Nokia’s value chain

Value Chain

To get a better understanding of Nokia’s position in the mobile telephony industry, it is important to look at the industry value chain. Handset end- users do not purchase directly from Nokia –instead, they usual enrol in cellular calling plans from service providers. Nokia sells its phones to the mobile service provider and/or distributor after building each handset using many components manufactured by other vendors.

Players

According to Goldman Sachs, there are currently four tiers of players in the handset market:

Tier 1: Nokia

Tier 2: Motorola and Ericsson

Tier 3: Alcatel, Siemens, Samsung, etc.

Tier 4: the rest

Nokia swept into the market, overtaking both Motorola and Ericsson to achieve the largest handset sales during 1998. The failure of Motorola to move from analog to digital, and of Ericsson to pursue fashionable designs enabled Nokia’s market position to improve. Since then, both Motorola and Ericsson have been aggressively playing catch- up, attempting to leverage their strengths in technology and semiconductors to attack Nokia’s 35% share in the overall North American market and 64.7% share in the large GSM/TDMA market.

Industry Growth Rates

The wireless handset industry has grown very rapidly, with a compounded annual growth rate in handset sales of 57% over the past four years and 87 million estimated sales in 2001 in the U.S. This trend is not an indicator of future growth, though. Analysts predict a leveling off of sales rates, with Merrill Lynch predicting 16% growth for 2001 and 24% for 2002, while Goldman Sachs estimates a 22% growth rate per year over 2000-2005.

The Company

It is a fact that Nokia is currently the world’s largest manufacturer of mobile phones. Its global device market share is estimated at approximately 40% in 2008, and global annual revenue of 51 billion Euros and with operating profit of 8.0 billion as of 2007. Early in 1994, CEO Jorma Ollila initiated a strategy of exiting Nokia’s old businesses to focus on telecommunications.

Nokia reinforced its core consumer-focus competence by leveraging its existing expertise in other capabilities, including reduced global sourcing of materials, and by enhancing global brand building. This resulted into a successful business model focused on consumer-friendly mobile communications that has yet to be outshined, moreover a brand that consistently ranks as one of the most valuable in the world, according to Business Week’s annual survey.

Nokia’s focused its marketing theme on Quality, with the following key quality targets:

* To be number one in customer and consumer loyalty.

* To be number one in product leadership.

* To be number one in operational excellence.

The following are some the Marketing Strategies Nokia intended to implement:

* Focused on Handset Manufacture only

* Enhance Product Portfolio

* Increase Distribution Channels

* Adjust Preferences for specific markets

* Customer Satisfaction

* Focused on Replacement

* Increase Commitment to Emerging Market

* Improve Collaboration on Designs

* Ensure Accountability and Quality

* Aggressive Pricing

It seems that they won the game as the statistics speak for themselves:

* Nokia is the World’s largest manufacturer of mobile phone since 1998

* Its Market share was estimated at 38% in the second quarter of 2009

* Nokia sold 210 million units out of the total market volume 520 million units in 2008.

* Nokia employed 39,350 people in research and development, which represents approximately 31% of the group’s total workforce

* World’s 5th most valuable brand.

The Use of Information

A businesses success is based on whether they can give the customer what they want and when they want it. Market research involves the collection, collation and analysis of data relating to the consumption and marketing of relevant goods and services.

The purpose of market research is really to find out whether there is a gap in the market for your product or service or whether you can make customers want your product through persuasive adverting.

There are many priorities within a business, but in a marketing orientated company like Nokia, getting a full understanding of the following is on the top of their agenda:

1. Customer satisfaction:

The organisation must carry out Market research to investigate whether the current products or services are meeting the customers’ expectations.

2. Customer perception:

It is important to know what customer’s perception of the organization and its products, whether it is give them value for money, product quality, fashion and product reliability.

3. Customer needs and expectations:

This is all about anticipating and forecasting the future needs of the customers.

4. Generating income or profit:

This is the aim of any organisation— to sell its products, generate enough profit and maximise shareholders returns.

5. Making satisfactory progress:

Once a product is developed the expectation is that the product develops along with the market and if it does not happen then there is need for corrective measures.

6. Be aware of the environment:

An organization needs to be aware of any movement or changes happening in the markets where it competes. It is a matter of survival

External factors like political, environmental, social and technological (P.E.S.T) and internal factors like the strength, weakness, opportunity and threat (S.W.O.T) of the organisation need due consideration.

