How to increase penetration of nokia in rural of vietnam in 2012

Market growth in volume was approximately 3 million pieces in 2011, in which only 1 million pieces was from urban market while another 2 million came from rural one – a “virgin” market w

TRƯỜNG ĐẠI HỌC MỞ TP.HCM UNIVERSITE LIBRE DE BRUXELLES

MBMM5

Nguyen Thi Thu Hang

HOW TO INCREASE PENETRATION OF NOKIA IN RURAL OF VIETNAM IN 2012

MASTER PROJECT MASTER IN BUSINESS & MARKETING MANAGEMENT

Tutor: Phd Hoang Thi Phuong Thao

Ho Chi Minh City (2012)

The author – Nguyen Thi Thu Hang - produced this project solely by herself with materials retrieved from either public sources or Nokia’s

The paper was made exclusively for the completion of Master in Marketing and Business Management, Solvay Brussels School No substance was used or would be for any other purpose

I would like to express my appreciation to PhD Hoang Thi Phuong Thao for her supervision of this final project and a deep sense of gratitude to Mom, Mandy and especially Elizabeth for their constant love

and supports

LETTER OF RECOMMENDATION

I am writing to confirm that the project entitled:

HOW TO INCREASE PENETRATION OF NOKIA IN RURAL OF VIETNAM 2012

Which was prepared by Ms Nguyen Thi Thu Hang has satisfied requirements for a Master project in Business and Marketing Management (part time) She is now qualified to present it to the Jury

Yours sincerely,

Tutor, Hoang Thi Phuong Thao (PhD)

Established since 1996, Nokia is very successful in Vietnam as market leader Its performance in terms

of business growth rate ranked number one among global system for the past 14 years 2011 was started with worries of local team due to economy downtrend However, by year end, we’ve realized that severe inflation turns out did not have much influence on the growth of handset market Market keeps on good growth, indeed And Nokia enjoys another year of success

But, there are early signs of market saturation in urban of Vietnam Market growth in volume was approximately 3 million pieces in 2011, in which only 1 million pieces was from urban market while another 2 million came from rural one – a “virgin” market which Nokia has spent zero dollars for direct marketing activities

The purpose of this paper, therefore, is to study the opportunity to expand Nokia business to rural of Vietnam Strategy is to seek for business growth in 2012 by increasing the penetration in such driven market, so each single dollar we spend would have a higher rate of return on investment In order to do that, it is essential for undertaking many researches so we know target consumers’ lifestyle, income, touch points; how cellular phone plays a role in their daily lives; what are the options for cellular phones, from then identify our competitors and how they are doing Most importantly, to find out what is the driven value which leads to a purchase: is it price, is it brand equity or is it the design / features of the product?

Relevant desk researches and secondary information are used for the analysis And a qualitative research is conducted in outskirts of 4 provinces, which represent 4 regions: Mekong Delta, South, Middle and North to uncover the truths of rural consumers

The findings will finally lead us to Nokia’ SWOT analysis before a marketing strategy is recommended, in which a profitable market segmentation will be selected; treatment for 4P mix is suggested, e.g how to communicate to target audiences effectively; what we should do to improve our distribution system; which product portfolio should be introduced, and at what price range

This paper will be a ready-to-use menu for all marketing activities Nokia should take in 2012 toward rural market in order to hit 8.4% penetration and 58% market shares in rural by first half of 2012 and maintain

it over the year

1.5 Target respondent recruitment criteria 18

2.3 Chinese Brands Strengths and Weaknesses 26

4.2 Budget 2012 for rural expansion 52

CHAPTER I:

DEFINITIONS

The purpose of chapter 1 is to provide (1) theoretical understanding for the difference and relevance between market share and market penetration, and (2) an official administrative definition of Rural Vietnam, so to avoid possible confusion in reading further of this paper

1 Market share and market penetration

Investopedia explains market share is the percentage of an industry or market's total sales that

is earned by a particular company over a specified time period Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period (normally a year) This metric is used to give a general idea of the size of a company to its market and its competitors

Marketeers look at market share increases and decreases carefully because they can be a sign

of the relative competitiveness of the company's products or services As the total market for a product or service grows, a company that is maintaining its market share is growing revenues at the same rate as the total market A company that is growing its market share will be growing its revenues faster than its competitors

Market share increases can allow a company to achieve greater scale in its operations and improve profitability Companies are always looking to expand their share in addition to try growing market size Often, managers must decide whether to seek sales growth by acquiring existing category users from their competitors or by expanding the total population of category users, attracting new customers to the market by appealing to larger demographics, or convincing current clients to use more of our product/service (by lowering prices, advertising etc.)

