At last week's Cannes mobile festival, all the talk was about new and enhanced handsets and how to persuade the mobile-savvy populace that they are in urgent need of an upgrade. More than 680m mobile phones were sold last year, according to Strategy Analytics, and in response to this phenomenal growth a number of research houses have warned of a global slowdown in phone sales amid concern that the market has hit saturation point. But rather than battening down the hatches, the leading handset manufacturers have revealed that they are planning their most ambitious marketing moves yet.
The key reason behind the feel-good factor enveloping the sector is that consumers now view the purchase of mobile phones as a lifestyle choice and are willing to change them, in some cases several times a year. There is also a second wave of consumers swapping their black-and-white handsets for more up-to-date colour and multimedia phones, another reason why the handset brands are optimistic about market growth.
Among the most positive are the challenger phone brands, which include Sony Ericsson, Samsung and LG Mobile. In less than two years, they have not only established themselves as leading players, but have also made a serious dent in the dominance of long-time market leader Nokia.
LG Mobile is a classic example of this in the UK. Having secured distribution with 3, the UK's fastest growing network, and several other major operators, including Vodafone and Orange, it has seen its market share increase from less than 1% to more than 6% in the six months to October 2004, according to GFK Market Services. 3, which was the UK's first 3G network, has relied on massively subsidising its handsets and call charges to drive take-up of its next-generation services. The gamble paid off: 3 now has more than 2m customers, an increase of 1m in less than six months. Its strategy of paying high customer acquisition costs and running expensive high-profile brand campaigns (nearly £49m was spent on advertising in 2004, according to Nielsen Media Research) is risky, as the company is running up substantial costs for parent Hutchison Whampoa.
For handset brands such as LG however, the massive subsidising has proved an ideal launch platform and one it is keen to exploit with a series of brand building initiatives.'Last year we were focused on introducing ourselves as a brand and, in marketing terms, were just dipping our toe in,' says John Bernard, head of marketing at LG Mobile UK. 'This year, we aim to compete with the major players in terms of spend and activity.'
LG has identified sport as a way of broadening brand awareness and has spoken to several Premiership clubs about potential commercial tie-ups.
It has also signed up to be the headline sponsor of global extreme sports competition Action Sports, which will be renamed LG Action Sports. The focus on sport is key to LG's strategy of heavily targeting the youth market or 'the text-messaging generation', as it is known in the mobile industry. 'They are the key technology drivers,' says Bernard. 'They're the ones who talk about mobiles constantly, demand the best services and functionality from us and the ones who are going to spend the money.'
All handset manufacturers are trying to tap into the youth market via different brand marketing initiatives. Last month, Nokia signed up to be the headline sponsor of April's Prince's Trust Urban Music Festival.
Nokia UK head of marketing Simon Lloyd says such deals are crucial to its fightback strategy. Having badly misread consumer phone trends and written off the now-prevalent clamshell handsets 'as a Japanese fad' less than 18 months ago, the Finnish mobile giant is desperately trying to re-establish its cool credentials.
The low point for Nokia came when its global market share fell below 30% for the first time last year. Now, however, on the back of an aggressive handset launch schedule, its global share is rebounding and stands at 33% for the last quarter of 2004, according to Strategy Analytics. Lloyd says the youth market is crucial as they are 'newcomers to the brand'.
As the demographic user base for mobile phones is getting younger, he admits Nokia has to bolster its youth focus to 'keep rejuvenating the brand'.
One criticism levelled against Nokia by industry analysts is that it has been complacent and allowed the likes of Sony Ericsson, Samsung and LG to eat into its customer base with more reliable and 'cooler' handsets.
Lloyd admits that in marketing terms Nokia has been 'quiet' in the UK in recent months, but says it is planning to step up the pace with high-profile activity to encourage consumers to reappraise what the brand offers.
In addition to its music sponsorship, Nokia is planning to raise its profile on the UK high street by opening more Nokia shops. It will also work with retailers including Carphone Warehouse, The Link and Phones4u to ensure it is getting decent exposure on the shop floor. The fightback strategy is not limited to the UK. Nokia has just appointed Interpublic Group (Lowe in the UK) to develop its biggest ad campaign to date, rumoured to be worth £100m, which will run in 20 countries promoting a range of next-generation handsets offering mobile TV, which Nokia is pinning its growth hopes on.
Winning back consumers' hearts will not be easy though, warns Neil Mawston, senior analyst, global wireless practice, at Strategy Analytics: 'The pressure is on Nokia to product smarter, more engaging phones. Consumers are savvy and brand-conscious, and the competition is intense.'
Sony Ericsson has become another worthy challenger to Nokia. According to Strategy Analytics, it has a global market share of 6.3%, up 0.7% in just six months. Following the phenomenal success of its T610 phone, which established the brand in 2003, the firm has become renowned as one of the best camera phone manufacturers in the world. However, despite its focus on imaging, which has been supported by several high-profile ad campaigns, Ben Padley, UK marketing director of Sony Ericsson, says for every handset it launches, the priority is that it is a phone first and camera phone/entertainment device second.
