HANDSET COMBAT: Nokia surpassed Ericsson in the 90s to become the world's mobile champion. Can challenger Samsung take its title?

This Friday, TV series Fashion House will make its debut on TV screens across Europe. Broadcast on Channel 4 in the UK, it places 20 budding fashion designers in a house and gives viewers the chance to pick the most promising new designer in Europe.

But this is no ordinary reality TV show. Funded by mobile phone giant Nokia, it is one of the most ambitious advertiser-funded programming initiatives to date. The rationale is to cement the brand as an arbiter and icon of style.

Nokia has become a marketing phenomenon. What began as an industrial conglomerate from Finland - a nation hardly famous for producing household names - has emerged as the world's most valuable brand to come from Europe.

In Interbrand's recent Top 100 Global Brands report, Nokia is one of only two European names to rub shoulders with US giants such as Coca-Cola and Microsoft.

Through superior innovation and customer-orientation, Nokia - which makes nearly five mobile phones every second - has set itself up as the standard-bearer for Europe's supremacy in world telecoms and become a truly premium brand.

But the Finnish firm is becoming aware of a formidable marketing threat rising in the Far East. While Nokia's brand value slipped by 2% last year to £18.2bn, South Korea's Samsung leapt by 31% (to £6.7 bn), making the electronics company the fastest-growing brand in the Interbrand global 100 for a second year.

And this is no accident. Precisely a decade ago, Samsung's chairman, Kun-Hee Lee, introduced what he called his "new management philosophy" to make the Samsung brand synonymous with world-class products, employees and processes.

TaeHo Kim, vice-president of corporate communications for the Samsung Group, says: "Our chairman identified and emphasised the competitive value of building a premium brand in 1996. Because of this we have launched a co-ordinated global programme to make Samsung a top international brand."

A London-based telecoms analyst agrees: "Underpinning (Samsung's) soaring brand value has been Lee's desire to ditch its former reputation as a cheap copier of other companies' product. He has focused on making kit that leads in its category. This includes some impressive flat monitors and colour televisions, but it is in mobile phone handsets that it's really shaking things up."

Samsung's most recent annual report reveals its mobile phone division now accounts for a third of its revenues and half of its operating profits.

Technology research company Gartner says Samsung's share of global mobile sales has jumped from 2.7% in 1999 to more than 10% today.

Brand mission

Unusually for a technology company, Samsung is quick to attribute much of this growth to investment in marketing communications. The company's mission statement is 'To become a global leader in the digital divergence revolution', but, significantly, it also stresses, 'In the digital era, a product will be distinguished by its brand more than by its functions or its quality'.

Eric Kim, Samsung's head of global marketing operations, said recently: "There is a clear conviction from the top that the brand is one of the most important assets in the company."

Kim pursues a "holistic marketing strategy" with a closely-controlled corporate identity and a strapline that communicates inclusivity and emotional closeness with customers: 'DigitAll: Everyone's invited'.

Although Kim is managing to boost his budgets by about 15% each year - no mean feat in a depressed technology sector - Samsung is still not a particularly big advertiser. Its annual global ad budget is about £250m, spending little more than £8m a year in the UK (Nielsen Media Research).

But the South Koreans have used sponsorship - a classic tool to build brand awareness quickly - to great effect. This has included backing the Olympic Games since 1998 and its £60m tie-up with The Matrix Reloaded - a deal reportedly snatched from under the nose of Nokia, sponsor of the original Matrix film in 1999.

"The strong rise of Samsung's brand value reflects the company's commitment to invest in its brand on a global scale and make brand value a key corporate target throughout the organisation," says Jan Lindemann, global managing director of Interbrand and the man behind the consultancy's Top 100 brands report.

Lindemann emphasises that Samsung's marketing investment is genuinely holistic. "It encompasses product development, selection of distribution channels, channel marketing and internal and external communications," he says.

Samsung has developed a communications philosophy and measures its employees in terms of their contribution to its brand.This has seen it turn in sales of £72.24bn, almost matching the boom year of 2000 and well up on 2001 (£61bn). In July it announced strong sales growth for the first two quarters of 2003.

Seeing out the slump

So, over in Finland, how is the market leader reacting? Nokia could hardly be described as a nervous company. Its last annual results (2002) reported sales of £19.48bn (13.4% year-on-year growth) and the world leader in mobile communications has continued to boost its market share, now standing at about 39%.

Nokia remains a clear market leader, and one that, so far, has ridden out a three-year slump in the telecoms sector, laying off a minimal number of employees and maintaining a global marketing budget of more than £500m.

Nokia spent £21m in the UK alone last year, placing it among the UK's 100 biggest advertisers.