Market Penetration is a measure of brand or category popularity It is defined as the number of people who buy a specific brand or a category of goods at least once in a given period, divided

by the size of the relevant market population

ƒ Market Penetration (%) = Customers Who Have Purchased a Product in the Category (#)/Total Population (#)

ƒ Brand Penetration (%) = Customers Who Have Purchased the Brand (#)/Total Population (#)

ƒ Penetration Share (%) = Brand Penetration (%)/Market Penetration (%)

ƒ Penetration Share (%) = Customers Who Have Purchased the Brand (#)/Customers Who Have Purchased a Product in the Category (#)

So, increasing market penetration could be understood in both dimensions: increasing our competitiveness to competitors (unless market grows faster than brand does) and to increase brand popularity by recruiting new users to the category

Increasing market penetration is one of the four growth strategies of the Product-Market Growth Matrix as defined by H Igor Ansoff (1918 – 2002), known as the father of Strategic Management Market penetration occurs when a company penetrates a market in which current products already exist The other three growth strategies are:

ƒ Product development (existing markets, new products)

ƒ Market development (new markets, existing products)

ƒ Diversification (new markets, new products)

For the purpose of this project, we will focus on market penetration as a strategic decision to expand Nokia business in 2012 The target market is rural, the most profitable in 2011 should

we take return on investment into account However, there are different understandings for rural

It is essential to follow one official definition

2 Rural of Vietnam

Rural population refers to people living in the rural General Statistic Office (hereafter refers to

as GSO) define urban and rural based on population density

Vietnam Administrative Structure Source: GSO

The chart reflects that rural is everywhere, even in national cities like HCMC, the biggest and most modern city of Vietnam The latest report from GOS announces the population of Vietnam

is reaching close to 88 million people by end of 2011, in which approximately 61 million is living

in the rural, making up 69% of the whole population

CHAPTER II:

INTRODUCTION

1 Background

After the internet, mobile technology likely has the fastest technology adoption rate in Vietnam

A recent research studying by leading analysts GFK Asia showed a surprising growth of the mobile industry in Vietnam, despite the rising inflation Though there was a drastic cut in spending, even on food, the mobile industry witnessed a quarterly growth rate of 43 percent in the third quarter of 2011 (Source: www.business-in-asia.com)

An economy of close to 88 million people who continue spending greatly for handset despite of economy downtrend is such a good signs to handset manufacturers Not only long established brands in Vietnam, such as Nokia, Samsung, Motorola, Sony Ecrission have spent multi-million U.S dollars in promoting the market, new comers also express their ambition Recently, Apple is very aggressive with its bundle tied up with Vinaphone; Blackberry and HTC have decided to expand their business in Vietnam, judging by the move of having greater visibility in-store and mass media Lower end segment also witnesses a great competition from smaller players, mostly local Operators and Chinese Brands as Q-Mobile, Viettel, F-Mobile, Mobell, Mobistar…offering different price ranges, trying to capture all demands

Established since 1996, Nokia is currently market leader with year-to-date 51% of market share

in value and approximately 1 million devices selling out monthly (source: GFK 11/2011) Nokia is one of the two manufacturers who are currently offering a wide range of portfolio with numerous choices (another one is Samsung, 2nd player): low (below VND3mio), medium (VND3 – 8 mio) and high-end (above VND8 mio) Therefore, at each segment, Nokia need to fight against Samsung and numerous different competitors

Long and well known for its durability and reliability, Nokia is always the top of mind choice for first phone users So it is understandable that the company takes limited effort promoting low-end products which mostly sold in rural area A much bigger proportion of marketing budget is reserved for the battle against key competitors in higher end segment, of which Samsung is very strong - currently the leader; and the rising threats from HTC, Apple, Blackberry Lower-end products are selling by themselves, mainly thanks to “hallo effect” from communication campaigns for smart phones

2 Problem Statement and Rationales

In 2011, Nokia spent 13.072.057 US Dollars for marketing budget (source: Nokia) The budget reserved for promoting low-end products were 2.578.418 US Dollars, accounted for 19.7% of the budget

