Economic Evaluation of Nokia

The technology industry has become fiercely competitive. To secure its future, a firm has to innovate. Firms which fail to embrace innovation and remain faithful to traditional and outdated processes risk being forced out of their industries. This is the story of Nokia. Thanks to its refusal to adopt the new technologies and trends shaping the technology industry, Nokia has lost the dominance that it once enjoyed (Cord, 2014). At its height, Nokia shipped millions of mobile phones. To understand Nokia’s rich past, one simply needs to consult its annual reports for earlier years. For example, in 2003, the company’s operating profit stood at over £5 billion (“Nokia in 2003”, 2003). This figure contrasts sharply with the meager amounts that the company earned in later years. For instance, its operating profit for 2015 was just £1.688 billion (“Innovation and Possibilities”, 2015). The decline in the company’s profits is the result of its failure to move with the times. 

Question 1 

Nokia’s optimal pricing strategy 

2006 was one of Nokia’s best years. It essentially wielded monopolistic power that allowed it to dominate the mobile phone and the larger technology markets. The firm’s pricing strategy is among the factors that fueled its growth and solidified its dominance. One of the elements of the company’s pricing strategy is special pricing agreements. In its 2006 annual report, the company shared that special pricing agreements are among the definitions that are attached to revenue recognition (“Nokia in 2006”, 2006). Essentially, this suggests that Nokia entered into special agreements with its distributors. Through these agreements, it offered discounts to the distributors. The company’s position as a monopolist must have allowed it to enter into such agreements. Its monopolistic power must have enabled it to exploit its market dominance to set the price at levels that guarantee profitability while enhancing relationships with such stakeholders as distributors. 

Offering its products at different price points is another element of Nokia’s optimal pricing strategy. The company targeted different customers with its products. The firm made high-end devices meant for affluent customers (“Nokia in 2006”, 2006). There were also entry-level devices which were primarily meant for less-affluent markets. In its 2006 report, Nokia states that it made over 30 different phone models. Pricing and the features that these phones possessed are the main factors that set them apart. Thanks to this strategy, Nokia was able to secure sales and profits. A decline in sales in a given market would be offset by impressive performance in a different market. Nokia’s monopolist power enabled it to develop a wide range of devices. If it were that it faced fierce competition, the firm would focus most of its resources and efforts on aggressive marketing instead of product diversity. 

Another aspect of Nokia’s pricing strategy was affordability that drives sales. In his exploration of Nokia’s journey, Cord (2014) shares that in 2006, Nokia’s shares were up in all markets where the company had a presence. The firm’s impressive sales record must have been the result of a pricing strategy that focuses on affordability for the purpose of driving sales. A scrutiny of the company’s financial records for 2006 confirms that its pricing strategy was intended to drive sales. For example, in 2006, the firm realized a 20% jump in sales. Nokia’s position as a monopolist must have informed its pricing policy. Monopolies do not face intense competition and enjoy dominance. Thanks to their strong presence in a market, monopolies are able to boost sales and sell their products at low price points. 

Monopolist variables influencing financial position 

Monopolists develop structures and processes that insulate them against the harsh realities in the market. These firms are able to manipulate certain variables in the market to solidify their financial position. As one examines the operations of Nokia in 2006, they are able to identify these variables and the role that they play in cementing the financial position of monopolists. Customer loyalty is among these variables. As he discusses Nokia’s history, Cord notes that at its height, Nokia enjoyed tremendous customer loyalty (Cord, 2014). In its home market, Finland, the company enjoyed unwavering loyalty from its customers. The focus that it placed on quality and customer experience is the key driver of this loyalty. As it created quality products that rivalled those produced by competitors, Nokia was able to win the hearts of its customers. Any monopoly that wishes to secure its financial position should follow the example of Nokia and invest in customer experience. 

Customers tend to gravitate towards firms which charge friendly and reasonable prices for their products. Moreover, firms that offer their customers a wide range of products to choose from also boost demand and gain customer confidence. Nokia understood the impact that price and product diversity has on its financial performance. It developed dozens of different mobile phones (“Nokia in 2006”, 2006). The company also priced its phones and other products reasonably. Its success in 2006 underscores the impact that pricing and product diversity has on cementing the financial position of a monopolist. 

