D. Shivakumar, Vice-President and Managing Director of Nokia India had to decide whether to undertake an all-India launch of Nokia Life Tools (NLT), Nokia’s newest service offering for emerging markets. Given the pilot’s success, the decision seemed simple on the surface; however, there were critical underlying challenges to consider, making Shivakumar’s task far more difficult than it appeared. This case has been written by Kirti Madhok Sud.
It was June 2009, and D Shivakumar, Vice- President and managing director, Nokia India, pondered over the presentation on Nokia Life Tools (NLT) by Jawahar Kanjilal, Nokia’s global head of Emerging Market Ser vices (EMS). Nokia developed NLT in response to an in-house sur vey on consumer preferences for mobile phone ser vices and applications in emerging markets in 2008. NLT- related applications were aimed primarily at r ural and semi-urban populations, offering agricultural information and education and entertainment ser vices without requiring the use of general packet radio ser vice (GPRS) or Internet connectivity. The NLT pilot was a r unaway success, with over 70% consumer adoption and retention rates.
The key question on Shivakumar’s mind was this: Should Nokia India launch the NLT ser vice based on the encouraging results of the recently-concluded pilot programme? Was the optimism of the EMS team justified, given that several crucial elements of the new ser vice were still works in progress?
The Mobile Phone Boom: India Connects
Aided by favourable legislation and an underser ved telecommunication market, the mobile telephone boom over the last 10 years put the R 333 billion mobile device industr y on a high-growth trajector y in India. In 2008, the main players in the Indian mobile device industry were international giants Nokia, Samsung and Sony Ericsson. However, the “price sensitive” Indian consumer was quick to lap up smaller Indian and Chinese brands when these stormed the Indian market in 2008-2009. Unwilling to have their revenues throttled by smaller players, big mobile phone manufacturers launched “smartphones”– devices with advanced capability and connectivity. As manufacturers brought down smartphone prices, sales doubled in this segment, and the lucrative Indian market witnessed several new global entrants.
Most Indian consumers were driven by voice ser vices versus data ser vices, and their purchase decisions were usually based on price, peer recommendations and brand awareness. Certain basic features such as radio and camera were necessar y for even entr y-level phones. Internet connectivity was essential for high-end phones. In 2009, India’s urban subscription base of 260 million was twice that of rural areas. Further, a new customer segment of 80 million buyers had emerged in India: the “rurali” customer, a term that referred to rural consumers and low-income urban consumers. To ser ve different customer segments, mobile device sellers offered products at different price points, ranging from devices priced below R 2,000 to those priced above R 20,000. Mobile phones were sold by general stores as well as high-end concept stores, depending on their price and customer segment. It was predicted that the mobile phone sector would show robust growth in India until at least 2013, with the rural segment accounting for over 40% of the growth.
In 2009, India’s urban subscription base of 260 million was twice that of rural areas.
Nokia India: Industry Leader
Nokia made its debut in India in 1995, achieving a formidable 62.5% market share by value by 2009 and recording revenues of over R 250 billion. Its consumer base covered a sixth of the countr y’s population. Nokia’s success was largely due to its specific focus on the mobile phone market, its crucial distribution partnerships, early investments in manufacturing and brand-building and its development of innovative product features, such as mobile phones with built-in FM radio and flashlights that were unique to India. Local manufacturing enabled Nokia India to maintain steady supplies of entr y-level devices at affordable prices.
Aspects that set Nokia India apart from its competitors − investment in R&D and a dedicated team that concentrated on developing products for markets with high populations and low penetration − facilitated the exponential growth of Nokia’s mobile phone business.
Not only was Nokia an industr y leader in urban India, it controlled the largest handset distribution network in r ural markets as well. Nokia planned to increase its fleet of r ural vehicles and launch educational programmes for first-time users on the benefits of mobile devices. Supporting Nokia’s distribution network was a robust information technology (IT) backbone. Aspects that set Nokia India apart from its competitors − investment in R&D and a dedicated team that concentrated on developing products for markets with high populations and low penetration − facilitated the exponential growth of Nokia’s mobile phone business.
