Its tough being

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Its tough being 1

• Jill Alvidrez, MBA
• Peimin Chi, EECS
• Nipul Chokshi, MBA
• Sarang Dalal, BioE
• Steve Sinha, EECS
• Rahul Shah, EECS
• Nancy Suh, MBA

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Its Tough Being 1

• No, really, it is!
• Overview of US Handset market
• Value Chain Market Characteristics
• Outlook Key Decisions
• Recommendations
• Opportunities/Risks

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Handset Market Value Chain
Consumers
Handset Makers
Nokia Motorola Ericsson Siemens Samsung Others
Motorola Phillips Texas Instr. Qualcomm Cypress RF
Microdevices Others
ATT Wireless Sprint PCS Cingular Verizon
Wireless Voicestream Others
Consumers dont buy directly from Nokia
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Handset Sales Volume (in mil)
Merrill Lynch Research, April 2001
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Nokia US Market Share
Only 2.9 of CDMA market
64.4 of GSM/TDMA market
Source Info-tech Trends
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Key marketing strategy

• Respond to consumers preferences
• Lindholm team engineers, graphic designers,
  psychologists, sociologists, and a theater
  director to study human behavior
• Well-designed, high-quality, technologically
  advanced
• all in a user-friendly package
• Year 1992 CEO sheds chunks of Nokia business to
  focus on mobile telecommunications
• Pricing Strategy
• Lower price on most popular models
• Avoid price wars

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Nokias Outlook Two Extremes
BEST

• WORST

• End of growth phase
• Mobile data services ? difficult intro
  continues
• No emergence of single standard
• Commoditization of handset

• Voice traffic will cont. to be robust
• GPRS always on will be key enabler and driver
  of data-driven services
• Maintain cost leadership
• Sustain brand equity (e.g., Nike, Intel)

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Key Decisions Facing Nokia

• Push and pull marketing
• First-time and replacement markets
• Consumers and businesses (TBD)
• Voice and data markets
• CDMA and GSM/TDMA markets

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Resist Commoditization by Push and Pull Marketing
PUSH
Employer
Service Provider
Nokia
Customer
Retailer
PULL
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Global New vs. Replacement Phones
Source Merrill Lynch April 2001
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Focus on Replacement Market

• Replacement market increasingly important
• Penetration rate grows
• Replacement cycle is shortening
• Replacement determined not only by demand but
  also by supply
• Reasons to trade-in size and battery life
• People are more savvy, they want more features
  and accessories

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Risk Factors

• Economic slowdown? Slowing subscriber growth
• Replacement market weaker than anticipated
• Still mostly driven by voice data services not
  rich/easy enough to use yet to encourage
  replacement buys
• Average holding time
• Globally just under 2 years (Merrill Lynch 2001)

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Data-driven Services Opportunities to partner
with Content Providers

• Demonstrate value of a feature-rich handset
• Partner with AOL/Amazon/Yahoo/MSN to deliver
  their content over NOK handsets
• Note that SPs have to agree to the scheme to
  allow users access to content
• Probably the long-shot opportunity

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Long-term Focus on CDMA market in US

• CDMA represents another growth opportunity
• MOT lost market share to NOK b/c they were slow
  on converting from analog to digital
• Establish market share leadership in CDMA sales
• Current market leader is Samsung (21.7)
• Nokias share is 2.9
• Aggressively pursue partnerships with CDMA
  service providers
• Sprint PCS
• Verizon Wireless

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Conclusion

• Resist commoditization!
• Continue building brand
• Understanding customer needs
• Forging industry alliances
• Bring new products to market
• Replacement market
• Data-driven
• Long-term
• Shift technology from TDMA ? CDMA

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Appendix
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US Market Penetration
Percent
Source Merrill Lynch, April 2001
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Competition

• Partnerships attempt to overtake Nokia in 3G race
• All competitors have weaker TDMA sales than Nokia

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Nokias Road to market leadership
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Nokias Current StrategyTechnology Design

• Year 1990 Industry Benchmarks
• Nokia 2110 Large screen, clean design, easy UI
• Year 1995 Frank Nuovo, Chief Designer
• Product Design with a Competitive Edge
• Customizable rings and covers
• Elliptical Designs
• Year 2000 Effective Segmentation
• Nokia 6250 Rugged durable
• Nokia 8890 Sophisticated metal case
• Nokia 3300 Colorful models
• Watching customers in action, in traffic, at
  work, etc.

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Nokias Current Strategy The importance of the
brand

• Is the handset industry following in the
  footsteps
• of the PC industry?

Nokia argues no. Were selling branded
consumer goods, not a commodity.
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Nokias Current Strategy Brand Connecting
People

• 5th most valuable brand
• Value Proposition
• Cutting edge communications technology designed
  around individual human needs
• Differentiation
• Positioned as fashion accessory
• Personification of the brand
• young, sexy, sophisticated, hip and generally
  with it.
• Ericsson is an austere, conservative,
  middle-aged Swedish engineer.

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Nokias Current Strategy Tactics

• Aggressive advertising and promotions
• Cut through clutter with exclusive sponsorships
• Brand the ring
• High profile events
• Club Nokia
• Customer care and feeding
• Classlink Programs
• Focus on youth and education

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Nokia Leverages competitors failures

• Motorola
• Analog lost to Nokias early digital phones
• Late to leverage partnerships with service
  providers
• Ericsson
• Weak branding price wars
• Widely regarded as unfashionable (but has
  recently partnered with Sony, whose brand is
  associated with strong design)
• Contract manufacturing to Flextronics, Singapore