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Mobile Phones in China A Study of Nokia’s Success April 2009

| Copyright © 2009 Grail Research, a division of Integreon April 2009 2

Nokia has led the China mobile phone market since 2004, and today controls nearly half of the valuable student market, indicating high potential for future market share growth

• Nokia holds 32.5% share of the Chinese handset market

• 49.3% of university students currently own a Nokia phone

• 72.7% of all students anticipate that their next mobile phone purchase will be a Nokia

Nokia’s success is derived from their consumer-oriented strategies:

• Prioritizing “people first” and understanding consumer needs

• Appealing to specialized consumer groups

• Leveraging broad channels of distribution

• Localizing research & development capabilities and manufacturing centers

Mobile Phones in China – Nokia’s Success Executive Summary

Sources: China Mobile Phone Survey among Campus Students, Dec 2008, Grail Research; ‘Mobile phone market share in Q1, 2008’, DCCI (Data Centre of China Internet)

Overview and Key

Highlights


Current Market Share and Future Brand Choice

Mobile Phones in China – Nokia’s Success Market Facts

Current Phone2

Nokia (249)

Samsung (75)

Motorola (48)

Sony Ericsson

(38)

Nex

t Pur

chas

e 3

Motorola 2.8% 5.3% 16.7% 5.3%

Nokia 85.1% 53.3% 62.5% 65.8%

Samsung 4.0% 33.3% 2.1% 5.3%

Sony Ericsson 2.0% 2.7% 10.4% 13.2%

Others 6.0% 5.3% 8.3% 10.5%

Brand Choice for Next Purchase, as % of Current Brand Users

35.3%

5.9%

9.6%

16.7%

32.5%

15.8%

7.5%

14.9%

9.5%

49.3%

7.0%

4.0%

9.3%

6.1%

72.7%Nokia

Motorola

Samsung

Sony Ericsson

Others

Total Market Share1 Student Market Share2 Student Future Choice 3

Notes: 1 Sample selected by a rigorous process according to CNNIC and National Bureau of Statistics of China. 2 Question – “Which brand of mobile phone do you currently own?”; 3 Question – “Which brand of mobile phone are you most likely to purchase next?”; Grail Analysis, Total respondents = 505, invalid respondents excluded. Sources: Grail Research China Mobile Phone Survey among Campus Students, Dec 2008; ‘Mobile phone market share in Q1, 2008’, DCCI (Data Centre of China Internet).

Nokia already holds the largest portion of market share in China and shows high potential for future growth – particularly among students, the next generation of purchasing power


49%

15%

10% 8%

3%

15%

Nokia Samsung Motorola Sony Ericsson

Lenovo Others

Mobile Phones in China – Nokia’s Success Brand Awareness Although several mobile phone brands have high levels of awareness on campus, Nokia continues to dominate the market

Notes: 1 Question – “Which brands do you know?”; 2 Question – “Which brand of mobile phone do you currently own?”; Grail Analysis sample size n = 505 Source: Grail Research China Mobile Phone Survey among Campus Students, Dec 2008

Brand Awareness1 Market Share2

99.8% Nokia

98.6% Samsung

96.6% Motorola

88.9% Sony Ericsson

80.2% Lenovo

53.5% Amoi

52.7% Haier

50.9% Konka


Top Features Driving Satisfaction with Mobile Phone1

Reasons for Satisfaction with Current Mobile Phone, by Brand2

59.8%

31.3% High Quality

33.7%

20.8% Good Signal

28.5%

16.7%

Many Functions

18.1%

18.8%

Fashionable Appearance

Mobile Phones in China – Nokia’s Success Key Driver – Consumer Satisfaction Nokia outperforms competitors on quality and function – the most important drivers of customer satisfaction

High Quality “Once, my roommate dropped her Nokia from the upper bed, and her phone split into several pieces, but it still worked after being reassembled.”

– Mobile phone owner who plans to switch to Nokia brand

Function and Features “Nokia’s operating system and quality are better than that of other mobile phone brands.”

– Nokia owner and expected repeat purchaser

44.5% Quality

27.5% Function

18.5% Appearance

4.3% Brand

3.4% Price

1.7% Others

Notes: 1 Question - “What are the top three considerations for your satisfaction on mobile phone?” Grail Analysis sample size n=465; 2 Question – “What are the key reasons for your satisfaction on current mobile phone? Please state at least 2 reasons.”Grail Analysis sample size for Nokia users n =230, Motorola users n=44 Source: Grail Research China Mobile Phone Survey among Campus Students, Dec 2008


Nokia’s success against competitors in the China market can be traced to their consumer-oriented strategies and initiatives…

Mobile Phones in China – Nokia’s Success Strategies for Success…

“People First” Policy

Diverse Product Portfolio

Broad Distribution Networks

Localized Centers

1 4

2 3


Unlike competitors, Nokia’s first priority in strategy, planning, and development is responding to consumer needs

1 “People First” Policy

“People First” Policy

Source: Grail Research China Mobile Phone Survey among Campus Students, Dec 2008

85% of students that currently own a Nokia phone plan to purchase a Nokia again. This is the strongest and most consistent display of brand loyalty

Consumers indicate that quality and function are the most important features of a mobile phone – Nokia satisfies these needs more than any other mobile phone brand


To be the No.1 international enterprise, delighting government, service providers and consumers – Company Strategy

Nokia’s strategy focuses on people, while Motorola, with half the market share of Nokia, instead highlights technology advancements