Nokia’s success is not a result of coincidence it is based on the judicious use of marketing information to come up with effective marketing strategies. It probably started in 1989 with Matti Alahuhta when he developed a new strategy for Nokia that focused on three key points:

* the development of a product with global appeal

* nimble movement to sell it internationally

· most importantly, a commitment to learning what consumers want, without consideration of the limits of existing technology

This explains Nokia’s dedication of 38% of its workforce in Research and Development—studying the needs of the different markets where they compete and come with products that suit the various needs of the market.

Nokia begun to establish themselves as leader and to set the industry trends in 1990, when they launched the Nokia 2110, which gained popularity with a large screen, elegant design, and a clean user interface.

Nokia continued to gain market share by paying attention to the details that worked to enhance ease of use and customizable preferences. Their insight that the handset could be a stylish fashion accessory, rather than merely a communication tool, allowed Nokia to lead the trends and direction of the entire handset industry.

Aligning Marketing Strategy with Marketing Strategy

The analysis of the internal environment (SWOT) and external environment (PESTLE) allows Nokia to shape it marketing strategy in line with its corporate vision of “a world where everyone can be connected”.

Nokia’s PESTLE analysis

POLITICAL FACTOR:

* In 2007 it was reported that Nokia spent $5,4 million on lobbying in the U.S. and $2 million on lobbying in 2008

ECONOMIC FACTOR:

* Nokia had to change its functions from single market to global market

SOCIAL FACTOR:

* Nokia has been a member of the United Nations Global Compact since 2001

TECHNOLOGICAL FACTOR:

* Substantial improvement and rapid Change in technology

LEGAL FACTOR:

* Patents right and copyrights on technology

ENVIRONMENTAL FACTOR:

* Great awareness of environmental ethics amongst suppliers.

* Life cycle impact of NOKIA throughout the supply chain

Nokia’s S.W.O.T Analysis

By conducting a SWOT analysis, Nokia is able to put the firm under the magnifying glass in such a way that the organisation is able to take rationale decisions to grow company or increase its earnings.

Strengths:

* Nokia has largest network of distribution and selling

* It is backed with the high quality and professional team in the HRD Dept.

* The financial aspect is very strong in case of Nokia

* The product being user friendly and have all the accessories one want

* Wide range of products for all class.

Weakness:

* High price of the product offered by the company.

* Some of the products are not user friendly.

* Not targeting promotion toward the lower class of the society.

* Potential threat from Microsoft’s entry into mobile telephony

* Ericsson- king of wireless infrastructure

* Design to market takes more time

Opportunity:

* Highest growth in markets such as India, China and Latin America

* Feature-loaded phones to act as an offset

* Providing value at a reasonable lifetime cost

* Life style marketing and segmentation

* Building a worldwide supplier network

* Preempting competitors in critical markets

* Managing competitive interaction

Threats:

* The threats of emerging of other mobile companies in the market.

* The companies like Motorola, Sony Eriksson, Cingular (U.S) etc. have come to the stand of tough competition with Nokia in the field of Mobile Phones.

* Threats of cheap phones, new features, new style and type, good after sales service etc.

* Many Service Providers like Orange, Vodafone and O2 and other operators are globally selling their own.

* Higher import charges

* Nokia’s Marketing Strategies

BCG Matrix of Nokia

The BCG Matrix provides Nokia with information to analyse its products portfolio and take appropriate decision. Nokia’s BCG Matrix is as follows:

STARS

N-Series

QUESTION MARKS

Premium Series

CASH COWS

Entry Level

DOGS

N-Gage

Product Life Cycle of Nokia

The product life cycle model demonstrates how a product moves through certain distinct stage of development and decline during its life. Nokia’s product life cycle is as follows:

Sources: Rohit Banthia, authorsteam.com

Applying the three stages of situational analysis — Identify—>Draw conclusions—> Translate into strategic action—using all the research information, Nokia leveraged its superior marketing strategies and powerful brand to beat competition and achieve its vision.

The following are some of the initiatives categorized under the Ansoff’s Matrix, demonstrating the strategies Nokia implemented to achieve its marketing and organizational goals.

Market penetration- selling existing products to an existing market. Nokia the following strategies:

* Focus on the Price Mix:

* Nokia review the pricing scheme and came up with a pricing strategy that best fits the product.

* Focused on Market Penetration with the Nokia 1100 in Markets like India.

* Used the Market Skimming models N-Series & E-Series

* Online Nokia purchasers are provided with discounts through Nokia discount coupons or coupon codes

· Retailers are paid commission on the sale of every Nokia cell phones and accessories.

