Tuesday, January 25, 2011

Undercut on the Low End: Rethinking Strategy in the Mobile Handset Market

The huge and rapidly growing Indian mobile handset market once seemed like a boon to developed-country manufacturers, but lately it is starting to cause them some sleepless nights.  Formerly the dominant player with over 70% of the market, Nokia has seen its share slide to 31.5%.  Samsung, meanwhile, recently lost the number-two spot to the relatively unknown Chinese brand G'Five, which now holds a 10.6% share to Samsung's 8.2%.  Although Nokia and Samsung still make up the largest share of the market, fierce competition from domestic and Chinese companies is quickly changing the market landscape.  Last year alone the number of Indian domestic handset manufacturers grew from five to 28. These companies have learned that they can score by addressing rapidly changing consumer preferences, such as longer battery life and feature-rich phones with low price points.

The shake up in the Indian handset market points to the challenges Western companies are having in maintaining a strong presence in emerging markets as new players offer value products in the low- and mid-markets with rock-bottom prices and novel features.  While not alone in struggling in the Indian market, Nokia stands out because it is being squeezed on the low and high ends, and in both emerging and developed markets.  In the global smartphone market, rising competition from such large players as Apple, Research in Motion, and Motorola has eaten away at Nokia's market share.  Commentators note that Nokia's market share loss is due in part to an insufficient focus on consumer needs and the emphasis consumers place on style and design, which rings similar to what is driving its loss in the Indian market - a lack of understanding the demand the Indian consumer has for cheaper, feature-rich products.  The fierce competition in markets such as India means that companies like Nokia need to find a way to stand out in the crowd, as they risk losing their competitive edge in low-cost device markets to homegrown emerging-market players.

One potential strategy is for multinational companies to move into solutions that require more than just the ability to manufacture cheaply, such as offering ancillary or end-to-end services that bind consumers and business customers more tightly to certain brands.  Nokia is pursuing this path with its Ovi suite of mobile services, with some success so far. Focusing on offerings that go beyond hardware can help shield companies from competition in low-end device categories by increasing customer loyalty and providing a new revenue stream.  Learning how to do this requires an understanding of evolving local preferences and trends, but it can help companies hold their own as competition intensifies.

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