Country Head in India) noted in an interview with Law (2017): “Android is the operating system of choice. Around 85 per cent of the market is Android” (p.1).
In this regard, Nokia’s competitive advantage is their feature phone business, or their component strategy upon which it operated (Spencer 2017, p.2). Nokia is reportedly the second in the feature phone market globally and taking up to 94 percent in some markets (Spencer 2017, p.2). HMD Global, in this regard, has revamped the Nokia 3310, which is expected to build brand loyalty even further. However, to be clear, the feature phone market is a dwindling and does not promise good prospectus in the mid- and long-term. On the other hand, smartphones use has continued to rise steadily (see Figure 3) and this is likely to continue in the coming years. That said, the company is also set to leverage some of the elements that have driven the success of their feature phones to market the Android phones, which promise to work well with the young customers that the company targets primarily and promises a steady stream of revenue as HMD Global continues to find its footing. This assurance is attributable to the Nokia’s good reputation, which saw it win a loyal and fanatical customer base that relied on the brand to deliver “value for money handsets that suits their lifestyle” (Spencer 2017, p.2). Particularly, the target customers are not looking for expensive phones, but cheap phones that do the job, and indeed HMD has been quick in tapping into this.
Figure 3: Growth of Smartphone Use
Source: Song (2011)
b) Overall Cost Leadership Strategy
The overall cost leadership strategy has involved the pursuit of the lowest production and distribution costs to help set up prices that are lower than the prices at which the competitors (Apple and Samsung) sell their products. Although Nokia is not new in the smartphones market, the current entry into the Android market is, however, a new adventure. Therefore, HMD Global has required a competitive strategy to penetrate new segments as well as emerging markets. Indeed, as Spencer (2017, p.2) argues, Nokia’s target customers are not looking for phones costing $1,000 but phones that may cost $100 but still function effectively and efficiently. Simply, customers are looking for value for their money. It is no surprise, therefore, that Nokia 6, the most high-end of the three releases, sold for no more than ₹15,000 in China and India, the two leading emerging markets. In fact, all of the recent offerings fall between the prices ₹9,000 and ₹15,000. Ajey Mehta noted that this price range covers 50-60 per cent of the market (Law 2017, p.2. In other words, Nokia targeted the segment that would offer the most opportunity.
c) Differentiation
This concerns the way that the Nokia phones will be different from the other phones in the market so that customers can enjoy the benefit of value (Ahn 2016, p.4). This strategy should focus on pricing, quality, and phones that suit the various needs of their customers. HMD Global has been smart in this regard. On the one hand, the company has revamped their Nokia 3310 feature phone, which offers simplicity and convenience, while doing its job effectively. This is expected to help the company into the same loyal and fanatic customer base that was won over by the previous Nokia feature phones. Such phones are reliable will significantly continue to boost the reputation of the Nokia brand. Moreover, even as HMD Global targets the Android market, they have been smart to produce different classes of products for their different consumers. The three Android phones (Nokia 6, Nokia 5, and Nokia 3) have different features, and are accordingly priced differently to suit different budgets of different customers.
d) Distribution Channels
The company has also successfully adopted various distribution channels to reach their customers. Particularly, Nokia smartphones have been sold to customers through direct sales forces. Indeed, offline distribution channels is very important in this regard. Fortunately, HMD Global has inherited vast network of offline distributors in many countries across the world. Again, as Ajey Mehta told Law (2017, HMD Global has “450-plus exclusive distributors to cover 90,000 countries” (p.2). Online channels are also very important, accounting for about 30 per cent of the Nokia market. The Nokia 6, for instance, was released through Amazon, which proved to have been an effective channel as the phones sold out within minutes (Ajey Mehta, cited in Law 2017, p.3).
Conclusion
In the last few years, Nokia has faced significant challenges in the pone market, particularly as a result of its failure to effectively and quickly transition to the smartphone market. Its recent rise, therefore, faces further challenges, especially in terms of competition. The feature phone market, as noted here will cushion some of those troubles. However, the company cannot on this increasingly dwindling market. On the other hand, the use of smartphone is on the rise. Therefore, to continue its competitive advantage in the market, HMD Global must look to shift fully to the smartphone market. This does not necessarily require radical change. Rather, it requires HMD Global to leverage the same pillars that have made Nokia feature phones so successful: low prices, simplicity, effectiveness, convenience, and reliability. These pillars actually form the brand value of Nokia, and they can continue to serve this new direction in many significant ways.
References
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Education
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Spence, E. 2017. Nokia’s surprising smartphone strategy, Forbes, Feb. 12. Accessed 21 May 2018, https://www.forbes.com/sites/ewanspence/2017/02/25/nokia-8-3310-preview-mwc-strategy-hmd/
