Insights

How Nokia Was The Loser In A Channel Price War



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Back in 2007 when we started Channelplay, one of our first projects was an In-Store Promoter Program for Nokia. Back then, Nokia was the giant of the industry with over 70% market share in GSM phones, and the highest retail penetration among all brands. On our market visits, when we’d walk down say MI road or Ganpati Plaza in Jaipur, there’d probably be 20 shops within a 500-meter distance selling Nokia phones. The phone was already a commodity, selling on experience has always been complex, and the easiest lever that retailers had for making a sale was price.

A phone that the retailer had bought for a Dealer Price (DP) of Rs. 2800 would sell for Rs. 2850, then it started selling for 2800, and then for 2750. How was this possible? Well, Nokia used to run schemes for additional incentives upon achievement of a monthly target, and retailers started betting that if they cut price to the lowest level among their competitors, they would capture a high market share, achieve the target and thus earn the scheme incentive even if they were losing money on every individual transaction. However, this lead to a price-war among retailers – resulting into prices being driven down across the market, and no one making much money.

 This was no fault of Nokia’s. They ran a democratic channel, fixed a uniform dealer-price to ensure a level playing field, created incentives to motivate the channel to sell more, and were known as the best company in terms of their channel ethics, professionalism, payment timeliness etc. The dealers brought this upon themselves by getting into a price war. But Nokia bore the brunt. We’d find that stores where Nokia had a 70% share of sales, they had something like 50% share of stock, and 30% share of visibility. The Nokia promoter was tucked away into a corner so that fewer customers would talk to her. There were more and more frequent instances of us hearing that the store owner is actively de-selling Nokia phones by bringing up imaginary or overhyped issues like “battery backup is poor”, “heating problems”, “crashing problems” etc. – and selling a competitor phone to a customer who had already selected Nokia! In a nutshell – retailers couldn’t stop selling the brand that had 70% market share for fear of losing walk-ins, but they were actively sabotaging the interests of their biggest partner.

Fast forward to 2016, Nokia has all but disappeared. While the advent of Android and iPhones and the failure of Nokia to keep up on product innovation is talked about a lot – I feel the first 20% drop in market share in the Indian market was caused by the channel, and by Nokia’s unwillingness or inability to bring price discipline to the channel.

 Some brands have clearly learnt from this, and have strong Market Operating Price (MOP) or Suggested Retail Price (SRP) enforcement programs. These brands provide price guidelines for what price they want their products to be sold to consumers at, and run mystery shopping programs to measure if the channel is following the guidelines. Channel partners that do not respect price guidelines are persuaded to follow price guidelines. It causes some heartburn among partners to see the brand acting in a heavy-handed way, but ultimately it is in the best interest of everyone because it ensures that channel partners are protected from themselves on price-wars, and that they continue to make money, and continue to stay interested in promoting the brand.

Topics: Mystery Shopping & Audits