But there is little room for complacency. In mid-September, Nokia chief executive Jorma Ollila predicted that third-quarter sales for this year are expected to be "flat or slightly down" while sales growth would be "slow compared with the previous year".

Most worryingly, average selling prices for handsets are falling compared with the second quarter of last year and the third quarter of 2002. Nokia is only too aware that its challenger has some formidable operational and innovation advantages.

Samsung operates in a part of the world with easy access to cost-efficient labour and its home markets are much more advanced in terms of the use of mobile phones. In South Korea, half of all users have colour-screen phones and in Japan a quarter of revenues come from data services, double the amount in Europe.

Samsung has doubled its number of designers to 300 in recent years to boost its innovative prowess. So it is little surprise that Nokia will launch a record 35 models during 2003. "There is greater innovation pressure on Nokia because 80% of its business is handsets, whereas Samsung is an incredibly diverse company that can leap categories with ideas. Nokia must produce and market phones that truly capture the consumer's imagination and lifestyle," says a London-based analyst.

Platform diversification

Next month it will put this diversification strategy to the test by introducing a handheld gaming device called N-Gage. The console is aimed at 18- to 35-year-olds - those who are most likely to buy new phones. As well as playing games, it will be a phone, MP3 music player and FM radio. Launching first in the US, it will retail at $299 (£185). By way of comparison, in the US, Nintendo's market-leading handheld console, the GameBoy Advance SP, costs $99 (£61).

Ilkka Raiskinen, senior vice-president at Nokia, says the company was hoping to sell "several million" N-Gages in the first year. It will be backed by a dedicated pre-Christmas campaign through Grey Advertising.

During the 90s, Nokia outfought Scandinavian rival Ericsson with the highly focused innovation that customers wanted. So could history repeat itself, with challenger Samsung playing Nokia's former role?

Probably not. While Nokia certainly has a lot of work to do to increase, or even hold, its market share in Asia and the US, in Europe it has become the industry standard.

In the Reader's Digest Trusted Brands survey this year (Marketing, May 1) it received 51% of the UK vote, five times greater than nearest rival Motorola. And a recent report by Forrester showed that Nokia has three times the affinity of its nearest rival, Siemens, among Europeans.

"Brands need to focus on consumers who will upgrade their phones or who have yet to buy one. The N-Gage device is an excellent example of where it should focus its efforts. For Samsung to score points in Europe, it should target the 37% of mobile owners who have no brand affinity," says Paul Jackson, senior analyst at Forrester.

Rita Clifton, chairman of Interbrand, adds: "Samsung is right in saying that the battle will be on the intangibles front. Nokia has been supremely successful in making a strong emotional connection with its customers, but with the speed of this market it cannot rely on this.

"There is a trend toward broader and deeper relationships than simply product design," she concludes. "Mobile makers can concentrate on what their phones can do, or what consumers can do with their phones, which may involve giving them greater control over the content they receive. It could be that tomorrow's phone maker needs to do both."


1865: Founded as a wood pulp mill in Finland. The company buys the first paper-making machine in 1880. It enters the rubber and wire industry and starts generating electricity.

1966: Restructures into forestry, rubber, cable, electricity generation and electronics. The latter grows fast and is split into two divisions: consumer electronics and information technology.

1983: Management, under chief executive Kari Kairamo, starts focusing on R&D and technology issues. The following year, the first director for R&D and training is appointed.

1994: Chief executive Jorma Ollila decides to focus on telecommunications. It develops an extensive range of mobile handsets. In 1994, net sales are the equivalent of £3.48bn.

2000: The peak of the telecoms market. Nokia hits net sales of £20.88bn. It improves its operational efficiency, strengthens its global brand and boosts R&D investment.

2002: Restructures into nine units concentrated on specific audiences. Switches much of manufacturing to production of handsets with web and picture compatibility.


1969: Company established as Samsung-Sanyo (later to be merged into Samsung Electronics). Black-and white TV production begins a year later and it soon starts exporting TV sets.

1978: Four millionth black-and-white TV produced. Marketing subsidiary (SEA) established in US. Exports exceed £62m. Develops technology to overcome economic slump.

1984: Company name changed to Samsung Electronics Co. Sales subsidiary (SEUK) established in UK. Just two years later, a British manufacturing plant is completed.

1991: Develops its first mobile handset. Exports reach a total of £2.48bn and a single president structure is established to create a more unified management structure.

1998: Serves as Olympic partner at the Winter Olympics. Begins mass production of world's first digital TV. By start of 1999, it has sold more than five million mobile handsets.

2002: Launch of colour mobile phones using patented concept of UFB-LCD screens. Selected as the best enterprise in Asia in terms of shareholder value in the Asia Awards.


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