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The Osborne Effect - A Case of Nokia (Research Paper)
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The Osborne Effect - A Case of Nokia (Research Paper)

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a research paper on the subject of The Osborne Effect studying the case of Nokia

a research paper on the subject of The Osborne Effect studying the case of Nokia

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  • 1. Research Paper The Osborne Effect – A Case of Nokia Ishan Parekh MBA (Tech.) – Batch of ‘13 Roll No. #315 This research paper aims to study the Osborne Effect in the technology – based sector of cell phones. As an example of this, we shall deal with the case of Nokia. We shall also have a look at how this affects a company and hence, the industry as a whole.
  • 2. 1 | P a g e The Osborne Effect – A Case of Nokia By Ishan Parekh MBA (Tech.) - Manufacturing #315 Year of Graduation: 2013 Research Project Presented to MPSTME, NMIMS In Partial Fulfilment of the Requirement for the Degree MBA(Tech.)
  • 3. 2 | P a g e Acknowledgements I’d like to start by first of all thanking my faculty mentors, Prof. Kiran Desai & Prof. Manisha Bapna, who gave me the knowledge and insight in conducting a research and opportunity to conduct the same. I’d also like to extend my gratitude to Prof. Jinu Kurien for helping me out and teaching me research methodology. I acknowledge my gratitude to Mr. Tomi Ahonen & his consulting firm (Tomi Ahonen Consulting), who contributed their valuable time in helping gather and organize very important secondary data. I’d like to thank all my friends and family who helped me out with the collection of primary data and filled out my survey and help me gather the maximum number of responses. I also acknowledge my gratitude to all my class mates who helped me in preparing the analysis and making sense of things during times when I got stuck. The research has given me great insight in the subject of Research Methodology and has also given me good encouragement to write research paper in a systematic manner. Thank You
  • 4. 3 | P a g e Abstract This research paper, basically tries to take into consideration the Osborne Effect, into the technology – based sector of cell phones. It explains how this affects a company, and thus an industry as a whole. As an example, we shall have a look at the case of Nokia. The first part of the research paper, includes the literature review necessary to analyse the partnership between Nokia and Microsoft. This contains relevant information pertaining to the topic, basically describing some of the basic concepts, explaining the GAP analysis, certain assumptions made during the collection of the secondary data and the data acquired from various sources. The second part of the research paper, includes the primary data collected via surveys. This survey is a support to the case of Nokia, and also aims to check the Osborne Effect theory.
  • 5. 4 | P a g e Table of Contents Acknowledgements.................................................................................................................................2 Abstract...................................................................................................................................................3 Introduction ............................................................................................................................................6 The Osborne Effect .............................................................................................................................6 A Case of Nokia ...................................................................................................................................7 Significance & Need for the Study ......................................................................................................8 Objectives of the Study.......................................................................................................................8 Literature Review....................................................................................................................................9 The Osborne Effect .............................................................................................................................9 Etymology .......................................................................................................................................9 Other Examples – Death by Pre-Announcement..........................................................................10 A Case of Nokia .................................................................................................................................13 Concepts and Constructs ..............................................................................................................13 GAP Analysis..................................................................................................................................14 Issues Raised by the Literature Review.........................................................................................14 Methodology and Data Sources............................................................................................................15 Secondary Data.................................................................................................................................16 Primary Data .....................................................................................................................................16 A Case of Nokia .....................................................................................................................................17 A trip down memory lane.................................................................................................................17 Back to the future .............................................................................................................................17 The Final Countdown........................................................................................................................19 Research Framework of the Study........................................................................................................20 Assumptions......................................................................................................................................20 Scope and Limitations.......................................................................................................................21 Proposed Framework........................................................................................................................22 Variables ...........................................................................................................................................23 Dependent Variable......................................................................................................................23 Independent Variables..................................................................................................................23 Rationale of Framework....................................................................................................................25 Hypothesis.........................................................................................................................................25 Research Question................................................................................................................................25 Nokia – a look back ...........................................................................................................................26
  • 6. 5 | P a g e Primary Data .........................................................................................................................................27 The Survey.........................................................................................................................................28 Results & Analysis .............................................................................................................................30 Summary and Future Scope..................................................................................................................38 Summary...........................................................................................................................................38 Future Scope.....................................................................................................................................38 Technology – based Sectors..........................................................................................................38 Osborne Effect – Researc h In Motion (RIM)................................................................................39 Annexure – Survey................................................................................................................................41 Works Cited...........................................................................................................................................43
  • 7. 6 | P a g e Introduction The Osborne Effect The Osborne effect is a term referring to the unintended consequence of the announcement of a future product ahead of its availability and its impact upon the sales of the current product. Pre-announcement is done for several reasons: to reassure current customers that there is improvement or lower cost coming, to increase the interest of the media and investors in the company's future prospects, and to intimidate or confuse competitors. When done correctly, the sales or cash flow impact to the company is minimal, as the revenue drop for the current product is replaced by orders or completed sales of the new product as it becomes available. The Osborne effect occurs when this pre-announcement is made either unaware of the risks involved or when the timing is misjudged. Customers react immediately by cancelling or deferring orders for the current product, knowing that it will soon be obsolete. Inventories increase and the company must react by either discounting or lowering production of the current product. Either of these choices depresses cash flow. In the actual case of Osborne Computer Corporation, the company took more than a year to make its next product available. It ran out of cash and went bankrupt in 1985. Pre-announcing products in a way that incurs the Osborne effect is an example of a self- defeating prophecy, as the announcement of the new product is ultimately responsible for its own abandonment. At the very least, any unexpected delays may mean the new product comes to be perceived as vaporware, further damaging the company's credibility and thus profitability. (Wikipedia LLC) (Osborne & Dvorak, 1984) (Grindley, 1985) The term used to describe a negative outcome from a company prematurely releasing information about future products and impacting sales of their current products. The Osborne Effect is normally seen when the company misjudges the timing for announcing the future products.