Traditionally, mobile device ser vices were offered by mobile ser vice operators. However, as hardware became increasingly commoditised, manufacturers strengthened their own customer relationships by entering the ser vices and applications industr y. Nokia sourced applications and content from a global network of third-party companies. As Nokia relied on the ser vices business to drive future growth, it planned to charge a fee for its NLT ser vice. Shivakumar admitted, “Driving revenues from the ser vices business is a challenge in a market like India where consumers assume they come free with handsets.”
Bridging the Digital Divide: The Nokia Life Tools Pilot
A 2008 study by Nokia revealed that rural consumers wanted their mobile phones to provide ser vices that could benefit their employment prospects and income. Nokia responded to this information by developing ser vices related to agriculture and education. It was estimated that the addressable market size for agricultural applications was 187 million users (primarily farmers), and for educational applications, it was 200 million (primarily students).
The pilot NLT ser vice, launched in December 2008 in Maharashtra, was simple, elegant, and worked on ver y basic devices. The company settled on a low price model with an innovative billing cycle for NLT. Nokia worked with various partners such as Idea Cellular (a mobile operator) to provide content for the NLT offering as the company did not have this expertise in-house. The adoption of NLT was directly proportionate to the sale of new devices, as the ser vice came embedded in the device. In the low- end handset segment, a single handset was frequently shared by family members; thus, for NLT to be seen as a valuable proposition, the right portfolio of ser vices had to be offered to the entire family unit. NLT offerings attracted customers that the company had not expected. Feedback from subscribers revealed that NLT had a wide appeal and a higher-than-industr y retention rate.
Key Challenges of a National Roll-out
Nokia knew that NLT’s business model would only be sustainable if it was rolled out nationally. This presented the first challenge: information content had to be available from a pan-Indian perspective with region-wise relevance and language considerations. Though NLT was simple enough to implement during the pilot phase as there was only one region to consider, a national roll-out offered different challenges since there were no vendors offering pan-Indian customised information. However Nokia chose to counter this hurdle, it came with its own challenges and costs
Another area of concern was the collection of revenue from users. Nokia had two billing options for NLT: a pre-paid voucher model and/or integrating billing with the operator’s billing system. Running a pre-paid management system would require additional channel investments and would put Nokia and the operators in direct competition for ser vice dollars. However, the advantage of this system was the steady revenue stream it would provide to retailers, offering them a tangible incentive to sell NLT. Under the operator model, subscribers would pay for the NLT ser vice out of their pre-paid balances with operators, and revenues would be shared. Implementing this system would require complex development and integration. A pan-national launch of NLT would ideally involve bringing all operators on board − a long-drawn-out and time-consuming exercise.
Selling a ser vice was substantially different from selling a device. Asking retailers to sell a ser vice at the point of sale − i.e., to identify different market segments and demonstrate the personalised utility of NLT to each − presented a challenge. Should Nokia invest in disproportionately larger retail incentives to gain initial traction or should it invest in creating consumer pull? This question had to be answered before the impending national roll-out.
A Strong Base for NLT
The core team overseeing NLT’s pilot was the four- member EMS team. As this team evaluated the circumstances surrounding a national introduction of the NLT pilot, Nokia’s well-entrenched Indian operations, backed by global systems and processes, provided reassurance and stability. To help develop shared objectives, the team regularly presented NLT updates at the monthly Nokia India management meetings. Securing Shivakumar’s leadership and support was pivotal to NLT pilot’s success.
During his presentation, Kanjilal stated that following NLT’s impending national roll-out, the primar y focus for the first few years would be on customer acquisition and engagement and also on ensuring a sustainable, low-cost business model. He was confident that once this was established, subsequent monetisation would not be an issue.
Although Shivakumar shared the EMS team’s excitement, he knew that introducing NLT across India would present many challenges. He also realised that simply acquiring customers was not a sustainable strategy if profits did not follow. The NLT national roll-out, thus, appeared to be a low hanging fruit that was ready to be grabbed. The question was whether the fruit would turn out to be sweet or bitter.
The case summary was written by Arohini Narain, Centre for Teaching, Learning and Case Development (CTLC) at the Indian School of Business (ISB).