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Spillikins #70. Nokia Raises Prices and Will Be Called to Account
I had tough luck with this issue of Spillikins as I started writing about the first dual SIM phones from Nokia and got so carried away that ended up with a separate article, while this genre requires different topics, which attract my attention during the week. Therefore, you are invited to read the separate article on dual SIM phones, where you will learn more about this market niche, why Nokia happened to be late and now offers only one low end model. The main competitor coming from China is also named there alongside with plans of other manufacturers (e.g. Samsung) for similar products. Those who read the material before publication found it of some use.
It is a rare event when one press release on new models becomes so surprisingly thought provoking. Few people paid attention to the announcement of low end models from Nokia, but the dual SIM option made a bit of a stir, which quickly subsided. This announcement is extremely important both for us and for Nokia. For the first time the company made a statement on its strategy change and starts increasing prices on the low end models. Haven’t you noticed it? Were you attentive while reading its press release? It was mentioned in black and white, but Nokia did not highlight this turnaround and only named the recommended prices, which signal the change. Let’s solve this puzzle together to find out the true intentions of the company.
Before speaking about Nokia I want you to remember the history of Motorola, which was the early pacesetter in the low end phones market. I hope you remember the all conquering m3788 and similar models followed by the emergence of C series, devices for $50, $30 and even $20. Within the company they were labeled as C030, C050. The grand idea behind these extremely cheap models was the following: on the one hand the downward expansion of your products range always brings good sales and helps to protect your market share, but the average handset price goes down together with profits as cheap models are not very cost efficient. On the other hand Motorola viewed it as the future investment. Those who bought excellent Motorola models for pennies were supposed to become more demanding in future and stay loyal to Motorola. This approach is very naive though typical of many top managers. I don’t know if they are happy to be under a delusion or are so far removed from real life that cannot understand the true motives of common people. Many people who bought a low end solution from Motorola never followed it up with more upmarket offerings from the same manufacturer. They were ready to buy everything, but Motorola. Why? The share of users who move away from low end models is not big enough. Bigger and more famous companies could expect higher conversion rates and while for Nokia this indicator was always considerable Motorola could not expect the same. It is just the law of large numbers. If you have 38% of the market you can easily sell another product to one customer. For some Chinese manufacturers with 1% of the market such conversion rate is surely next to zero. We know where Motorola is today.
The customers loyalty is better achieved in the mid and upmarket segments and the low end models are sold due to low price. Loyalty and quality of handsets are important as well, but these factors are not so crucial here. Low price often justifies all drawbacks of the product and the expectations are not high.
When Nokia started losing its market share in the high end segment it made up for it with the help of budget solutions. The market share remained the same, but the average price of sold handsets was driven down. With acceptable demand for umparket solutions the company could afford it while the introduction of very cheap models was offset by the margin from expensive devices. Starting from the 4th quarter of 2010 the situation will change. To boost the demand for high end products Nokia will sell them with the lowest possible markup. For example, Nokia’s new flagship N8 was expected to sell at around ˆ450, but was unveiled with the recommended price of ˆ350. What is the cause of such charity? This model does not have an upper hand over rival products. It can be debatable, but Nokia understands that the right price ensures good sales and this price was slashed. Moreover, it does not mean that the average price of Nokia handset should go down and lead to negative consequences. Nokia N8 is not a singular example, because by setting the price for its flagship Nokia will readjust the pricing policy for all models within ˆ250 to ˆ400 range. What will be used to compensate for this reduction in value? The obvious answer is the turnover as better sales are an excellent answer, but the demand cannot go up many times to make up for such radical price decrease. How to strike the right balance?
The low end segment is the area to address. The increase of prices by 25% in this niche will counterbalance the losses from price decreases in the upmarket segment. This trick may work for one year and will not drag the market share down. The drop will be moderate and will reach only 1-1.5%. In the best case scenario the loss will be hardly noticeable.
The biggest competitor is Samsung, which cannot dramatically increase the production of very cheap models and the decrease of the average phone price is not on the agenda. The company is not ready to fight for the market share at any cost, because the profit rate is more important for them. It plays into the hands of Nokia. It can do this trick with prices without any threat from rival manufacturers. They are almost nonexistent in this segment: Sony Ericsson has left this niche completely, LG is active only in separate geographical areas, and the Chinese companies are not represented in Europe, which is still Nokia’s stronghold. It can work well and Nokia decided to start this bull campaign.
