Innovation in the phone industry; intense competition

It has recently been reported that Samsung is successfully competing, and possible overtaking, Apple. A Financial Times article written by Song Jung-a and Joseph Menn (Financial Times, Accessed 28/10/11).

Recent statistics demonstrate how Samsung has thrived in the smartphone market “as shipments rose 40 per cent in the third quarter” after ‘shaking off’ technology patents. Despite Apple being Samsung’s main rival, they are also their biggest customer so very few details were release to avoid worsening their relationship.

According to strategic analytics, “Samsung’s rise has been driven by a blend of elegant hardware designs, popular Android services, memorable sub-brands and extensive global distribution”. Despite a decline in iPhone sales in the third quarter, their recent model (the iPhone 4S) received 4 million orders in the first three days of release; a new record for Apple.

Reports show that Samsung is the “world’s second most profitable handset maker after Apple”. Samsung’s profit margin is 16.9% compared to that of Apple whose operating margin was 30.8% in the third quarter. The phone industry is extremely competitive, especially now that Nokia have recently entered the smartphone industry with the clear aim of leading the market over Apple and Samsung.

A make or break moment for Nokia

A video published on the Financial Times website, ‘A make or break moment for Nokia?’ illustrates the importance of innovation, research and market awareness. Daniel Harrahan reports on Nokia’s current and future position (FT Video, Accessed 26/10/11).

A summary: Nokia has recently launched two new smartphones in an attempt to compete with Apple’s recent model (iPhone 4S) and Samsung’s Galaxy Nexus.

There was a time when a high proportion of people owned a Nokia phone, however, this has all changed due to the changing markets whereby Apple and Samsung are now the dominant leaders in the key smartphone market where higher margins are achieved. Despite lost ground in the higher end of the smartphone market, they have been the market leader in the more basic and affordable models which are, today, still popular in the developing world. Nokia’s ignorance of smartphone growth has cost them heavily; leading them to play 2 year catch up (not an ideal place to be in today’s technological driven world). Not keeping in touch with the market and changes in customer wants is very risky; especially in the technology industry which is ever changing.

Stephen Elop, Nokia’s new Chief Executive, believes these recent additions to be a jump into the unknown but have secured a partnership with Microsoft. The Nokia Lumia 710 and 800 are “broadly based on existing software and hardware” but are more affordable Windows phones. Many critics and specialists deem these new releases to be essential for Nokia’s future and “for any meaningful earnings growth over the next few years”. Elop is a highly committed, dedicated and determined individual who believes there is no question that the Lumiar models can challenge Apple and Samsung.

The CEO’s great intention is to be “today’s leaders in smartphone design and craftsmanship” and believes their “tenacity and will” will help achieve this.

He says:

“We will make sure that things we learn along the way are factored into the next things we do so that we are committed to a direction. We know there will be some things that work well and some things where we need to work - that’s ok as long as we are a learning organisation and moving with urgency, we’ll work through those challenges”.

Geoff Blabber, CSS Insight Analyst, reports that Nokia’s “portfolio gap at top end of their device mix and not being competitive in that part of the market has a detrimental effect on other segments and particularly their ability to price competitively against Chinese competitors in the entry level so the top end is crucial”. Specialists believe that smartphones will soon dominate the mobile phone industry and enter the price bracket of basic, feature phones. Therefore, Nokia need to enter and obtain market share in the smartphone market else they will fall behind (ever further) and find it extremely difficult to maintain its name.

It’s not just Nokia that aim to achieve from this re-launch and heavily invested future. Their secured partnership with Microsoft enables the software provided to compete against their rivals; Apple and Android.

Nokia are fully aware of the formula require to compete; knowing what to deliver with regards to hardware and software in addition to the contents and services included. There is a recognised demand for an alternative to the Android and iPhone; illustrating the importance of research and development and the affect this can have on consequential innovative products.

Elop understands that Nokia’s significant changes aren’t going to happen overnight because large investments are required to grow and successfully compete with rivals and dominate the market. Nokia needs to focus on convincing the public to love the Nokia phone again and appreciate its comeback.

