Why Nokia is Better Positioned Than Samsung

I wrote today about why Nokia’s move to support Android is bold, risky, but also filled with potential. As I watched Samsung’s press conference, the stark contrast between the big news items of both companies was evident. Samsung chose to focus on evolution rather than revolution. This is exactly what they should be doing. They took no risks and focused more on serving the market rather than over-serving it. Samsung’s press conference made it clear to me that they have accepted their role as a follower rather than a leader in this industry. There is nothing wrong with this strategy. However, once the basis of competition shifts, this strategy could be the undoing of their mobile division. What’s more, is that Samsung is playing it safe in the saturated areas of the market–the high end. This is not a growth segment. As this slide points out:

Screen Shot 2014-02-13 at 8.00.47 AM

While Samsung continues to address all the price points in the above chart, their ecosystem is failing to lock-in consumers. This is what they hope to do with the Gear products but again those products are not focused on the low-end. Nokia, on the other hand, is going to help Microsoft acquire customers at the low-end where all the growth is going to come from for the next few years. Every ecosystem needs entry points. Microsoft has a chance to acquire new customers getting their first smartphone and bringing them into the Microsoft ecosystem with a Microsoft ID.

Nokia is including their own app store on the Nokia X as well as popular app stores from each region. This strategy will not just appeal to first time smart phone owners, but the Nokia X has appeal to existing smartphone owners at very aggressive price points. There is another interesting move Nokia has done with the X Android smartphone. They have leveraged their strong relationship with carriers and will offer carrier billing support for app store transactions with over 160 carriers worldwide. It is a little known fact that carrier supported billing for transactions can see up to 10x the conversion than when a credit card is the only purchase option. This means Nokia and Microsoft have a good story for developers looking to monetize. It is conceivable that in the near future Microsoft could have more developers in its Android ecosystem than its Windows Phone ecosystem.

Microsoft is quietly going to use Nokia to acquire customers and meet them where they are. The key word being thrown around is “embrace and extend.” This is exactly what Microsoft needs to do to begin to build a new foundation and serve new sets of customers. Interestingly, Nokia launched several other new low-end smart phones today. A feature phone and a new Asha line. Each one has some Microsoft service on it. Nokia sold over 200 million feature phones last year. This market is in decline. Still, devices such as the Nokia 230 at $49 dollars and Nokia 220 at $29 dollars will still sell massive volumes and these customers will touch a Microsoft service likely for the first time.

Ultimately Samsung is being eaten alive at the low-end. India is still one of their strongholds, but it is also a market where Nokia has brand affinity. Samsung has not created loyalty in the low-end, and this is an opportunity for not just Nokia, but Microsoft is in a position to capitalize also.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

11 thoughts on “Why Nokia is Better Positioned Than Samsung”

  1. Ben,

    I love your analysis, but I beg you, please hire an editor or proof-reader. The Galacy Gear is not a “…focused on the low-end” and you should not say the “word is” and then give two words. Both you and Steve need to stop having such good work hurt by these types of errors,

    Also, I am not a big fan of the stack graph because at that scale it looks like the the high end is growing a lot. However, I admit that might just be me.

      1. If not an editor, at least have everyone run the text for their articles thru a spelling & grammar checker. The one in MS Word would catch most of the errors that jump out at me. If not Word (and I am by no means endorsing it), there has to be similar options available for the platform of your choice.

        1. I actually just signed us up for grammarly.com a few days ago and am running everything I write through that. Of course, it won’t catch words that are spelled right but were auto corrected to the wrong word but it seems to be catching a lot of things. Not perfect but it is at least something.

  2. I’m very interested in the role that brand loyalty plays towards both customers and channels, especially in the low end. Could you share insight on how Samsung failed to build loyalty in the low end?

    1. This is just a matter of fact in the low-end. Low-end customers value price over brand. We see this all too often in consumer packaged goods and often commodity electronics. It is less about brand and more about features, price and more importantly value for the money. The latter point is one that is very tough for Samsung to deal with. Value brands in markets like China and India will find value for the money from a wide array of players.

      This is why Samsung can only find the kind of customers they want in the high mid to high end. The middle price range of the market may very well be getting squeezed to the point where we have have a $ of high end and the rest low-mid and low end.

      Samsung is having issues competing in the high end and the low end. Lots of challenges ahead for them.

      1. Yes, but you mention for example that Nokia has a strong brand affinity in India. You imply that Nokia has managed to get customers to value their brand, even in low-end markets, whereas Samsung has failed. I wonder what Nokia did right.

        1. I’m coming at your question two months late, but I just joined. I was curious for Ben’s answer, but he didn’t respond again so maybe this will contribute to those in the community who read this after me.

          The simplest, most obvious reason for the progression of trust in the Nokia brand would be that those lower-end, more price conscious customers have found long-term reliability in Nokia’s products (I keep getting “the best” product for my money). This would include their durability (that value extends because it lasts a long time making it even more valuable).

          So in a nutshell:
          Nokia kept making a promise to them with their limited funds. They exchanged precious money for product and found the promise realized. So Nokia as a brand has become trustworthy to them over time.

          I think people always find value in what they repeat purchase in. Otherwise very few do so. People just value different things or in a different order. It is really about the benefits they are seeking from the product. Repeat purchasers are seeking the same ongoing benefits.

          The values may change but the fundamental human purchasing behavior doesn’t.

          1. Thanks. If that is truly the case for Nokia, and Samsung is not following through, then it makes a lot of sense.

            I too believe that low-priced products are not necessarily always in a price war, and that even in that tier, many people still buy based on brand trustworthiness (the promise).

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