The latest report from GFK 11/2011 shows an absolute number of growth of over 3 million units

in Year-to-date (YTD) 2011 versus YTD 2010 (please refer to Chart 1)

[Chart 1 – YTD Panel Market from GFK 10/2011]

Take a closer look at the contribution of growth, we surprisingly found out over 2 million units of growth out of 3 came from Rural Market indeed (please refer to Chart 2) While the growth in rural drives the nationwide market, Nokia is losing out its share 57.4% volume share in 2010 dropped to 54% YTD 2011 (source: GFK) Return on investment for rural market is far more effective than in urban but the company obviously was not able to capture the opportunity

[Chart 2 – Brand share in Rural, GFK 10/2011]

The reason for intentionally neglecting rural market came from internal issues For many years, Nokia did not have products fitting in expectation of rural consumers The product menu either fails to meet features & design requirement within prefer price range (e.g Nokia 1280) or vice versa, fail to meet price range if it has a better design and value-added features such as camera and memory card (e.g Nokia C3 Wifi)

In June 2009, Q-mobile rocked the market by launching the first ever dual-sim handset, which allows users installing 2 sim-cards in 1 device Dual-SIM operation allows the use of two services without the need to carry two phones at the same time It is perfect for developing countries environment such as Vietnam when the telecom charges are super high comparing to average income A dual sim device user could maintain his/her existing number for receiving calls while dial by a pre-paid promotion sim card which offers a much lower rate of charges

As a market leader, Nokia did not buy the concept Producing a dual-sim handset means encouraging people buy 1 device instead of 2 However, the fact that Q-mobile quickly gained market share with 100 thousand handsets selling out a month; and that Samsung, 2nd player

launched its first dual-sim six months later in January 2010 have marked the growing demand Nokia no longer insisted staying out of the game The Launch of Nokia first dual Sim X1-01 in July 2011 explained the growth of its business in rural, starting from the 3rd quarter of 2011 (please refer to Chart 2 above) The news that more dual-sim devices within affordable price range of rural consumers are coming the way in global product menu sets Nokia Vietnam in a beautiful mood for penetrating rural market this year 2012

In a bigger picture, there are plenty of rooms for business growth in rural market thanks to current low mobile phone penetration In YTD 11/2011, over 3 million Nokia units have been sold for a population of approximately 61 million people, making brand penetration in rural less than 6% Whilst there’re approximately 4.5 million units sold-out in urban market of 26 million people, brand penetration in urban is thus 17% Thanks to recent positive changes in life style and income of rural people that we will visit and find out at later stage of this project, we believe the chance narrowing down penetration gap between rural and urban is there The increasing of market penetration in rural is a strategic decision for growing Nokia business in 2012

3 Project Objectives

• To understand rural customers‘ lifestyles and to uncover their key purchase triggers

• To analyze the situation where Nokia are in, from both macro and micro perspectives and so to recommend a profitable market segmentation and proper marketing mix strategy

• To outline an action plan toward rural market in 2012 so Nokia would meet its business objective: to increase its rural penetration and market share to hit 8.4% and 58% respectively

4 Methodology

• 2-step qualitative research: in order to understand both pre-shopping considerations and in-store influencers and triggers

• Secondary researches: for the analysis of competitive, macro and micro environment

5 Scope and Limitation

• As for the qualitative research 4 provinces which are considered most dynamic market will be picked for the study presenting 4 main areas: Mekong Delta, the South, Middle and the North

• This paper is made on November and December 2011 Information from secondary researches is year-to-date and result from qualitative research might not be as accurate

at the time it reaches professors

6 Organization of the Thesis

The paper is organized with 4 chapters

CHAPTER I - DEFINITIONS: as the whole project is about increasing Nokia penetration in rural

of Vietnam, it is crucial for us to understand the definition of Penetration and to define rural of Vietnam

CHAPTER II - INTRODUCTION: to introduce the background of Mobile Industry of Vietnam and

how Nokia Vietnam is doing, then to understand the problem statement and rationale: why that rural market is crucial for the growth strategy of the company in 2012

CHAPTER III – SITUATION ANALYSIS including:

1 Customer Analysis: To understand rural customers of Vietnam where there’s a large

untapped potential but so different from metropolitan’s customers in lifestyles, behavior, attitudes, and preference of brands The main objective of this study is to identify what are the key value drivers for selecting a cellular phone and how the whole decision process is making This chapter presents in details research approach, design and results