Elop: Nokia can compete with iPhone

In an interview with the Financial Times’ Technology Correspondent, Maija Palmer, Elop highlights the hard work involved in these releases (FT Video, Accessed 26/10/11).. Both were developed within 8 months in time for a crucial time of year; the Christmas market. Elop’s transformation plans will take time, one step at a time. However, carries the philosophy of “learn, refine and keep going”; one which is highly motivating for the workforce to drive their innovative and creative ideas. When questioned about Plan B for in case Plan A fails, he responded “Plan B is to make sure Plan A is successful”. This illustrates a highly determined individual who strives to achieve and could really help Nokia’s comeback into the market. The CEO believes that the Lumiar 800 is the “first real windows phone” because it “brings the real forms of differentiation to life”. The Microsoft partnership could ensure that Nokia stay ahead of the market, achieving competitive advantage over its rivals, re-brand and reposition Nokia as the dominant leader they once were.

A key factor for Nokia here onwards is to increase its investments, constantly monitor the market keeping up-to-date and continue to pursue its innovative products.

Elop promises us that there is “a lot more innovation and excitement to come”. We’ll see…

References:

Financial Times [online], Available from: http://www.ft.com/cms/s/2/a49dccce-0148-11e1-b177-00144feabdc0.html#axzz1cBMKtKUD Samsung beats Apple in mobile stakes (Accessed: 28^th October 2011)

FT Video [online], Available from: http://video.ft.com/v/1241782455001/A-make-or-break-moment-for-Nokia- A make or break moment for Nokia (Accessed: 26th October 2011)

FT Video [online], Available from: http://video.ft.com/v/1241772331001/Elop-Nokia-can-compete-with-iPhone Elop: Nokia can compete with iPhone (Accessed: 26th October 2011)

Competitive Advantage; What everyone's talking about...

“There are no ideas that exactly fit customers’ needs ever or for ever”

McKeown, M. (2008:9).

The main aims of achieving competitive advantage is:

• Attracting and maintaining customers
• Keeping out competitors via defensive strategies

Gaining competitive advantage is essential for any organisation regardless of sector, industry and size. In today’s tough economic climate, the retention of existing consumer and acquisition of new customers is one of the many challenges facing businesses. Attempts to achieve this can include marketing. This has shown to be the approach adopted by supermarket chain Asda over one of its main rivals; Tesco. Its continuous ‘price war’ advertisement campaigns aim to retaining its current customers as a sense of security that they are benefitting from the ‘best value’ and acquire Tesco’s (and other competitors’) customers to help them save money. Price wars are a period of intense competition and can potentially drive rivals out of the marketplace through the market share and control of the leader(s).

The product life cycle

The product life cycle is a simple, yet important, concept for all organisations to understand. In an ‘ideal’ situation, a business will have products situated throughout the life cycle to spread risks, costs and success. Whereas previously a product could live on for a sustained period of time with little intervention, the average life of products is now approximately 4-6 months; illustrating the need for constant and continuous innovations. The cycle consists of 4 distinct phases: introduction, growth, maturity and decline (Conway, S. and Steward, F. 2009:128).

To survive in today’s business world, continuous innovation is critical. For example, Amazon began as an online bookseller and has now become an online marketplace for a wide selection of items. Nintendo are another prime example; continuously introducing newer versions of the original NintendoDS. These correspond to customer wants, for example, the NintendoDSXL is for those who require a larger screen if they have eyesight problems. Not only the consoles themselves, but the games are also designed to attract a wide range of ages; satisfying the needs and enjoyment of various customers. For example, one of their adverts for Brain Training involved Terry Wogan whereas the X Factor stars One Direction were used to advertise their new Pokemon range. The above illustrate how improvements can always be made due to the dynamic nature of customers’ desires.

Any organisation that stands still is destined for failure. Constant analysis of competitor activity can shed light on their weaknesses; enabling rivals to improve on these and gain competitive advantage. Strategies can be put in place to lower costs, improves current models and target a wider range of users. Aaker (2005:67) describes the importance of monitoring past and current strategies of competitors; in particular the past strategies that have failed as further attempts may be made in the near future. He also highlights the value of rivals’ pattern of new products or markets to “help anticipate its future growth directions”.

