Marketing Strategy for Management: Nokia

1 Marketing Strategy for Management: Nokia The mobile phone instrument industry has been transformed into a lucrative market in the recent times following new innovations that continue to capture the imagination of many users.

Apple Inc. is particularly responsible for the reincarnation of this industry as it launched its unique version of smartphone with multiple capabilities. However, Apple’s success has resulted in a number of different manufacturers being left to struggle in the industry. Giant mobile phone manufacturer Nokia has been left reeling in a spate of poor performance following intensified market competition from other players, including Samsung and Apple. A global market leader for many years, Nokia has finally been dislodged off the apex by South Korean giant electronic firm Samsung which has registered tremendous growth in the recent years. This paper seeks to analyze the UK mobile phone instrument market, and in particular lay emphasis on the Nokia model and its performance in the market. The company though needs to address its slow pace at which it reacted to the shift from featurephones to smartphones.

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Porter’s 5 Force Analysis of the UK industry Power of suppliers A majority of suppliers for the mobile phone manufacturing industry are based in the Asian continent, in countries such as Japan, Taiwan, South Korea, among others. These suppliers are powerful because they are limited in the market yet they supply many industry players, including those manufacturing computers and laptops. Most companies from Asia that are already in the manufacturing industry, like Sony and Samsung, also double up as main suppliers of the industry and, therefore, their interest in the market affords them the power to dictate terms (Jaroslovsky 2011). These companies have been around for years as core industry participants and thus use their capacities to enjoy the advantages that come with large economies of scale.

Other smaller suppliers in the industry operate at relatively higher costs due to their smaller capacities, making supplier switching costs to be high.

Power of buyers The behaviors of buyers and their shifting product tastes determine the market performance for different industry players. In other words, buyers in the UK mobile phone manufacturing industry have immense power to alter market behaviors. For instance, there has been a trend in the recent times where buyers have developed a preference for smartphones.

These trends have gradually been noted in the market since 2007 when Apple launched its premier smartphone into the market. Industry players, such as Samsung, who studied the trends well in advance and adjusted accordingly, have been able to enjoy positive results. On the other hand, players like Nokia who have been dragging their feet towards the integration of the new technology and innovation have suffered the consequences. The demand for smartphones has

3 shot up acutely while handsets with limited capacity continue tumbling in prices (Segal-Horn & Faulkne 2010).

Competitive rivalry Competition has since hit fever pitch as many manufacturers are shifting attention towards the smartphone industry. Although Nokia has been slow at making the right choices, finally the company entered the smartphone arena using the Symbian platform. Many other manufacturers have based their performance on the Android software as a way of enhancing their competitive capabilities. However, it is worth noting that Apple and Samsung enjoy huge success in this area and have been focusing more on the high-end smartphone market. Both Android and iPhone mobile software is the most sought after in the marketer while Symbian is less lucrative (Business Press Hoovers 2011).

Substitution threat As industry players seek to enhance their market performance by shifting attention towards the manufacturer of smartphones, there has been too much imitation and copying of innovations. At the moment, users of Apple’s iPhone can enjoy virtually every applications and features that are found on Android based handsets and vice versa. Even other smartphone models that are based on different software, like Nokia’s Symbian, still use the same applications that are found in the market (Buckley 2006).

New entry threat The mobile phone manufacturing industry is a capital intensive venture. The costs involved make it difficult for willing players to enter into the market. To become successful, new market entrants will require substantive amount of capital to acquire the necessary technology and also establish a competitive advantage that can match other big players, like Samsung and

4 Apple. Owing to the several years of their existence, large firms like Nokia, LG, Samsung, and Apple have gathered economies of scale advantages which make it difficult for newcomers to outdo (Unhelkar 2009).

Major Threats Faced by Nokia Intensified competition The mobile phone consumer market has witnessed Nokia’s market supremacy reign for a considerable amount of time. Nokia’s popularity in England ran in all groups of people, from students to employed people. However, in the recent years, the mobile phone model has been loosening its grip on the market leadership. Nokia’s worsening performance has mainly attributed to increasing competition, particularly from Apple which introduced modern day smartphones and, now Samsung. While every handset manufacturer seems to be refocusing strategy towards the manufacture of smartphones, Nokia has been slow at readjusting. Most users in the UK now seem to be seeking for smartphone models with many functionalities and capabilities (Abboud & Prodhan 2012). Although Nokia has also released its smartphone version, its Symbian software seems to be less superior in comparison to Google’s Android, which most handsets have based their operations on, and Apple’s operating system. These ramifications continue to see the fall of Nokia’s popularity and sales as other brands fight for market leadership (Arthur 2012).