2 Competitor Analysis: To identify Nokia’s key competitors in rural: Who are they? What

are their market positions, shares, strengths and weaknesses? Material for analysis is

an Omnibus report from GFK (November 2011)

3 Collaborator Analysis: this chapter will cover the analysis of 2 entities which have

great influences on the development of Nokia’s business: Network Operators and Retailers Understanding their power towards us helps forming a strategy for mutual benefits

4 Macro environment Analysis: using PEST as a tool to prove the potentiality of rural

market of which many desk researches is taken into account

5 SWOT Analysis: as a conclusion for the chapter, identifying Nokia’s strengths and

opportunities as well as weaknesses and threats as they are determined stepping in rural market

CHAPTER IV – RECOMMENDED STRATEGY and ACTION PLAN: this chapter defines market

segmentation and discusses the marketing mix decision for such segmentation Target for 2012, action plan, budget, timeline and KPIs for evaluation are also covered in the chapter

The next chapter is reserved for the situation analysis where we will deeply study our customers, what are our competitors’ strengths and weaknesses, how do collaborators influence our business, whether micro-environment is favorable to Nokia business and to understand Nokia SWOT, which

is crucial for marketing strategy recommendations

CHAPTER III: SITUATION ANALYSIS

1 Customer Analysis

This is the first step to move forward after identifying the potentiality of rural The analysis is to provide Nokia with an insightful understanding of rural customers of Vietnam where there’s a large untapped potential but so different from metropolitan’s customers in lifestyles, behavior, attitudes, and preference of brands Hence there’s the need to conduct a research to address the gap of knowledge for better marketing and communication activities The key objective of this study is to identify the potential segment in the rural market and how to best communicate to them via all fronts (from products, services, to channels and promotion mechanics)

1.1 Research Objectives

• To explore current lifestyle of rural customers and understand their touch points

• To uncover key purchase triggers for rural cellular phone users, both current and

potential during their phone shopping journey

1.2 Specific research questions

ƒ How do they spend their 24 hours?

ƒ What does their cellular phone shopping journey look like?

ƒ What triggers the need?

ƒ What is important in selecting a handset?

ƒ What influences their considerations?

ƒ Where do they normally go to purchase one?

ƒ What is the moment of truth in deciding which one to purchase? Is it in-store or is it

decided before hand?

ƒ What are the most sought-after features that drive?

ƒ What is the current brands’ perception of Nokia and its key competitors (Samsung and

Chinese Brands)

1.3 Scope

4 provinces will be picked for the study to present 4 main areas, including: Outskirt of An Giang (for Mekong Delta), outskirt of Binh Duong (for the South), outskirt of Binh Dinh (for Middle) and outskirt of Thai Binh (for the North)

The respondents are neither extremely different nor too similar to metropolitan customers and

able to reflect commonalities of lifestyle, behaviors and perceptions of general rural consumers

1.4 The Design of Research

In order to understand both pre-shopping considerations and in-store influencers and triggers, a two-step qualitative research approach will be conducted

ƒ Step 1: Focus Group Discussion

o To explore pre-shopping considerations, e.g phone needs, sources of information, brands and products’ perception, triggers and barriers to purchase

o This will provide a rich understandings of the whole decision making process and influencing factors when the whole purchase history is tracking, all the way from their needs arise until the purchase is made in-store

ƒ Step 2: Shoppers Observations

o To understand the shopping experience and to uncover the impact of

in-store factors of which will influence a purchase decision

1.5 Target respondents recruitment criteria

ƒ Males and Females, 14-45 years old

ƒ SEC CD (to represent mainstream rural consumers)

ƒ Current and potential phone purchasers (first-time purchaser and those replacing an existing phone)

ƒ Current users to include Nokia and key competitor users in order to yield a full picture of Brand perception among users of different brands

ƒ Respondents must have purchased a phone within the last 4 weeks so they recall the most details of their shopping experiences; or must have a plan of making a purchase in the next 1-2 months so they are actively seeking for information

ƒ Permanent residents of respective areas

1.6 Samples design

Outskirt of An Giang Outskirt of Binh Duong Outskirt of Binh Dinh Outskirt of Thai Binh Focus Group

Geo Area Age Group

Teen

14-18 (mix M &

F)

Young Adult 19-22 (M)

Young Adult 19-22 (F)

Adult 23-30 (M)

