Product Differentiation and Cell Phones

The most important activity in the history of human kind has been in the area of communications (see Figure 1). The desire to communicate has been the driving force behind many advances in modern technology; driving a variety of  substitute and complimentary products and services.  The wireless phone is the current battle ground for the universal communication device that will be used for talking, texting and tagging friends and colleagues, scheduling, listening to music, reading eBooks, and in location assistance. Nokia sells nearly 40% of all phones and Apple sells less than 1%[1]. Apple and Nokia’s strategies are distinctly different. Apple has gone after the cream and focused on the high-end and competes primarily in the Smartphone arena and is also beginning to compete with the $300 to $500 net-book laptops. Smartphone’s have applications such as scheduling, location assistance, email, and internet access.

Nokia is interested in the high-end Smartphone market, but they are also selling to the price-sensitive demographic and have an even bigger target in their sight. They want to become the biggest entertainment media network in the world[2]. They are going to accomplish this through R&D with 10 labs throughout the world and by pursuing a comprehensive differentiation strategy with phone prices ranging from $10 to $700 (see Figure 2). Nokia offers devices to satisfy every budget and they are trying to make their products and services indispensable. They currently roll-out around one million cell phones per day and have 1.1 billion users. They sell mobile devices to the hundreds of millions of price-sensitive cell phone users in India that cannot afford a data plan. For $1.30 per month rural users in India can receive information on weather, agriculture, education, and Bollywood.  But they are also going after the high-end market high bandwidth market and have developed Ovi, an iTunes type platform with a variety of downloadable Smartphone applications.

Apple has been making steady gains in the smartphone business. They have about 8% of the market and Nokia has about 43% of the market. Apple has been willing to offer a down-scaled version of the Ipod to the price sensitive masses with the Nano and Shuffle. I suspect that iPhone technology will also be adapted to the price-sensitive tail of the demand curve.

[1] Jill Greenberg,  “iPhone Envy? You must be jÖking”, Fast Company, September 2009. http://www.fastcompany.com/magazine/138/iphone-envy-you-must-be-joumlking.html

[2] ibid