Patent wars With the increasing technological prowess that mobile phone manufacturers have been adopting, there has been growing need for players to sell patents to each other to increase their inter-operations. However, with growing competition, there have been increased cases of patent wars breaking out between the different players. Nokia has already complained of its patents

5 being stolen by rival firms and has moved to court to complain about the infringement (Ricknäs 2012). In return, Apple has also moved to court to complain about Nokia using unethical means to try and acquire undue advantage. These legal battles could result in big fines that could threaten the survival of Nokia, particularly if it is found liable of any of the accusations leveled against it by its accusers (Sweeney 2012).

Substitution With the UK consumer market fast changing preference from featurephones to smartphones, Nokia remains exposed to the challenge of its consumers switching their allegiance to other brands. While Nokia has performed extremely well in the featurephones arena, there has been laxity on the side of the company’s strategists and management to read the signs accurately and make timely changes. Thus, although the featurephones manufactured by the company were very competitive, the tastes of the consumers have changed but the company failed to transform its success to the smartphone arena. Consequently, buyers who previously were trustworthy to Nokia have begun shifting their allegiance to Apple’s iPhones and Samsung’s Android enabled smartphones. This has further been worsened by the slow pick noted on Nokia’s latest Windows based smartphones even after being launched in the UK market (Jaroslovsky 2011).

Corrective Market Strategies for Nokia Better technological innovation Nokia must shift its technological research and development towards more competitive innovations. This will call for considerable spending of resources in this area. In particular, the company must seek to acquire highly skilled information technology experts and integrate them as its think tank. These workers will, in turn, enable Nokia to undergo the much needed transformation as it seeks to enter into the smartphone arena proper. The company has sought to

6 develop its Operating System, in close cooperation with Microsoft, a fact that has also contributed negatively towards its market growth. Highly competitive technicians who are supported by numerous researches, however, will help the company acquire considerable ground in this area (Belk et al 2011).

Integrate with Android Operating System Google’s Android Operating System is currently reigning in the smartphone industry. It is evident that companies that have previously struggled to gain smartphone market share, such as Sony Ericsson, are now beginning to post positive results after basing their handsets on Android. That Android has currently surpassed Apple Operating System in the UK smartphone market is evidence enough that Apple’s market appeal is growing. The decision by Nokia to stick with Symbian and now Windows based smartphones might not sufficiently sustain its fight to regain lost market share (Steinbok 2003). Equally, by agreeing to base their handsets on Android software, Nokia will have eliminated the need to buy and sell patents to its rivals. This is because Android is common among many handsets manufactured by different companies and therefore compatibility will no longer remain to be an issue (Boone & Kurtz 2012).

Nokia’s Strategic Uncertain External Environmental Factors Economy Scenario I: Slow growth A slow economic growth implies that buyers have less economic power to acquire goods.

Thus a poor economy would result in less phones being bought, denying companies like Nokia sufficient revenue. As a strategic move to beat the consequences, Nokia will need to readjust according to the market power and release to the market only affordable phones. The company will be compelled to cut down on running costs and expenses by implementing such measures as

7 downsizing its workforce as well as reducing amount of supplies to be ordered on a daily basis.

People will tend to hold onto their mobile phones for very long periods of time, a fact that will further diminish market demand, and therefore eventually reduce the lucrative nature of the industry (Belk 2011). Nokia should, in that sense, therefore, seek to expand its portfolio as a means of maintaining healthy revenue flow. There are high chances of the UK economy slowing down due to the ongoing global financial crisis, and which has hit Europe very hard.

Scenario II: Rapid growth People will posses greater economic power and there will be a higher likelihood of consumers acquiring phones and buy new ones within short intervals. Mobile phone manufacturers will also enjoy huge revenues that will be resulting from higher sales frequency.

As such, competition will be based more on quality since as buyers will be spending too much money on the mobile phone gadgets, they will be seeking higher functionality in turn (Belk 2011). For the firms, the strategy here is to increase spending on research and development.