Adult 23-30 (F)

Mature Adult 30-45 (M)

ƒ Rationale / Hypothesis behind samples design:

o Teens: there is a little gap between male and female in terms of knowledge toward the category, as thus, a mix of 50:50 ratio is highly recommended to save cost and time

o Young Adults and Adult: women at this age bracket tend to rely on their male counterparts for making purchase decision for “so-call-high-tech” stuffs Yet, they do have their own preferences and needs which are to discuss with their male counterparts before shopping As thus, a separate male and female group is essential

o Mature Adult: Cover solely male because at this stage of life, rural women dedicate their time for family and appear to be less sophisticated in terms of expectations towards hand-set’s features

1.7 Areas of Investigation

ƒ General

o Quick understanding of consumers’ lifestyles and media habits: it is the background understanding to explain consumer’s need in terms of communication and sources of awareness

o The essentialness of cellular phone in consumers’ life and their expected features: to understand the role of a cellular phone in their daily activities and what consumers need from a handset

ƒ Consumer decision making process

o Try to understand the impact of pre-store / channel choice/ in-store in terms

of key drivers, sources of awareness and influences; when exactly it is the moment of making decision; what is the impact of in-store factor: did they change their mind stepping in a store? If yes, what would influence them?

ƒ Brand perception

o Gauge the consumers’ perception between Nokia and their key competitors

in rural: Samsung and Chinese Brands

ƒ In-store behaviors:

o To observe and to verify if the consumers have a brand in mind before stepping in? What is their typical behavior? What would influence their final decision: is it price, display, phone experience or a sales representative?

a barber shops, mason, breakdown mechanics and factory in nearby industrial zones)

- Most starts enjoying more comfortable life: having savings, ability

to access to white goods thanks to diversification of household appliances products which offers different price ranges

o Rural consumers have moved their state of life from survival to early financial stability As thus, they are having more purchasing power comparing to the past They are now opened to upgrade durable items to get better life

o It’s a tradition that adult male are enjoying familial power They are the decision maker of perceived “big value” items (e.g cellular phone) As the result, married women are easily influenced by the husbands in product / brand choices

o However, sexual status has no influence on brand choices of teenagers Generally, teens are thirst for new news, yet refrain themselves given budget constraints

o A typical day in rural is monotonous with limited entertainment activities There is no difference between weekday and weekend Most shows interest to a few fairs (which were held by FMCG with games, lucky draw and music entertainment which were organized on an occasional basis)

ƒ Media Exposure / Touch Points

o Rural consumers have limited access to Media Touch points are normally linked to entertainment

o TV is the most common for brand awareness Message delivery through this channel is weak due to low understanding, causing by low educated population

o Low access to newspapers and magazines driven by poor distribution

o Listening to radio from cellular phone is getting popular Traditional radio is losing its advantages for its inconveniences

o Internet is potential touch points for teenagers

o Leaflet is highly appreciated by most as an effective source of information and message delivery It is easily explained that due to low education, people need time for digesting information

o Local broadcasted station for updating local news is a kind of ‘forced to listen’ media yet is of low interest

o Among other touched points, Word-of-mouth (WOM) proves to be the most influential source in rural WOM can be created by organizing Fairs, Music Shows – leveraging their burning needs for entertainment - where high engagement with products will be tighten in all activities

• Motivations behind Category adoption: Recent changes in rural making our consumer lifestyle more ‘mobility’ has created a need for mobile phone Further, lower price for entry level mobile phone also make it more accessible to ‘low budget’ consumers and encourage them to enter the category

ƒ The roles of a Cellular Phone

o A networking-tool: the better one stay connected to other, the more chances they would get (additional jobs, selling farming produces at higher prices)

o A Communication tool: keeping in touch with family, friends, business partners

o An entertainment tool: radio, music player, games

o A privacy tool: for personal relationship

ƒ Expectations from a Cellular phone

o Basic needs: Call & Receive and SMS: fast response and clear signal

o Memory card: for camera, music, games

o Dual SIMS: a special built-in feature, allowing one using 2 numbers at the same time It is especially useful in Vietnam context since one want to keep their current number, and at the same time use a promotional SIM to make

a phone calls or text at lower price

o Design: compact, small-size, not easy to fall out from the pocket Many colors to choose is preferred

o Durability: not easy to break, long-life battery

• Purchase decision process: please refer to Chart 3 below

[Chart 3 – Purchase decision process of rural customers]