Let’s look at Nokia C1-02, which is the carbon copy of Nokia 1661 except that the new model is based on S40. In terms of features the consumers will not feel the difference as in this price range nobody cares about the platform subtleties. For the manufacturer the cost price of these models is identical as well. C1-02 was unveiled with the price of ˆ35, while Nokia 1661 sold in the first quarter of 2009 for ˆ30. During this time the price of Nokia 1661 went down a bit and the price difference between the models now stands at around ˆ7 or ˆ8. Nokia emphasizes its strong points, which are quite visible in the low end segment and cautiously raises the prices to compensate the losses in the upmarket area. I am sure that starting with the 1st quarter of 2011 this strategy will be paying off and the average price of Nokia phone will start rising. It may even happen in the 4th quarter of 2010. The official explanation will refer to the popularity of flagship solutions and the company’s return to the segment with Nokia N8. Undoubtedly the sales will be good for Nokia, but they will not be staggering, especially within the first three months. The average price will not be changed with this one model alone. It will be achieved in the budget segment, but in terms of PR the company will work with clockwork precision.
The readers who will compare the prices and rush to write on our forum that I was mistaken and the company has cheaper models in its portfolio ignore one detail. Nokia can easily adjust the production volume of every model and choose particular markets for distribution and so on. At this stage Nokia will offer very cheap models only in the markets where they directly compete with Samsung. There will be no such an objective elsewhere. In percentage points the sales of more expensive low end models will grow. Apart from the price we should not ignore the ratio of different products in the range.
This game is temporary and cannot continue for more than 3 or 5 quarters, because after the downward price correction for flagship models the company will have to raise them again sooner or later. It is possible that it will be achieved by different positioning of products on MeeGo. This issue is beyond the scope of this article as it will require several pages of complicated explanations, so we will leave it here.
Look at these two photos and compare the looks? Forget about the features, positioning and other buzzwords and pay attention to design only.
To my mind the low end model is somehow resembles N8, which is not bad. 4th quarter signals the dominance of Nokia models with N8 design style. X series handsets will look this way and the same can be said about midmarket segment models. This is the new trend initiated by Nokia N8. It is neither good nor bad. I just wanted to underline this curious fact.
I do not understand the new system of models designations with digits after hyphen, but so far I will just wait and see. I am already confused and can’t make head or tail of it. I hope the situation will be clarified in the future.
Nokia’s Representative Office in Russia without any explanation banned all communication with our correspondents. It means that Nokia does not want our readers to get information about its products. In any case, the company has made some efforts and deleted all Mobile-Review.com addresses form their mail lists (Russian versions of press releases, not the global ones). I cannot explain it otherwise, because I receive such press releases to other addresses, but they do not reach mobile-review.com. This “technical failure” also extends to the inability to answer dozens of e-mails, calls and so on. Nokia is trying to bury its head in the sand. At least, this is their official position. The company becomes biased and creates artificial inequality between different websites by limiting access to the information on its products. In other words, Nokia by all means prevents us from fulfilling our journalistic obligations. I can assure you, that we cannot allow ourselves to be prejudiced towards Nokia and its products. As always you will read all reviews of the company’s phones as was demonstrated during the previous month. You will also receive objective and varied information from all sides. To avoid the slightest possibility of the biased approach we decided after a month long reflection to inaugurate a new section, where we will ask Nokia simple and balanced questions. These questions will be read by you and Nokia PR department. Their job is to answer such questions and they cannot ignore this obligation. We will not become nonobjective and insist on answers or make fuss around it. The questions will be worded the way you see them and sent to particular addresses of Nokia employees, for example Victoria Yeremina, Nokia PR Director in Eurasia. It will allow you to judge how company communicates and is interested in our readers, its current and future customers.
I would like to emphasize that neither me nor other editorial stuff know the reasons of such Nokia’s behavior. We can only guess, but have not heard the official Nokia explanation yet. The attitude of the global company, which breaks all communication with journalists without any reasoning has no analogues and examples in my practice. You can expect it from the kiosk owner, but not the leading international company. However, let’s put aside the emotions and I hope there will be no need to return to this topic. I am definitely not going to use the Spillikins to sort out things with anybody. Our website is open for discussion to any company or market player and there will be no change. The decision of any company not to communicate with our readers is their choice, not ours. We never limited access to our audience to pursue any goals.