New ideas

When a new product, brand or service launches itself into the marketplace, the public may be wary or suspicious. However, if done correctly and effectively, marketing can help overcome this.

It is important to remember that customers buy benefits now features. What the consumer decides to buy will be dependent on which product they believe displays the most benefits for them which may also be compared to the costs.

Finding a new gap in the market is an ideal opportunity for businesses to produce innovative ideas. Although a high proportion of market share can be gained by the concerned organisation, if proven to be successful, this can be threatened by other businesses guaranteed entrance shortly after with similar products or improved versions. This poses a great concern because although patents and protection are in existence, “no idea can be protected for long, and big ideas can rarely be protected at all” (McKeown, M. 2008:8).

The diagram below is taken from Trott, P. (2002:77). This virtuous circle of innovation relates to Michael Porter’s concept of competitive advantage (1985).  He argued that those companies who were able to gain advantage over their rivals are “able to reinvest this additional profit into the activities that created the advantage in the first place”; creating competitive advantage.

Following on from the above, Trott (2002:174) identifies the short and long term competitive strategies of an organisation. The short term should include the defensive strategy and cover all possible areas to deter new entrant to the market. This could be attained through minor product changes. In contrast, the long term could include the introduction of new products; either to the same customer or entering a new market segment. Such changes could involve radical product development.

Strategies

Aaker, D.A (2008:121) depicts the need for strategies to be meaningful, sustainable, substantial to make a difference. To achieve sustainability of a product, a service or even a brand, advantage needs to be supported and enhanced over time to become a moving target for competitors. In this book, Gillette is used as an example to support his view (2008:121). With their continuous products, one innovation after another, they are able to create an advantage that is difficult for competitors to replicate, follow and exceed. He expresses his views about competitive advantage and explains that the advantage “should be visible to customers and provide or enhance a value position” (2008:122). This can be related to the positioning of a business, both actual and of the customers’ perceptions.

Product portfolio

A business can assess its progress (in terms of products) using the concept of a product portfolio. This enables an organisation to plot the positions of its products and decide where its priorities lie in terms of investment. From using this tool, current, future and desired positions can be analysed. It is important to be able to achieve a balance i.e balance products across all the quadrants rather than concentrate in one particular area. Trott, P. (2002:175)

Such models include the Boston Matrix. This was devised in the early 1970s by the Boston Consulting Group (Mindtools, Accessed 29/10/11). On the horizontal axis lies the market share, on the vertical axis lies market growth. The matrix is divided into 4 quadrants: stars, cash cows, question marks and dogs.

Stars – High market growth, High market share

• Market leaders
• Heavy investment required to maintain position
• Become cash cow when growth slows

Cash cows - Low market growth, High market share

• Mature and successful product
• Little investment required because well established

Question marks - High market growth, Low market share

• Has potential
• Requires high investment to increase market share
• Business chooses which to pursue and which to dispose of

Dogs - Low market growth, Low market share

• Low growth market
• Rarely worth investment
• Not well established in market 

References:

Aaker, D.A (2005) Strategic  Market Management, 7^th Edition, New York: Wiley

Aaker, D.A (2008) Strategic Market Management, 8^th Edition, New York Chichester: Wiley

Conway, S. and Steward, F. (2009) Managing and Shaping Innovation, New York: Oxford University Press

Mindtools [online], Available from: http://www.mindtools.com/pages/article/newTED_97.htm, (Accessed 29^th October 2011)

McKeown, M. (2008) The Truth About Innovation, Harlow: Pearson Education Ltd.  

Trott, P. (2002) Innovation Management and New Product Development, 2^nd Edition, Essex: Pearson Education Ltd

YouTube, Available from: http://www.youtube.com/watch?v=pZzWsHbjLWM, ASDA Price Guarantee Advert – 2011, (Accessed: 27^th October 2011)