1.9 Section Remarks

• Due to farming nature and unstable additional job, most don’t have much cash up front Though consumers are ready to purchase or upgrade mobile phone, they need financial support to accelerate decision/ to take action Installment Payment might work

• Creating a BUZZ is important to influence consumers’ choices Direct marketing activities are more effective than mass media to reach consumers in terms of message delivery and influence of choice

• Consumers are willing to pay for a device which costs approximately VND1 mio The handset must have basic features plus memory card for music Dual sims is an important feature which is at all-time-desire Most were attracted to a flashy colorful design but will soon be disappointed and regretted if the handset were not as durable

as they are expected Cellular phone is considered one of the most personal valuable items that they have invested in

• There are two opportunities to interfere consumer choices: Pre-store (brand awareness and WOM) and In-store which is most likely rely on Sales Rep’s influences

The beneficiaries are obviously Nokia and Samsung, of which, Nokia gains majority share from Q-mobile thanks to a strategic launch in early August 2011 of dual-sim handset modeling C2-02 and X1-01 These two devices, together with another 6 available low-end models, offering in price range from VND500K to VND3.5mio, make Nokia temporarily the most ideal choice for this segment

However, in general, Samsung growth in rural 2011 is better than Nokia And the fall of mobile gave chances for the rise of some smaller Chinese Brands (e.g Malata, K-touch, Mobistar…) and Operator brands (Avio, Viettel) Please refer to Chart 4 below for details

Q-[Chart 4 – Brand Growth in Rural, GFK 11/2011]

Since Avio and Viettel accounts for a relative small brand penetration, we assume Samsung and Chinese brands (group all) our key competitors in rural This section reviews brand perception of Nokia versus Samsung and other Chinese Brands, and the analysis of their strengths and weaknesses Some information is acquired from the qualitative research which has been done for Customer Analysis

2.1 Brand perception: In rural market, perception on mobile brands is purely based on feature

attributes, hardly emotional Hence, brands are divided into 2 groups:

• Authentic, credible brands (Nokia, Samsung) and

• Cheap, less credible brands (All Chinese mobile and Operators’ brands)

[Chart 5 – Brand Perception]

• Nokia is a brand that consumers aspire to yet quite expensive and perceived to lack of nice design at the budget phone segment (under VND1mio)

• Samsung is classified as an authentic brand alongside Nokia However, Samsung is less credited on its durability than on nice design (mostly slide)

• Chinese mobile brands (Q Mobile, K Touch, Malata etc.) are generally regarded as of low quality, not durable but very good price with nice design and a lot of added-in features

2.2 Samsung strengths and weaknesses

• Strengths:

ƒ Perceived as authentic trustworthy brands

ƒ Well-known for nice design, an important attribute in purchase decision

• Weaknesses:

ƒ Limited range of choice: less new models for low-end market were launched in 2011

ƒ Durability is far in Nokia’s league

ƒ Numeric distribution hits 60% comparing to 100% of Nokia, which means limited availability at smaller general retailers (please refer to Chart 6 below)

[Chart 6 – Brand Distribution in rural, GFK11/2011]

2.3 Chinese Brand strengths and weaknesses:

• Strengths:

ƒ Unbeatable low prices

ƒ Nice design with a lot of complimentary value-added built-in features

ƒ Wide range of choice

ƒ Excellent maintenance system: replace new product if it fails to deliver during warranty

• Weaknesses:

ƒ Products are unreliable, slow in response, unstable signal

ƒ Durability is a big question mark

ƒ Numeric distribution is less than 40 percent

ƒ Facing “against-Chinese-product” trend - a social phenomenon which is created by bad-reputation of Chinese stuffs dumping to Vietnam market in the past few years

2.4 Section remarks

• Among 4 key attributes in purchasing decision process, e.g within price range, durability, must-have features (dual sim, music and camera) and design, Nokia is strongest at durability attribute and weakest at design due to European aesthetic taste who appreciate

simplicity in design and color selection Another two attributes: within price range and have built-in features - are easier to meet/fix/improve

ƒ Operators has a wide presence across the country for communication and promotion However, the relationship with Operators is waving They are our collaborators and competitors

at the same time They could turn themselves into into direct competitors of Nokia by launching their own devices (in fact Viettel and Vinaphone did and have gained a certain market shares at low-end segment, please refer to Chart 2 for reference); or turn themselves into indirect competitor by supporting other handset vendors to launch a customized bundle for the rural market (Samsung penetrated rural market in a faster manner comparing to Nokia in 2011, mostly thank to Tomato bundle with Viettel)

