Nokia made its belated launch into the touch-screen world last week. The flagship store on Regent Street opened at 8am to find two die-hards in sleeping bags outside, having slept through a cold and wet January night.
The downpour continued into the morning, but you could argue that rain has been falling on Nokia’s parade for a lot longer than one night.
The manufacturer issued its global results last week, revealing a 69% profits slump in the final quarter of 2008, compared with the same period the previous year. Sales had tumbled 20%.
Nokia appeared to be suffering even at a time when rivals Motorola and Sony Ericsson had much deeper problems.
Difficulties in the economy had also hit the grand daddy of the mobile manufacturers, and new entrants Apple, BlackBerry and HTC were snapping at its heels.
In the UK, towards the end of 2008, Samsung leapfrogged Nokia’s position as the market leader – a symbolic moment for Nokia, which not too long ago enjoyed what appeared to be an unassailable dominance on the UK market.
The UK has been one of Nokia’s most important markets, and as such was nominated as the one to launch its critical Comes With Music unlimited music download service. But sales have disappointed Carphone Warehouse –Nokia’s exclusive partner on the service.
On the surface of it, you’d forgive Nokia’s new UK general manager, Mark Loughran, for feeling he has been dealt what footballers refer to as ‘a hospital pass’ for taking the helm at the UK business, as it appears to be under so much economic and competitive pressure.
He’s not having any of it. ‘I’m absolutely delighted to have this job. It’s one of the greatest brands in the world, we have great products, there is huge desire out there for our products and there is a really exciting road ahead in terms of our services strategy,’ he says.
The move into services in the UK began under former UK managing director Simon Ainslie, who has moved into a global retail and marketing role.
It is a fast ascent for Loughran, who arrived from pharmaceutical firm GlaxoSmithKline in June 2003 to be Nokia’s UK sales director.
Under today’s unprecedented economic conditions you might assume that Nokia is re-evaluating its strategy. Asked what the priorities were from head office, Loughran doesn’t miss a beat and immediately replies: ‘Don’t take your eye off the strategy ball. We have to get the message across about our services.’
The start of music
Nokia’s services appear to have experienced mixed fortunes over the last year. Comes With Music, its biggest move into the services market, has not been the resounding success in terms of immediate sales that many had hoped.
Loughran says: ‘We’re very, very pleased with navigation, and strategically pleased with music.’
He highlights the scale of the task with Comes With Music. ‘We are looking to revolutionise the way people buy music from CDs and illegal downloads. We were never going to do that overnight.’
Carphone dropped the price of the main handset available with Comes With Music, the 5310, from £130 to £82.18. Loughran claims Nokia had its best week of sales on Comes With Music last week.
As any of Nokia’s network partners will attest, the manufacturer is unflinching in its determination to make a success of its services – something that underpins its future growth.
Loughran adds: ‘We’ve recognised that handsets are important, but it’s getting harder and harder to innovate on hardware. What people really want is solutions and value – and that’s what we’re looking to provide with navigation, music, gaming and email.’
He rejects the notion that Comes With Music has been a disappointment from the start. Among the reasons hindering Nokia’s ability to make an impact with Comes With Music are consumer awareness and launching the service with a compelling handset.
‘Yes, the message about the value of the content and the experience is the biggest challenge, especially in this media cluttered world. We’re no longer competing with just hardware companies. We’re looking at how we get across the simplicity and value for this great music service,’ he says.
But he doesn’t think people are failing to grasp Nokia’s music proposition. ‘The research we’ve seen shows people definitely understand we are delivering music.’
Loughran has no regrets about Nokia not launching its music service with a more attractive handset such as the N96. ‘Even with hindsight we wouldn’t have launched [Comes With Music] with the N96. We got the testing and execution right, and you just can’t mess up on this.’
The music strategy is at phase one, he argues, and should be seen in that context. ‘This isn’t about getting a 5310 to every single person in the UK.’
Clarity on next year’s target is also quite precise. Loughran says: ‘We [want to] have a user base that is really enjoying the service and excited. It’s not about grabbing millions, but enough to put a stake in the ground, and building from that.
‘This is a difference between old world launching a phone, getting a spike and then disappearing. This is about doing something different and creating a new business.’
If Nokia does make a success of its music service, it will do so without the full support of operators. Several operators have baulked at the thought of subsidising Nokia’s move into services which, in some ?cases, runs into confrontation with operators’ own ambitions to make ?money from music.
Loughran believes that mentality is changing to a more collaborative approach, with operators looking at the opportunities to make money from increased data packages.
Operator sources are still sceptical of Nokia’s move, but all acknowledge the massive following Nokia has with a large proportion of their own customers.
Elsewhere, Loughran says the navigation service has been a real success story as the updated 3.0 version has arrived, while the N-Gage service is described as ‘a hidden gem’. A new enhanced email service will be made available later this year.
Can Nokia get its share back?
Nokia’s own financial performance will be closely scrutinised this year, as it faces a rough 12 months in the UK, and more generally as a global ?business.
Despite sales falling 20% in the final three months of 2008, Nokia still shipped an amazing 113 million handsets around the world.
In contrast, Apple, who is widely considered to be at the top of its game and a real challenge to Nokia’s crown following a record quarter in the same period, shipped a mere 4.4 million iPhones. Yes, it is a complete newcomer with no real heritage in the mobile industry and has much more limited distribution, but that is still less than 4% of all of Nokia’s sales.
Nevertheless, Nokia is finding growth difficult. In the UK, aggressive behaviour of new entrants and niche players like Apple, RIM, HTC and LG is chipping away at various segments that Nokia operates in.
With network operators looking to cut costs, the new entrants are believed to be taking a more willing stance on exclusives, pricing and adopting operators’ services.
Consumers are also either keeping their handsets longer, opting for Sim-only deals, or considering handset brands without the premium brand value.
It potentially leaves Nokia squeezed, particularly as the UK is battling a currency problem, with Nokia’s handsets priced in Euros appearing particularly expensive in UK Sterling.
It begs the question, which is more important for Nokia now, sales or margin?
Loughran says: ‘Position in the market is very important, both globally and locally. It’s not about share this week or that week. It’s not as tactical as that. You look