Question 2 

How to protect market dominance 

Today, Nokia can be used as an example of a firm that lost dominance that other firms can only envy. There are a number of measures that Nokia could have instituted to secure the dominance that it enjoyed in 2006. Adopting new approaches and embracing innovation is among these measures. Cord laments that one of the forces that set the stage for Nokia’s decline and eventual collapse was its reluctance to embrace such technologies as new operating systems. The company maintained its faithfulness to its own operating system at a time when other phone makers were moving towards new operating systems. The case of Nokia highlights the importance of innovation. To secure its dominance in a rapidly changing environment, a firm simply must innovate. 

It is impossible for a firm to single-handedly change the industry. However, the firm can take measures to keep up with the transformation that the industry is undergoing. Diversification is among these measures. Instead of relying on limited revenue streams, firms should embrace diversification. Through a diversified product and market portfolio, firms are able to shield their operations against vagaries in the market. Cord provides the example of Samsung as a firm that has been able to protect its dominance through diversification. The firm has invested in a number of industries and products. For example, in addition to making mobile phones, Samsung also produces washing machines and other household products. Samsung makes for a perfect case study regarding the importance of product diversification in insulating a firm’s operations against market volatilities. 

The measures above are the main initiatives that could catapult a small firm to the top of its industry. There are other measures with although relatively minor, can help to fuel a firm’s rise to the top of its industry. Aggressive marketing and innovative product design are some of these measures (Cord, 2014). Through marketing, firms manage to engage with the market. Innovative product design enables firms to set their products apart from those of their competitors. Keeping up with trends in the industry is perhaps the most effective strategy for protecting a firm’s market share (Cord, 2014). To remain relevant, competitive and profitable, companies need to ensure that their operations and products reflect the situation in the industry. 

The case of Nokia 

In the discussion above, the measures that firms can institute to secure their market dominance have been outlined. An examination of Nokia’s operations reveals that for the most part, the firm failed to implement these measures. Nokia either failed or refused to embrace new technologies. As pointed out earlier, the firm stuck to its own operating system when better operating systems such as Android and Windows were available. As regards diversification, the firm appears to have embraced this strategy. It created different devices that were targeted at different market segments (“Nokia in 2006”, 2006). However, its diversification did not go far enough. Such firms as Samsung invested in a wider range of products (Cord, 2014). On the other hand, Nokia’s diversification mainly involved creating different mobile phones. Overall, Nokia failed to take action to protect its market dominance. 

While it is true that Nokia largely failed to safeguard its dominance, it did take some action to protect its market share. Diversifying its product portfolio is one of these actions. It has been noted that Nokia focused a bulk of its resources on the development of mobile products. However, the firm also attempted to venture into other pursuits. For example, in 2006, Nokia acquired Loudeye, a player in the digital music industry, and gate5 (“Nokia in 2006”, 2006). These acquisitions were part of Nokia’s efforts to broaden its investments and diversify its product offerings. Whereas it is true that Nokia took action to protect its dominance, there are various glaring failures that threatened the dominance. As made clear above, the failure to innovate is one of the firm’s greatest blunders. Instead of responding to changes in customer preferences and the emergence of new operating systems, Nokia held on to tis outdated and hugely unpopular operating system (Cord, 2014). It was not until many years later that the company eventually recognized that Android is the future of mobile telephony. Had this firm made this realization sooner, it would undoubtedly still be a dominant player in the smartphone industry. 

In conclusion, Nokia is a lesson to all companies regarding the value of innovation. In 2006, this firm was a dominant player in the smartphone industry. It enjoyed customer loyalty, high revenues and enviably impressive profits. However, owing to the company’s reluctance to embrace new approaches, it lost its dominance to such other companies as Samsung. The main take-away from Nokia’s decline is that customer loyalty is not sufficient to sustain company growth. Firms need to constantly innovate and stay abreast of trends in the market. 

References 

Cord, D. J. (2014). The decline and fall of Nokia . Schildts & Söderströms 

Nokia in 2003. (2003). 

Nokia in 2006. (2006). 

Innovation and Possibilities. (2015).