Among 6 active operators, 3 market leaders – Mobiphone, Vinaphone and Viettel – accounts for 92% market share in volume Viettel owns 44% and is very strong at network coverage in rural Collaboration with Viettel is the must for rural penetration but the deal must be designed with care in order to avoid conflict of interest with current bundles of this Operator

Since 2008, mobile chains & CESs have started to expand their network in provincial towns and rural districts, creating a trend of pulling rural consumers to downtown at weekend for hi-tech stuffs shopping as a kind of leisure The stronger the trend, the more power they are having in negotiation with device vendors They, indeed, started to show their power in route-to-market by increasing their demands to Nokia in return for branding / space share

Nokia needs to maintain its power over distribution system to dominate its presence Offering higher margin or buy space-share in store as what Samsung and some other players are doing would be a tactical solution to earn retailers’ supports in a short-run It will, on the other hand, put all the vendors in a new battle where retailers are the only beneficial entities A thorough

solution to control Chains and CESs’ power is in need, which we will discuss more detail in Chapter IV

4 Macro Environment Analysis

4.1 Political factors: the development of Telecom Network Operators paves the road for the growth

of device market Although the industry did not have many prominent events like previous years

in 2011 but there were few big qualitative changes The most meaningful event was that Prime Minister signed Decision No 55/2011/QD-TTg to name the list of telecom service providers which have infrastructure layer and majority stake of the state It means that Vietnam telecommunication field where state firms are dominating will start changing to joint stock mode, M&A Therefore, in the coming time, the groups of participants in Vietnam’s telecom market will

be more diversified, especially the presence of private and foreign companies with strong finance With the above decision, the government will not only restructure, centralize economic resources, avoid ineffective investment and retain key companies but also attract other resources and economic parts to take part in the market Also, with the effectiveness of WTO agreement, Operators are now more free to compete with minimal control from Government Telecom charges, thus, will be lower As the result, more rural consumers with low income will afford the services and device market would expect better growth

4.2 Economic factors: This year, due to high ratio of inflation, the consumer index has dropped 6

points A survey from AC Nielsen found that 69% of Vietnamese consumers believe the economy is in a recession but only 37% believe that the economy can get out of the recession in the next 12 months As the result, there was a drastic cut in spending, even on food However,

as discussed earlier, the mobile industry still witnessed a quarterly growth rate of 43% in the third quarter of this year – a fact that would convince any device manufacturers for the faith of a bright future ahead in 2012, especially when the overall performance of the economy for 2011 is fair Vietnam’s 2011 Gross Domestic Product (GDP) growth is estimated at 5.89 percent Although it is lower than the growth level of 6.78 percent in 2010 and lower than earlier target at 7-7.5% set by the Congress in December 2010 (source: GSO), it is believed that the growth rate

is reasonable in amid economic difficulties when Vietnam focused on inflation control and macro-economic stabilization The achievement in socio-economic development this year is a solid foundation for the country to meet the socio-economic targets set for 2012 For next year, the government has targeted a growth rate next year of 6-6.5 per cent, inflation below 10 per cent, a 13-per cent increase in export turnover, keeping the trade deficit under control, a state budget deficit of less than 4.8 per cent of GDP, a two-per-cent reduction in poverty, and the creation of 1.6 million new jobs, with the percentage of workers who have received skills training

reaching 46% (source: Asia News Network) Although the sources of wealth would not distribute equally between urban and rural, and that 4 out of 5 rural consumers are still BOP, the fact that 22% of rural population, equivalent to 12.5 million people having the declared an income above US$2,500 a year (source: TNS, 2009) says rural market is profitable

4.3 Social factors are favorable in all facets to the growth of cellular phone penetration in rural of

Vietnam:

ƒ Vietnam population is pretty young It is estimated that 56 million people aged 20+, accounts for about 63% of the population Observing the population pyramid, we will see 17 million new and young consumers enter the market in the next 10 years (source: GSO, TNS analysis 2009) It would be a huge base for low-end profile of Nokia, which normally aims at first phone users and then gradually upgrading them to mid-and-high-end products as they are getting mature and thus wealthier

