Online Extra: Nokia Wins With Wide-Angle Vision

The world's largest handset maker seemed to be missing out on the latest trends, but its strategy of building emerging-market-business paid off

By David Kiley

A few years ago, Nokia (NOK ), the world's largest handset maker, found its stock stagnating and its market share declining. In an age when mobile phones have become fashion statements, multi-media tools, and design benchmarks, Nokia, the world's largest handset maker, had remained unrelentingly un-cool by missing design trends like clamshell phones and arriving late to the so-called "candy-bar" phones that slide open and closed.

But while Nokia had been slow to take advantage of the developed world's move to ultra-thin, blingy, and multi-functional cell-phones, it concentrated on building its business in critical new developing markets that still demand basic, reliable hardware, such as China, India, and Indonesia. That strategy has paid off, and given Nokia time to retool its new-product pipeline and global marketing strategy. Nokia posted a 14% gain in brand value in 2005 on the BusinessWeek/Interbrand Top 100 Global Brands ranking, and 9% in 2006. Its global market share rebounded and is expected to top 40% this year.

By emphasizing shipments of phones with an average price under $63 to developing markets, last year Nokia boosted its market share in China by a few points to 35%. Not unlike Honda's (HMC ) strategy of establishing its brand presence in developing markets with motorbikes first until the populace can afford cars, Nokia is eyeing the 200 million middle-class Chinese who it hopes will trade up and remain with the brand.

Trusted, Not Trendy

  That has even more upside than building share in the U.S. where the company finds the cellphone market a difficult one in which to grow. U.S. growth is tough because the market is driven by cell-service carriers like Verizon (VZ ) and AT&T (T ), which sell phones they subsidize, and which only work with their systems. In Europe, where Nokia is the leader, consumers buy the phone they want at a phone store, and then shop for their service.

Nokia's relations with the U.S. carriers are not as strong as rivals like Samsung, Motorola (MOT ), and Palm (PALM ). The drop-off in market share three years ago affected the Nokia organization deeply, says Anssi Vanjoki, head of Nokia's multimedia business group. "We are a trusted brand, but didn't have the right products for customers who are really driven by the emerging technology."

Nokia quickly remedied that by rolling out two new series of phones, the E Series, which is aimed at corporate e-mail users, and the N-series, armed with multimedia capability. The E Series phones lag Research In Motion's (RIMM ) BlackBerry in market share in Europe. But that's not surprising given BlackBerry's head start. Vanjoki says the market for multimedia phones is jumping from 100 million units this year to 250,000 next year. And he projects Nokia to have more than 50% of that segment in 2008, better than its share of the overall global mobile phone category.

Big Is Not Always Bad

  The cell phone manufacturer just introduced its latest high-tech offering, the E90, on which it is counting to close the gap with BlackBerry and reach its share target. Nokia says the E90 has so many new features—fast Internet connectivity and a GPS navigational system—that it should be compared to a laptop computer rather than other smartphones. In the E90, Nokia's attention to its own brand identity, when it comes to design, is in evidence.

The keyboard and screen are still much larger than on other phones. That may seem out of step, but a key attribute to Nokia's brand, as reflected in design, is that its phones tend to be a little clunkier than rivals', an attribute that is viewed as a strength in many global markets. For example, Nokia's old flat "brick" phone, while out of fashion in Europe and the U.S., is a status symbol in Jakarta.

Though Nokia has been a trend laggard, says Interbrand chief executive officer Jez Frampton, it has maintained an enormous level of trust with consumers, especially in Europe and Asia, which gives it a leg-up in developing markets. He compares Nokia's brand equities to Toyota (TM ) and Sony (SNE ).

A Wide View of the World

  "The trust is so high, it has less trouble than other brands getting a customer back who may have tried out a competing brand," says Frampton. Vanjoki says the new products pushing up its market share are not so much a case of Nokia stretching for brand acceptance in new segments—like the Volkswagen (VOW ) brand trying to sell luxury cars, "But rather delivering on what our customers expected from us all along—there's a big difference in terms of managing your brand."

Nokia sees its brand as ideal to take advantage of the convergence of the Internet, media, and the cellphone. Ask Vanjoki who Nokia's competitors are, and he rattles off companies like Microsoft (MSFT ) and Canon (Nokia sells more camera-phones than Canon sells cameras) along with more obvious rivals like RIM, Motorola, and Apple (AAPL ).

Such a wide view of the world, says Vanjoki, doesn't hurt Nokia's focus. Mobile-phones becoming mobile computers, cameras, and entertainment portals is driven by customer wants and needs, he says, not by a corporate mission. "It's not us identifying our competitors, it's the world."

Kiley is a senior correspondent for BusinessWeek in Detroit

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