Handset market leader Nokia is fast losing ground in the Indian market. While Apple’s iphone and BlackBerry are giving it a run for its money in the hi-end segment, many Indian brands like Fly, Micromax, Rage are giving it sleepless nights in the low-end segment.
According to the recent GFK figures, in the GSM market, the company’s market share has come down from 71.5% in May 2009 to 70.2% in July 2009. However, GFK tracks only the top thirty-five cities and towns in the country and not the hinterland.
This is not all. According to the recent Gartner report, the company’s market share in India in 2008 was 53.94%, which came down to 49.7% in the first quarter of this year. There is an almost corresponding increase in the market share of Samsung in this period. Samsung’s market share was around 4.5% in 2008 which has increased to 7.6% in Q1 this year.
Globally also, the company is facing a number of problems. In 2008, Nokia’s global handset sales fell 14.2% while the recession hit market shrank 6.5%. As a result Nokia’s profits fell 40% to 4.97 bn (euro). In the first quarter of 2009, Nokia saw a 90% profit erosion, citing an exceptionally tough environment. Earlier this year, Nokia predicted that the industry’s handset volumes in 2009 may fall for the first time in two decades by as much as 10% from the 2008 level of 1.22 bn.
While most of the handset manufacturers are losing market share, Samsung is the only one which has recorded a significant increase-leaping from 11.4% in May 2009 to 14.4% in July 2009 in the GSM handset segment. While there is a huge gap between Nokia’s and Samsung’s market share, Nokia is clearly under attack like it has never been in India.
“Nokia’s market share is definitely declining. I would say that there is a drop of 1-2% every quarter,” says Anshul Gupta, principal research analyst with Gartner. This is for the first time that the handset bellwether is recording a decline in its market share.
It is clear that the handset market landscape is set to change. While the big brands would continue to play an important role, emergence of smaller players indicates that the market is maturing and that just having a bigger brand is not likely to get a maximum share of the market. Consolidation might also happen in the long run when the market has reached the stage of 700 mn subscribers.
“Consolidation will definitely happen in the industry in the long run. As of now the handset makers are focusing on reaching the maximum number of users, however, once we reach a mark of 700 mn subscribers, the handset industry will see consolidation,” says Sunil Dutt, country manager, mobiles, Samsung.
Good Spread, Biased Policies
Distribution is one of the strong points of Nokia, with the company having the largest distributor network in the country as far as handsets are concerned. The company is present in 1,90,000 outlets across the country. Nokia also expanded its CARE network to over 675 centers across 400 cities in India. The company’s network is unmatched by any other handset maker in the country. Samsung, Nokia’s closest competitor in the Indian market, is present in only 50,000 outlets in the country.
|Time for Action|
|Low-end phone||According to industry sources, small Indian brands have almost 12-15% of the market. Nokia, which is a leader in this market, is consistently losing market share|
|Smartphone||BlackBerry and Apple are eating into Nokia’s market share. Nokia is still the market leader but facing strong competition|
|Touch screen||Nokia is a late entrant in this segment. Apple’s iPhone and Samsung’s products are doing very well|
|Music phone||Sony Ericsson’s Walkman series made music an essential feature in a mobile phone. Nokia is not the leader in this segment either|
|Camera phone||It has been the steepest fall for Nokia in this segment with its share coming down from 65.7% in May 09 to 60.8% in July 09. Samsung on the other hand increased the market share from 11.6% to 19.2% in the same period this year|
In fact, the channel community is clearly unhappy with some policies of Nokia. “Nokia’s price protection policy is bizarre to say the least. In this we are losing more than we are gaining. This is a very dynamic industry and every time there is a change in prices we end up losing money. We are getting price protection only for seven days. We are getting hit very badly and they are pouring water on our enthusiasm. In the past we have protested against this policy by boycotting them, threatened and even stopped buying from them for as long as fifteen days. Besides, the style of functioning is very bureaucratic in nature and nobody in India is allowed to take any decision,” says Subhash Chandra, owner of Sangeetha Mobiles, which has seventy stores in the southern part of the country. Most of the other players offer price protection for thirty days.
There are other issues as well being faced by the company. The retail sector alleges that Nokia’s policies are biased. Citing an example, Chandra of Sangeetha Mobiles says, “With Nokia, our margins today depend purely on market situation. For instance, I did a target of Rs 20 crore in the last quarter, my target for this quarter is Rs 22 crore which I am unable to meet. So if a shop which is doing a target of Rs 15 lakh but meets the target of this quarter, then the discounts he gets are going to be better than mine. This is quite unjustified. They should realize the seriousness of the problem and do something about it. The market share has already come down and is likely to come down further if Nokia doesn’t do anything about it. In the circumstances, we don’t have much option but to hold back Nokia and promote other brands.” Industry sources also allege that Nokia doesn’t offer substantial advertisement support required in organized retail which is forthcoming from other players in the market.