[Chart 8 – Vietnam Population Pyramid, TNS 2009]

ƒ Also, the trend that youngster in rural move to big cities to find opportunities, either to study

or to work, creating a geography distance with their families in rural and there comes communication needs

ƒ A device nowadays is no longer “just-a-communication-tool” Although a handset is yet a

“symbol of status” in rural market, it is now perceived as a device for personal entertainment, with music, games, surfing internet, social networks For the youngsters, a handset is their passport to life

4.4 Technology factors:

As mentioned above, a handset is now far beyond a communication tool but a personal entertainment device This purpose could be achieved only if the handset can accommodate internet access capabilities

3G is a popular technology in urban, first launched in Vietnam by Vinaphone back in early 2009 which allowed consumers experiencing Web-based applications and phone-based audio and video files with easy access However, the mobile phones that are compatible with 3G networks have also advanced enough to carry browsers that are capable of processing and displaying whole web pages which may cost not less than VND3.5 mio, out of the range of which majority

rural consumers would afford

Fortunately, GPRS is a 2G technology that allowed low-end mobile phones users to extend their usability a lot further than by simply making calls GPRS service is now available widely with just

a text message away It costs approximately VND15K for installation GPRS is the main technology behind MMS features that allowed users to send pictures, sound clips, and even videos to other MMS capable mobile phones It has even allowed access to a diluted version of the internet via WAP with speeds that ranged between 56 and 114 kbps

It comes to conclusion that macro-environment is favorable for Nokia or any device vendors to expand their business in rural It is now time for us visiting Nokia’s strengths and weaknesses so

we know what will be the right strategy for Nokia capturing its opportunity and win over competitors

5 SWOT Analysis

5.1 Strengths:

ƒ Brand name: a trusted name for product reliability and durability, which are crucial attributes

in purchase decision of a consumer, especially for first phone users in rural, who have no advertising pressure yet

ƒ Distribution system: numeric distribution hits 100% Product accessibility is obviously higher than competitors

ƒ Market leader position is giving Nokia a greater power in negotiate with collaborators, e.g easier to achieve a bundle deal with telecom operators, easier to deal for merchandising space with retailers and/or to offer less margin than its competitors

5.2 Weaknesses

ƒ The design is always a drawback of Nokia Nokia follows European style where simplicity is highly appreciated While Asian in general, Vietnamese in particular favor flashy and colorful design It explains why Samsung and Chinese Brands are very strong at this

better

ƒ Chinese Brands have entered Vietnam for 3 years and time proves that their product did not deliver The Vietnamese consumers, after the shock of inexpensive, multi-features and nice designed handset, have now realized the reality They are now coming back to a safer

option of well-known brands

ƒ Rural market penetration is pretty low comparing to urban, giving plenty of opportunities for

Nokia to educate and then to recruit new users for market expansion

5.4 Threats

ƒ Telecom Operators are more and more aggressive in promoting their own devices, leveraging their existing network of bill collection counters all around the country Furthermore, their bundles of telecom services and handset are very attractive to

consumers

ƒ Samsung is expected to be very aggressive in pushing low-end products in 2012

ƒ The rising power of Chains & CESs creates much pressure on Nokia for offering higher

margins

other hand, pricing are standardized globally Nokia Global would control the differences within 5% maximum to avoid Gray Market

• Threats: although there are a rising threat from Operator branded phone, e.g handset is given out free of charge in bundle offer (hidden cost in service free but consumers normally are not aware of), it is not much a worry to Nokia nor to any vendor phones because the business model has certain disadvantages, e.g SIM Locks – no possibility to use the handset in other operators’ networks, phone models are limited and normally pre-selected by the operators Most important, Operator branded devices have never been aspired by consumers in general

The author would recommend Nokia to follow S-O strategy: to pursue opportunities that are good fit the company strengths

• To select the right products from global portfolio menu and rock the market

• To overcome pricing concern by working out alternative payment terms

• To find an effective way for communication in rural That is to actively increase awareness, leveraging the aspiration of the brand which is one of Nokia’s key strength

• To use it market leader position in negotiate with Operators for an exclusive designed bundle offer for the target market

• To balance up the power of Chains and CESs by promoting GR

• To increase its visibility in-store in order to interfere and pressure shoppers decision at point

of purchase

Details of what should be done, how we are going to do that, how much the budget is, when they should all be done… will be discussed in the next final chapter