Since huge revenues will be realized from the increased business prospects, spending part of the revenues on research and development will be the best strategy to employ in order to increase competitive advantage. All the firms will be seeking to build and maintain strong competitive and advantage and hence quality and skill should remain to be the key issue here. The UK economy has very little probabilities of recording rapid growth because performance has mainly been slowed by the global financial crisis which has been ongoing since 2008 (Carral & Kajanto 2008).

Taxes Scenario I: Raised government taxes

8 The UK government may decide to impose higher taxes in the mobile phone device industry. This will prompt the manufacturers to raise their prices so as to maintain their profit margins. However, higher prices are likely to discourage buyers from buying phones and therefore revenues to the firms will also reduce considerably. With diminishing market demand and high government tax rate, the manufacturers may be forced to seek other alternatives through which they can maintain their revenue flow. Different but closely related portfolios may include dealing in phone accessories, such as batteries, parts, and service industry. With increased industry performance, it is highly probable that the government may revise the tax regime upwards (Abboud & Prodhan 2012). This is because other main industries in the country have been hit by stagnant or negative economic growth, especially owing to the slowing global economy and the government may not consider raising their taxes.

Scenario II: Lowered government taxes Reduced government taxes would effectively give room for manufacturers to offer their goods at reduced prices. This will improve their net revenue income as buyers will be attracted by the low prices. Consumers are likely to acquire new models and designs after very short intervals as the phones will be available at very affordable rates. Competition among phone manufacturers will shift from price related issues and dwell more on quality issues (Nokia 2012).

The UK government is less likely to lower taxes in this sector because of its highly recorded growth in the recent past and the government might consider earning more revenues out of it.

Existing Strategies being Employed by Nokia to Combat Uncertainty Expanded portfolio Nokia has sought to minimize the risk of a slow economic growth by expanding its product portfolio. Like its main rivals Apple and Samsung, Nokia has introduced tablet

9 computers in order to strengthen its market position, and increase avenues through which it can raise more revenues. As opposed to overreliance on a single market portfolio, this new strategy is bound to help Nokia deal sufficiently with problems of slow economy. It will attract more buyers who will in turn increase company revenue (PR Newswire n.d).

Acquisition of Symbian and closer relations with Microsoft As a way of building competitive advantage and building on more market share, Nokia has strategically acquired Symbian (Kumar 2011). This gives Nokia the advantage to control its Symbian platform which it seeks to use to create huge market demands. Additionally, Nokia is working in close relations with Microsoft to develop operating system for its Windows based smartphone model. These developments are likely to curtail the market dominance of Android and Apple software and attract more market demand towards Nokia smartphones and models.

This will see the company increase sales such that in instances where taxes are increased, it will be able to sell more and raise the required tax revenue (Wearden 2011). This strategy, however, has limited chances of success as the technology being applied is inferior to iOS and Android, which are being used by competitors.

Building capacity of previous models Nokia still understands that it is a force to reckon with in the mobile phone industry, even though increased competition has seen rival players reclaim substantial market share. The company is seeking to build on its consumer trust by improving its latest phone models being released into the market. This strategy will help it combat problems arising from slow economic growth because more customers will mean more revenues. As a result, Nokia is incorporating these strong competitive advantages it has built over time in its new smartphone models as a way

10 of reclaiming its market share (Grant 2010). This strategy is bound to help the company positively as it will bring in the much needed business.

Economies of scale Nokia is a large company with the capacity to sufficiently supply the global market. Its huge size and capacity places it at a more advantageous position because the company can maximize its profits easily, even when taxes are raised, by increasing production size. This benefit that results from economies of scale, unfortunately, is not enjoyed by many of the firm’s competitors. This, in essence, puts Nokia ahead of its rivals and can easily cause the firm to regain market dominance again (Anonym 2012).

Suggested Strategy Change Nokia’s slow pace at reading the changing market trends have been responsible for its losing the market leadership position. The company needs to invest more on technology research and development in order to be a market leader in innovations. This way, Nokia will be able to define and create market trends long before its rivals realize it (Dziri 2011).