While 2004 was a record year for global phone sales, Mawston warns that handset manufacturers need to approach the next 12 months with caution.
'We're expecting a downturn this year, or at least a slowdown in sales,' he says. 'In the past, the handset market has tended to surge forward for two years and then slow for two years, and we see this cycle repeating itself.' He adds that differentiation will prove critical to manufacturers this year, be it on price, offer or focus. 'Sustaining market share will prove to be increasingly difficult because of the accelerating product cycle, so differentiation will be key.'
Padley admits market conditions are tougher, but says Sony Ericsson is confident it can continue to grow its market share by concentrating on its strengths. 'We are always looking to emulate the success of the T610. Our aim is to make best-in-class handsets.' He claims Sony Ericsson is positioned better than rival brands because it is a joint venture between a consumer electronics giant and a mobile platform developer. 'We've worked very closely with Sony to ensure we offer the best imaging technology. We're going to build on this by introducing an equally strong strand of entertainment to our devices.'
Motorola, the world's second-biggest phone manufacturer, is also keenly aware it has to innovate, and has embarked on a major new product development cycle. Among the planned devices is a combined phone and iPod, thanks to a licensing deal with Apple, which will launch later this year. Nokia, too, has sought to innovate. Last year, it launched a fashion collection of phones, which Lloyd says will receive heavy marketing support this year following a relatively quiet launch.
One manufacturer that has suffered in recent months, mainly due to its lack of innovation and depth of range, is Siemens Mobile. Despite a number of high-profile sponsorships, including Spanish football giants Real Madrid, its parent Siemens is considering the division's future, after a disappointing set of results at the end of last month. Industry speculation has suggested it is seeking to create a joint venture with another handset manufacturer; NEC, Chinese firm Hua Wei and Samsung Mobile are being tipped as potential partners.
Innovation, not complication
While industry analysts agree innovation is crucial for manufacturers to differentiate their devices, too much innovation can leave the consumer behind. Nokia's first games device, the N-Gage, had to be redeveloped just six months after launch because of disappointing sales across Europe, despite a strong suite of games titles. Its successor, the N-Gage QD, has not fared much better and will be hit hard later this year when Nintendo launches its latest handheld games machine, the DS, and Sony brings its first handheld device, the PlayStation Portable, to the UK. There will also be a wave of entrants, again from the Far East, pledging to undercut the market. Emblaze is one such player. It has ambitious plans to bring lifestyle-focused phones to the market. Chief executive Laurence Alexander is convinced that an emphasis on tailoring phones to users' lifestyles will be successful and is backing it with a £10m ad campaign.
3G is one area that all the manufacturers are confident will generate further growth. Despite the much-hyped '3G Christmas' not materialising at the end of last year, analysts and vendors are united in their belief that the next-generation phones will take off this year, not least because four networks - 3, Vodafone, Orange and O2 - now offer 3G phones. Lloyd says now that the operators are getting behind the technology, it is time to step up marketing activity around it.
Last year, the main criticism levelled against 3G in a damning Consumers' Association report was that there were not enough phones to support it, consumers did not understand it and most did not even want it. However, Mawston says this is changing and although the market will remain niche, it will establish itself as a 'value-driver for 2005'. Yet research shows there is still massive confusion about 3G, with a recent survey reporting that only 4% of consumers plan to upgrade to a 3G phone. The research, which was commissioned by customer service specialist Netonomy and polled 2000 consumers, also found that more than 70% believe phones are getting too confusing.
To combat this and encourage widespread take-up of 3G, operators are heavily subsidising handsets. This is good news for the handset brands, as they have full order books and detailed new product development plans.
While it will strengthen their market positions, in the short term at least, all operators will take a sizeable financial hit from the nascent technology. 'There has been a lot of hype, but not enough sales,' says Mawston. 'People are buying 3G phones but using them for SMS and voice. That is good news for the manufacturers, but not for the operators. Revenue from 3G will remain marginal.'
Handset manufacturers have heeded the warnings of a slowdown in mobile phone sales, but they clearly believe there is still potential for growth and have adopted aggressive marketing strategies for 2005. Whether this optimism is misplaced will become clear in time. However, they are certainly putting their money where their mouths are.
GLOBAL VIEW - MOBILE SALES
- 683.5m mobile phone handsets were sold in 2004 across the world.
- Of these sales, 199.6m came in the fourth quarter of the year.
- Total global sales for mobile phones rose by just under 25% last year from the 517.2m handsets sold in 2003.
- Fourth-quarter sales in 2004 increased by 20% year on year.
Source: Strategy Analytics, 2004 figures
REGIONAL VIEW - 2004 NUMBERS
Latin America 166.4m
Latin America 166.4m
Latin America 66.2m
Source: Strategy Analytics, 2004 figures
207.6m mobiles sold
30.4% market share
104.5m mobiles sold
15.3% market share
86.6m mobiles sold
12.7% market share
49.4m mobiles sold
7.2% market share
44.4m mobiles sold
6.49% market share
42.5m mobiles sold
6.2% market share