So, Nokia has finally reacted to its falling revenues and declining market share by coming up with a quick fix solution that is astonishing in its naivety.
The answer it seems is immediate and deep price cuts on most of its handset models. But, let us remember, even if Nokia doesn't, that commercial history is littered with the bones of companies that believed they could buck the market purely by cutting prices. It’s a strategy that, if the competition emulates, can only end in disaster.
Any company can only make only so many price cuts before effectively cutting its own throat.
The prices that Nokia charges retailers all over the world for its handsets have fallen by up to 25% in the past week, especially on the ‘cheap’ entry-level models.
In the short term it is likely that the price cuts will increase sales and so buy back some of Nokia’s lost market share but it will be at the expense of the company’s much-vaunted margins, hitherto the highest in the industry and oft boasted of in Finland.
If, or more likely when, that happens the margin reductions will severely limit Nokia’s ability to cut prices again in the future. This is a strategy that can go nowhere.
The point is that Nokia’s famous margins are now being eroded by increased competition, especially from Asian handset manufacturers, not just by increased sales of less expensive handsets as has been the case in the past. It’s a whole new ball game but Nokia is still concentrating on playing the old one.
Interestingly, Nokia’s most expensive top-of-the-range handsets including the new ‘clamshell’ – that Nokia affected to despise for so long but which are so immensely popular amongst users (especially the much more competitively priced models from Nokia’s rivals) – are not being reduced in price. Given the ‘new’ strategy this too is probably not a good idea.
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