  • 8. 7 | P a g e A Case of Nokia Nokia is a name almost synonymous with phones in the Indian household. Nokia may not have invented cell phones, but it certainly did pioneer the category. Every feature, that we use today, be it the touchscreen, the camera, the music player or even the games on our phones have all been adopted by Nokia, long before any of its competitors could even think about the concept. Nokia till long had overshadowed all its competition by a huge margin. A simple example of this could be seen in the third quarter of 2010, when the total sales of Nokia was greater than the combined sales of two of its main competitors, Apple and Samsung. In February 2011, Nokia announced its tie up with Microsoft. This tie up was with regards to the development, implementation and utilization of the operating system to be used in future Nokia phones, i.e. Windows Phone 7 (or WP7). This was also accompanied by a subtle announcement that Nokia would discontinue its support to Symbian, one of the most successful mobile operating systems, and MeeGo, a new modern mobile operating system developed by Nokia in association with Intel. This tie-up is well of great value. It is indeed, a very surprising move, as Nokia has abandoned one of the 3 big operating systems to support the operating system which has the least amount of users. This came at a time when the newer versions of Symbian were being appreciated from critics and users alike. That, however, is not the main point of discussion. The point is that the information revealed during the announcement, the first Nokia – Microsoft phones will be available from the first quarter of 2012, at the earliest. This makes the current line-up of phones from Nokia redundant. These phones appear to lag behind in technology, compared to the ones Nokia has announced. However, these announced phones will not be available for at least a year. As a result, the sales of the current phones are affected. This is what is known as, the Osborne Effect. The Osborne Effect is a term referring to the unintended consequences of the announcement of a future product ahead of its availability and its impact upon the sales of the current product.
  • 9. 8 | P a g e Significance & Need for the Study The purpose of the study is to initially understand the Osborne Effect and the consequences of ill-timed marketing announcements. As a case study in this paper, we shall analyze the Osborne Effect on the sales of Nokia and its revenues. The loss of sales are then analysed to see its distribution in the industry. This deal is a complete industry-changer one. The loss of sales by Nokia is enormous. This will completely change the market share holding pattern by the various players in the industry. The need for the study is to analyse the amount of losses Nokia will face and how its competitors stand to gain from it. Further, through the form of primary data (in the form of surveys conducted), we shall look at how this has actually played and shall verify the findings of both Nokia as well as the Osborne Effect with our initial assumptions. Finally, we shall have a look at whether this phenomenon is restricted to only Nokia or it can be applied to other things as well. This shall be done via the future scope of this research. Objectives of the Study While studying marketing, we see that product & service announcements are an integral part of communications. However, badly timed announcements may have unintended consequences on the company. Hence, the objective is to study the Osborne Effect so that it can be understood as to what are the consequences of ill-timed announcements. While doing the same, another objective is to study the implications of the Nokia – Microsoft deal on Nokia, because of the Osborne Effect. We’ll also have a look at the various factors that will help the other players gain the maximum advantage in case of the forecasted scenario. Finally, the research paper is left open while discussing the other possible sectors where the phenomenon of Osborne Effect can be also applied.