The contest to choose the first question was very heated. We could ask about Nokia C5 and unstable work of the camera and gallery. But this can be treated as the “sharp” and biased question. That is why we decided to start with something very simple.
In connection with the latest Nokia product announcement in Kenya we would like to ask you some questions of interest for our readers. We would appreciate if during the week you find a couple of minutes to send us an answer. Thank you in advance.
What are the prospects for dual SIM phones on the Russian market according to Nokia Representative Office? Will Nokia C2-00 enjoy popularity and be sold in Russia. Is information on approximate price and terms of market introduction available? If this model does not appear on our market will it signal the refusal of Nokia to sell such phones in Russia? Thank you very much.
Editor in Chief, Mobile-Review.com
SPB Software launched 5th version of its shell and it is available for touchscreen phones under Symbian. The price is $30, which definitely is not cheap, but the first days saw record sales for Symbian. The users replace standard interface by this shell, because what comes in the box does not deserve praise. SPB Software product will be reviewed in detail in the separate article, hopefully this week. As it is, enjoy the photos of the interface and video. The trial version can be downloaded here.
At the beginning of May CEO of Sony Ericsson Bert Nordberg made the presentation on its current strategy. Among traditional reports about the sales growth (it was indeed achieved with the help of Vivaz and even in Russia the company went up from 4% to 6%, which is quite tangible for SE) was included a very illustrative slide and the company officially announced the quality as their main objective.
According to this slide Sony Ericsson will be concentrating only on expensive models priced ˆ250 and up. The company does not need low end models. This is the right approach for survival and profitability. They have to stop saving on components and Sony Ericsson will have a chance. Look at the product range for this year, which shows the key models. It will be expanded by two more handsets by the end of the year and they will enjoy good sales. Other models will be used just to complete the range.
One of these niche models will be a music phone on Android to complement Sony Ericsson X10 Mini.
Do you know why Blackberry Strom had bad sales? Average users were so much accustomed to traditional keypads that the touchscreen failed to offer the equal convenience. The interface itself was not impressive if compared with Apple iPhone. These two factors prevented the model from success. Bold 9800 slider is another issue – it boasts the touchscreen and the keypad. The web is buzzing with discussions of this unannounced handset and it gets quite a bashing, which is both premature and needless. It will not compete with the company’s classical models, but will definitely find its place. It has the keypad, which will please the traditionalists and the touchscreen will allow the work without opening the slider. Add Blackberry OS 6.0 into the bargain. Courtesy of the Chinese colleagues we know more about it and can watch video and pictures.
I did not want to write about it as we are preparing a big article on who and how launches OS updates. This material is inspired by the remarks of Andy Rubin from Google that handsets developers can’t match the speed of Android updates and in future major updates unlike bug fixing will be unveiled once a year. We have to bear in mind that the speed of ÎS development will remain the same, but we will not see some updates on the phones and the market fragmentation (different models with various OS) will be lower. It follows the plan I have already mentioned in the Spillikins, when the 3rd version of Android will be a significant watershed and this OS will become mature and will compete with others in honest and without excuses. One of my colleagues will soon come up with this article and it is likely to be interesting.
I do not suffer from nostalgia, by any means. I came across the photo of this do it yourself handset by chance and I immediately remembered Ericsson, because precisely this model was dressed in wood with love and care. I recalled the good all days, but now nobody tries anything similar, though this area is quite fruitful. Any volunteers to saw out the phone outfit?
I liked this advert. Please, do not use your phone while driving. Use the headset or hands free kit and do not scold the person you call while s/he is driving. This is really dangerous. It is not a secret, but I am ready to repeat it again and again. Good advert, though it features lots of blood.
I ran out of space to mention Samsung tablet on Android, but we will do it closer to the release and discuss the rationale behind the model. I intentionally restrained myself from paying attention to Motorola FlipOut, which is nothing but the redundant dead born product. It features an exotic square frame offered in many colors. Judging by the feedback from retailers they were not impressed and do not plan to buy it in any measureable quantities.
This Spillikins issue happened to be packed with minor and major news as if before summer the market woke up to finish all affairs before vacations. I will be away on a holiday, but with you in mind, so my articles will continue to appear. In any case this is our plan. Have a nice week and stay in good humor.
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Published 08 June 2010
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