* A wide variety of media is used to advertise its products, namely: TV, Sign boards, Bill boards, Radio, Newspaper, Broachers, Posters, Dummies and display stands

Market development—Researching and selling to a different market.

Due to the invasion of cities by competition and to be faithful to its promise of “Connecting People”, Nokia did the following:

* In China and India, the focus is on rural areas where it is cheaper to set a wireless infrastructure than in building a fixed line

* In those countries, China and India the focus is on the youth who are fond of imaging and games .

Product development—Bringing new products in currents markets.

Nokia has been consistently offering a wide range of products to suit different markets and different customers:

* On 27 April 2005, Nokia announced a new brand of multimedia devices and the first three N-series devices introduced were N70, N90 and N91.

* Nokia N-series is a product family consisting of multimedia smart phones.

* With Nokia N-series products, consumers can use a single device to enjoy entertainment, access information and to capture and share pictures and videos, whenever and wherever they want. The series consists of Nokia N70, Nokia N70 Music Edition, Nokia N71, Nokia N73, Nokia N73 Music Edition, Nokia N80, Nokia N81 8GB, Nokia N90, Nokia N93, Nokia N95 8GB.

Diversification- Offering new products to new markets.

Despite the fact that the focus is on Handset manufacture, Nokia has a wide array of products like:

* Message device system“

* ADSL modems

* Digital television

* Personal computers

* Mini laptops –Nokia Booklet 3G

* Internet Tablet

* GPS products Global Positioning System

* Military communications and equipment

The Global Context

Nokia is looking to add 2 billion new users by the end of the decade by reaching out to emerging markets, including China, Brazil, Indonesia, Africa, and India.

Nokia is very aware of the importance of diversity and the sensitivity of the nations. To that effect, Nokia operates nine satellite design studios located within targeted nations where researchers and designers work to customize its approach to each market, blending macro trends with micro insights. New studios were to be announced in Bangalore, India; others already operate within China and Brazil.

With a specific focus on the environment, Nokia has developed a strategy around its packaging operation aiming at reducing cost, pollution and reducing the impact of global warming. The company reduced the amount of printed material inside the box, which allowed them to save 15, 000 ton of packaging material. Since they did not have to produce this amount of paper also saved 100,000 m3 of water. In 2007 Nokia, started to increase its level of recycled content.

E-business

Nokia is a devoted user of e-business applications. Nokia leveraged three alternative solutions, which can be used side by side to facilitate process integration with entities belonging to its network:

* Web access tools, which are deployed to facilitate operations and integrate applications between Nokia and its customers and suppliers.

* Interfaces and standardised processes, which are based on RosettaNet standards, Nokia’s chosen de-facto standard for automating system-to-system integration.

* Electronic Data Interchange (EDI), which is the most common standard in manufacturing industries for business-to-business transactions.

However, Nokia does not do Direct Market on its website www.nokia.com

Conclusion

Despite that fact that Nokia is the number one mobile phone manufacturer and its brand has proven to be one of its most valuable assets, Nokia should continue building it. Nokia must maintain the thorough research of evolving customer needs and maintain leadership by provide the “right” products to the various market.

References

1. Drucker, P (1973) The Practice of Management, Pitman

2. Jelassi and Ender (2009), ‘Strategies for E-Business’, Prentice Hall, Essex, England.

3. Kortler P (2005), ‘Marketing Management’, 7th ed, India, New Delhi, Pearson Education

4. Kotler, P (2003) Marketing Management, 11th Edition. Prentice Hall.

Goldman Sachs Global Equity Research, 2000 , Mobile Handsets report, ww.wirelessdevnet.com/channels/lbs/features/newsbite14.htm

Carolyn Koo, Staff Reporter, Nov. 26, 2000, “Nokia Targets Handset Replacement Market With New Product Features”, http://www.thestreet.com/story/1182436/nokia-targets-handset-replacement-market-with-new-product-features.html

Bhawani Shankar, Gartner, April 3, 2001 “Telecoms Industries Around the World Face Unfamiliar Challenges From U.S. Downturn”, Paul de Bendern , May 4, 2001, “Nokia says 40%-plus handset market share possible”, infoworld.com,

Merrill Lynch, Wireless Equipment Report, April 9th, 2001
Nandini Lakshman, August 2007, “Nokia’s Global Design Sense”, BusinessWeek, Special Report.

Georges S. Andre