  • 10. 9 | P a g e Literature Review The Osborne Effect Etymology The Osborne Effect states that prematurely discussing future, unavailable products damages sales of existing products. The name comes from the planned replacement of the Osborne 1, an early personal computer first sold by the Osborne Computer Corporation in 1981. In 1983, founder Adam Osborne pre-announced several next-generation computer models (the "Executive" and "Vixen" models), which had not yet been built, highlighting the fact that they would outperform the existing model. A widely-held belief was that sales of the Osborne 1 fell sharply as customers anticipated those more advanced systems, leading to a sales decline from which Osborne Computer was unable to recover. This belief appeared in the media almost immediately after the company's September 1983 bankruptcy: To give the jazzy $2495 Osborne Executive a running start, Adam began orchestrating publicity early in 1983. We, along with many other magazines, were shown the machine in locked hotel rooms. We were required not to have anything in print about it until the planned release date in mid-April. As far as we know, nothing did appear in print, but dealers heard about the plans and cancelled orders for the Osborne 1 in droves. In early April, Osborne told dealers he would be showing them the machine on a one- week tour the week of 17 April, and emphasized that the new machine was not a competitor for the Osborne 1. But dealers didn't react the way Osborne expected; said Osborne, "All of them just cancelled their orders for the Osborne 1.' Osborne reacted by drastically cutting prices on the Osborne 1 in an effort to stimulate cash flow. But nothing seemed to work, and for several months sales were practically non-existent. (Ahl, 2003)
  • 11. 10 | P a g e Other Examples – Death by Pre-Announcement The "Osborne Effect" refers to the unintended consequences of announcing a future product ahead of its availability -- and its impact upon the sales of the current product. Here are the seven cases of Osbornes in the past history: North Star Computers Inc. A number of computer historians have pointed out that the first example of "doing an Osborne" probably originated with North Star Computers, Inc back in 1978, five years before Osborne shuffled off its mortal coil. North Star was an early CP/M personal computer vendor. In 1978, North Star Computers announced a new version of its floppy disk controller at the same price, but with double the capacity of the old controller. When sales of the old controller decreased, the company nearly went out of business. Osborne Computer Corporation Everyone knows the Osborne story: In 1983 Adam Osborne pre-announces the replacement models (which have yet to be built) for the venerable Osborne 1. Sales of the Osborne 1 tanked, and the company goes out of business shortly thereafter. Affidavits from former Osborne employees given a number of years later cast some doubts on the mythology, although they do not fully discount the company's rapid demise due to the product pre-announcements. They allege that competing products such as the Kaypro shipping at the time had a larger screen and were less expensive than Osborne's next-generation replacement for the Osborne 1 and included bundled software, making them a superior value. Kaypro had already begun to cut into Osborne's sales, and other mismanagement at Osborne may have contributed to the company's downfall. Sega Corporation Sega, like Nintendo, Sony and Microsoft, was once a powerhouse in set-top video game consoles. Two years into the release of their Saturn console, the company started to publicly discuss their next-generation system, the Dreamcast. The company had already created a history of distrust with their short-lived Mega CD and 32X, which were considered ill-conceived stopgap systems. Saturn sales crawled
  • 12. 11 | P a g e to a halt and many planned games for the console were cancelled. While the Dreamcast eventually was released, customer loyalty was compromised and the system suffered poor sales, and Sega eventually exited the console business as a result. Research In Motion (RIM) Limited In May of 2011, Research in Motion announced the availability of their first Blackberry Bold handsets based on OS 7, which included a number of multimedia and social networking improvements. All of this was good on paper, except that the company's Co-Chief Executive, Mike Lazaridis was busy telling crowds that the new phones would not be upgradeable to their next-generation QNX OS due the following year, which is now known as BlackBerry 10. As a result, this has put an effective freeze on traditional BlackBerry 7 handset sales and market share of RIM products has dropped into single digit percentage levels. A major management restructuring of the company has occurred, including the ouster of both Co-Founders and Chief Executives. BlackBerry 10 handsets are unlikely to ship until at least March of 2013, and the company has retained JP Morgan and the Royal Bank of Canada to determine go- forward options for the Waterloo, Ontario smartphone vendor, presumably including asset divestiture, severe austerity measures (large rounds of layoffs) and the sale of the entire company. Nokia Corporation Nokia CEO Stephen Elop took a big risk by declaring his company of 125,000+ employees as sitting on a "Burning Platform" in a widely-distributed memo which he wrote in February of 2011. Their current line of Symbian and MeeGo-based phones, he noted, were inferior to the products which were shipping by competitors from Apple and the Android OEMs. Shortly after issuing this memo, Nokia entered a partnership with Microsoft to produce Windows Phone-based devices. Sales of their high-end Symbian and MeeGo- based smartphones have since gone in the toilet, and the company as a whole has been struggling to stay afloat.