Nokia has eventually lost its market leadership in the mobile phone manufacturing industry. Years of hard work and innovation by competitors resulted in the loss of market control by the firm. Additionally, the changing market trends and tastes have seen Nokia lose out on market leadership as a result of its poor analysis of future market needs. However, Nokia still has one of the best strategies that could still see it acquire its lost market share. The firm has acquired Symbian as it angles itself to toss into the smartphone arena and has also signed a deal to corporate with Microsoft in a deal that pits the two companies into working together to develop a Windows-based operating software. Nokia’s capacity and size can also be used effectively to develop economies of scale that will consequently put its rivals at a disadvantaged position.

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12 List of References Abboud, L & Prodhan, G 2012, ‘Mobile operators unconvinced by Nokia's revival bid’, Reuters, 17 April, [web] Available at: <http://uk.reuters.com/article/2012/04/17/uk-nokia-telcosidUKBRE83G08Z20120417> [Accessed 6 June 2012].

Anonym, 2012, Diversification strategies of Nokia, GRIN Verlag, Munich, Germany Arthur, C 2012, ‘Android over 50% of smartphone sales as Nokia and RIM feel strain’, The Guardian, 16 May, [web] Available at: <http://www.guardian.co.uk/technology/2012/may/16/android-smartphone-market-50percent> [Accessed 6 June 2012].

Belk, RW et al. 2011, Research in consumer behavior, Volume 13, Emerald Group Publishing Ltd, Bingley, UK. Boone, LE & Kurtz, DL 2012, Contemporary marketing, Cengage Learning, New York, NY Buckley, C 2006, ‘Fixed-mobile market to hit $28bn by 2011’, The Register, 27 April, [web], Available at: <http://www.theregister.co.uk/2006/04/27/fmc_market_rising/> [Accessed 6 June 2012].

Business Press Hoovers, 2011, Hoover's handbook of world business 2011, Hoovers Inc, New York, NY, Carral, R & Kajanto, M 2008, ‘Nokia: a case study in managing industry downturn’, Journal of Business Strategy, Vol. 29, no. 1, pp. 25-33.

Dziri, R 2011, Avoiding strategic drifts in a hypercompetitive market, GRIN Verlag, Munich, Germany.

Grant, MR 2010, Contemporary strategy analysis, Wiley and Sons, New York, NY

13 Jaroslovsky, R 2011, ‘Motorola, Nokia phones summon past glories’, Businessweek, 2 Dec, [web] Available at: <http://www.businessweek.com/news/2011-12-02/motorola-nokiaphones-summon-past-glories-rich-jaroslovsky.html> [Accessed 6 June 2012].

Kumar, M 2011, Nokia: Channels of distributions, GRIN, Munich, Germany.

Nokia, 2012, Nokia lowers devices & services first quarter 2012 outlook and provides second quarter 2012 outlook, [web] Available at: <http://press.nokia.com/2012/04/11/nokialowers-devices-services-first-quarter-2012-outlook-and-provides-second-quarter-2012outlook/> [Accessed 6 June 2012].

PR Newswire, n.d, Nokia expands business portfolio with mobile email, [web] Available at: <http://www.prnewswire.com/news-releases/nokia-expands-business-portfolio-withmobile-email-54944792.html> [Accessed 6 June 2012].

Ricknäs, M 2012, ‘Nokia loses UK patent appeal against IPCom’, CFO World, 12 May, [web] Available at: <http://www.cfoworld.co.uk/news/technology/3357140/nokia-loses-ukpatent-appeal-against-ipcom/> [Accessed 6 June 2012].

Segal-Horn, S & Faulkne, D 2010, Understanding global strategy, Cengage Learning, New York, NY Steinbok, D 2003, Wireless Horizon: Strategy and competition in the worldwide mobile marketplace, AMACOM, New York, NY. Sweeney, T 2012, ‘Nokia joins 'patent wars,' sues HTC, RIM and Viewsonic’, Digital Journal, 2 May, [web] Available at: <http://digitaljournal.com/article/324104> [Accessed 6 June 2012].

Unhelkar, B 2009, Handbook of research in mobile business: Technical, methodological, and social perspectives, Idea Group Inc, Hersbey, PA.

14 Wearden, G 2011, ‘Nokia and Microsoft sign strategic tie-up’, The Guardian, 16 May, [web] Available at: <http://www.guardian.co.uk/business/2011/feb/11/nokia-microsoft-signstrategic-tieup> [Accessed 6 June 2012].