Besides, Nokia has a policy of not letting a distributor grow beyond a certain level. “The company has a complex distribution policy that if a regional distributor accomplishes sale of Rs 3 crore, his area is reduced and a new player is appointed in that region,” says a market source on condition of anonymity. Nokia might be having this strategy in place to ensure that no distributor becomes too big and also to increase the number of outlets in the region. However, this is backfiring, in the sense that the distributor doesn’t have an incentive to perform, which curbs his enthusiasm to push Nokia products.
|Nokia’s market share was around 53% last year and Samsung around 5% for the corresponding period last year|
However, the other view is that the distributors are generally resistant to the monopoly by one player. “Trade partners are fiercely independent and are very uncomfortable if there is one large brand occupying their shelf space because then they are not able to negotiate with the brand and are not able to extract the best out of that brand. Trade partners get a nagging feeling that if the brand is too big then the brand stops listening,” says Sunil Dutt, country manager, mobiles, Samsung.
Though Samsung is far behind Nokia in terms of numbers, it has ramped up its network in the last one year. It appointed Telemart as its national distributor and went up from one distributor in the north to four. The company decided to have a zonal distribution structure instead of having a distributor for each region. Samsung also appointed a dedicated national distributor for the organized retail business to drive efficiency. Previously, retail chains were serviced by the regional distributor.
Not Smart Enough
Smartphone is one category which is just not happening for Nokia. According to Gartner, the global market share in smartphone sales for Nokia had fallen 16.8% in the fourth quarter of CY 2008 at 40.8%, from 50.9% in the same period in CY 2007. In the same period, the market share for Apple rose 111.6% to 10.7% of the market, while RIM increased its share 84.9% to 19.5% of the total pie.
On a y-o-y basis, Nokia grew by only 0.8% from 2007 to 2008, while Apple grew by 245.7% and RIM rose by 96.7%. However, Nokia remained the overall market leader with a 43.8% share of the pie in 2008, down from 49.4% in 2007.
Besides, Goldman Sachs recently projected that Nokia’s share of the top-end smartphones costing $350 and higher could shrink to 13% this year as compared to 33% in 2007.
“The company is facing increased competition in the smartphone category. There is still a big gap between Nokia and its closest competitor. Smartphone category would constitute approximately 3-4% of the entire handset segment,” says Gupta of Gartner.
BlackBerry and Apple’s iPhone are clearly giving Nokia a run for its money. Nokia launched a slew of smartphones in the last one year-N97, N86, E75, 6700 and 6208, among others-but none of them was able to catch the imagination of the market. According to some distributors and traders, N97, the latest entrant in Nokia’s portfolio is not doing well in the country.
“The problem is that the smartphones didn’t offer any breakthrough in technology. The same features are available in the market for half the price. Gone are the days when people paid premium for the brand, now people want value for money. They not only want innovative products but innovation at affordable prices, and it is here that Nokia is losing ground,” says Vikas Jain, business director at Micromax Informatics.
Micromax is one of the emerging players which is consistently gaining marketshare. Small and new players are further eroding Nokia’s marketshare in the low end segment. Micromax claims to be selling 5,00,000 handsets every month and is targeting to reach a million devices a month by the end of the current financial year.
On the other end of the spectrum, Nokia has been in a dominant position in the low end category, especially in the sub-Rs 5,000 category.
“Nokia is very strong in the low-end segment, especially in the less than Rs 2,000 and Rs 2,500 category. There are many small players in the category but I believe that it would be difficult to offer as wide a range as Nokia offers,” says Gupta of Gartner.
However, the margins are really low in the low-end; the company had to address the smartphone segment which offers higher margins and is expanding as well.
In order to target the fast converging world of computers and smartphones, Nokia has also announced its foray into the netbook market. The company entered this business with the launch of Booklet 3G, a 10-inch netbook powered by Intel’s Atom processor. It is clearly Nokia’s answer to Apple’s entry in the cellphone segment. In 2005 Nokia had made an aborted attempt to enter this market with `Internet tablets’, which failed to make any impact in the market, and is no longer available in the market.
Some experts believe that players like Micromax will not be able to offer the distribution network or service of Nokia. “Players like Micromax have been present in the market but have increased their visibility some time back, which is definitely going to help them but they cannot offer the distribution network or service as Nokia,” says Gupta of Gartner.
Nokia has recently entered the services segment as well and launched Ovim, its services brand, some time back. It goes without saying that Nokia is still the market leader and the gap between the numero uno and the #2 is huge. However, the company will have to address the problems of the trade soon to retain its position in the market.
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