1 “People First” Policy

Technology Focused R&D Investments • Established Motorola (China) Technology Ltd. in 2004 to

consolidate its R&D capabilities in Beijing • Invested a total of USD 800 Million on R&D in China by the end

of 2006 Technology and Celebrity Advertising

• Highlights celebrities and high tech developments in advertising campaigns

Consumer Focused Product Development • Localized R&D facilities throughout China to enable alignment

with the needs of a diverse market • Develops a product portfolio based on consumer needs and

market segmentation Consumer Oriented Advertising

• Features average people in advertising campaigns to represent their target consumer

Sources: Company Websites, Press Release

To provide advanced telecom solutions to China by continuously investing in technology and developing manufacturing and R&D capabilities – Company Strategy

“ ”

“ ”


Nokia appeals to numerous consumer segments by meeting the specialized price and design considerations of each group

2 Diverse Product Portfolio

Diverse Product Portfolio

Nokia has mobile phone options available for all budgets and lifestyles, and successfully appeals to diverse consumer markets across both rural and urban areas 1

“Nokia offers many different models, so I am pretty sure that I can find one model that I like. That is why I don’t have to consider other brands.”


Notes: 1 Nokia has comparable share of the student market in both rural and urban areas, 40.6% and 50.6%, respectively Source: Grail Research China Mobile Phone Survey among Campus Students, Dec 2008


Nokia Mobile Phone Portfolio by Segment

Their diverse product portfolio targets 5 key consumer segments, at prices ranging from CNY 238 to CNY 9,499

2 Diverse Product Portfolio

Notes: 1 sending and receiving calls and SMS; 2 basic functions plus options including MMS, camera, music, email, web browser, high definition photos, video camera, mobile TV; 3 such as scratch-resistant shells, higher quality metal shells, jeweled covers, mirrored backs, etc. Sources: Nokia Company Websites; News Release

CNY 238 – CNY 1,150 Features: Basic functions1, simple design

CNY 599 – CNY 2,150 Features: High quality/price ratio, large screen,

full features2, durable design

CNY 399 – CNY 9,499 Features: Fashionable appearance, full

features, alternative materials3

CNY 1,199 – CNY 3,190 Features: Business functions (GPS/email/s60

system), full features, keyboard

CNY 470 – CNY 4,790 Features: Strong music/camera/game functions,

full features, fashionable appearance

PRICE RANGE (CNY)

Economical 25 models

Classic/Practical 33 models

Stylish/Deluxe 17 models

Business/Smart Phone 4 models

Entertainment 28 models

Features

1,000 2,000 3,000 4,000 5,000 10,000


Nokia established a multi-channel distribution model, enabling their products to reach China’s diverse consumer groups, no matter where they live or how they buy

3 Broad Distribution Networks

Broad Distribution Networks

Nokia has extended its reach by adding new sales offices and establishing partnerships with retailers and distributors

3 sales offices in 2003 expanded to 70 in 2007

8 national distributors in 2003 shifted to 50 provincial distributors in 2006

Sources: Nokia Company Website; Nokia Annual Report 2007; Press Release


National Agency Sales limited to consumers in major cities

Retail Stores Expands sales to smaller cities and

consumers with broad income ranges

Regional Agency Penetrates more rural markets

Today Nokia has high market

share across all regions in

China, from large and

medium sized cities to small cities, towns,

and rural areas

After entering the China market in 1987, Nokia continued to add new channels to expand distribution throughout the country

3 Broad Distribution Networks

Source: News Release

1987 2001 2004 2009

Initiated expansion to rural market; established relationships with dozens of provincial distributors between 2002 and 2004

Entered China market through national agencies, the easiest and most common entry strategy

Expanded distribution network in 2001 to include mobile phone chain stores and consumer electronics stores, which offer lower prices

Signed a contract with Gome, the largest consumer electronics retailer in China

2002


Nokia localized R&D and manufacturing centers, allowing for closer integration with the Chinese consumer and a favorable cost/quality ratio

4 Localized Centers

Localized Centers

“Through this integration, the company will optimize the resource allocation of all the joint ventures Nokia established in China, and consequently enhance the competitiveness of Nokia and its Chinese partners in both China and global market.”

– Deng Yuanyun, Vice President, Nokia (China) Investment Ltd, Sina Science

“Nokia phones have a higher quality/price ratio. They are good quality, and the prices are not high. As a student, I want an economical cell phone.”


Sources: Nokia Company Website; Nokia Annual Report 2007; Press Release


Nokia established 5 R&D centers throughout China to design products for the diverse Chinese market. Integrated and localized manufacturing centers increase efficiency, lower costs, and maintain high quality

4 Localized Centers

Sources: Nokia Company Websites; Sina Science; New Release

Chengdu Suzhou

Dongguan

Hangzhou

Beijing Beijing

Nokia (China) R&D Center Nokia Beijing Product Development Center Nokia China CDMA R&D Center

Xing Wang Industrial Park Beijing Capitel Nokia Mobile

Telecommunications Beijing Nokia Hangxing

Telecommunications Systems Ltd.

Nokia Hangzhou R&D Center

Nokia (Suzhou) Telecommunications Ltd.

Dongguan Nokia Mobile Phones Ltd.

Nokia Chengdu R&D Center

Manufacturing Sites

R&D Centers


For More Information Contact:

Grail Research ([email protected])

Copyright © 2009 by Grail Research, a division of Integreon

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means — electronic, mechanical, photocopying, recording, or otherwise — without the permission of Grail Research, a division of Integreon

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