  • 13. 12 | P a g e While their recently released Lumia 900 Windows Phone-based handset has garnered fairly positive reviews, the company's financial situation is dire and is expected to burn through its cash reserves in 2013 unless a miraculous turnaround occurs. Microsoft Corporation This June's announcement by Microsoft of Windows Phone 8's feature set took many users by surprise, that the current generation of Windows Phone 7 devices, including Nokia's flagship Lumia 900 which only launched in late April of this year will not be upgradeable to the new mobile operating system. Instead, they will get a consolation prize, Windows Phone 7.8 that gives them a new menu screen and some very minor improvements. While there hasn't been any indications of a Windows Phone sales slowdown yet -- as the platform only occupies single digit market share territory -- this cannot possibly be a positive development for the OEMs selling Windows Phone products with significant inventory in the sales channel. (Perlow, 2012)
  • 14. 13 | P a g e A Case of Nokia Concepts and Constructs Basic Concepts 1. Dumphones A cellphone which has little or no advanced features such as a large, bright screen or applications such as e-mail and web browsing. 2. Smartphones A high - end mobile phone which combines the functions of a personal digital assistant (PDA) and a mobile phone. The term is used to generally describe phones with more advanced computing ability and connectivity. 3. Eco – System In general, an eco-system is a set of components where they interact with each other to mutually benefit each other. In terms, of the cell phone industry, the eco-system refers to the system in which the company, its application developers, its application store and its relationship with varios carriers work together with each other, with a view to aid each other. 4. ASP The term ‘ASP’ is an acronym for Average Sales Price. 5. Market Share Market share is the portion or percentage of sales/revenue of a particular product or service in a given region controlled by a company. 6. Windfall A windfall gain (or windfall profit) is any type of income that is unexpected. It refers to income received which was not expected and not a direct result of something the recipient did.
  • 15. 14 | P a g e GAP Analysis 1. Forecasts based in historic data The forecasts for the sales & revenues of the future quarters are calculated keeping in mind historic data, which includes previous performances. Future announcements and near-future technological advances are not considered in the literature review. The forecasts which will be given in the second part of the report, are based on some assumptions which are mentioned later. These forecasts are very important considering, the near – future effect on Nokia as well as on the industry, as a whole. 2. Market Trends The assumptions in this report are based on a supposition that the market trends will remain the same for the period of the next 1-2 years. These market trends are forecasted for the period of a further 2 years, i.e. till the end of 2012. 3. Marketing Strategies Another major point to be noted, is the supposition that the companies will be adopting the same marketing startegy for the next 1-2 years that they are following currently. The changes in the marketing plans won’t be drastic at all. The marketing strategies that are followed in the recommendations section are based on the requirements that these competitors will require in order to gain the maximum possible benefit from the windfall created by the above mentioned deal between Nokia & Microsoft. Issues Raised by the Literature Review 1. Managerial Decisions An important issue raised here, is with respect to the managerial decisions taken. The report takes the issue regarding how decisions are taken in a company and at what point does one start accepting responsibility for the mistakes one has done. 2. Awareness Awareness is another issue which is raised while calculating brand awareness of various cell phones. In developing countries like India, people are still unaware of what exactly they want from a cell phone. People continue using their phones, without having a basic knowledge as to what their phones are running and are capable of.
  • 16. 15 | P a g e Methodology and Data Sources For any research to be successful, the most important part is the basic research plan and the data sources that will be used for the analysis of the report. The purpose of the reports collected from the companies is to collect the secondary data which is the data collected from various primary sources, but extracted and assembled specifically for the research project in hand. The purpose of the research here is to analyze the Osborne Effect of the Nokia – Microsoft deal on Nokia, as well as the whole cell phone industry. Since this research deals with the decline in sales & revenues, the sources of data which will be used will be secondary sources of data. These sources mainly include the figures and tables given by the mobile phone manufacturing companies, themselves on the company website as well as in their quarterly and annual reports. The second part of the research tries to confirm to the same findings, albeit via the use of primary data. This primary data is gathered via the form of surveys. The aim of these surveys is twofold: one, to confirm the findings of the discussed Nokia case and, two, check if the theory of Osborne Effect holds true in the case above, and in practicality.
  • 17. 16 | P a g e Secondary Data The entire data used in the first part of our research is secondary data. This secondary data is basically obtained from two different sources. 1. Official Company Website Most of the data which is used, is obtained from the company website in the form of figures and tables. These can be found in their quarterly and annual reports. 2. Tomi Ahonen Consulting Another part of the data which is basically used for tha analytical part is obtained with the permission of Tomi Ahonen Consulting, a consulting group which offers consulting to almost all the major players in the world in the field of handset manufacturing. Primary Data The second part of the research deals with primary data. This data is gathered via surveys conducted over the period of a fortnight. A copy of the survey questionnaire is attached in the annexures. This survey was conducted online via SurveyMonkey. It was conducted for a fortnight. It was sent out to friends and family via mail and social networks, who further helped in getting more responses by spreading the same to their friends and so on. The results of the primary data and the survey are collected, analyzed and discussed after we have finished with the first part of the research which deals with secondary data.
  • 18. 17 | P a g e A Case of Nokia Earlier in the paper, we saw the introduction of Nokia. We saw how it was a potent force back in the day (not far ago, 2010-2011 to be exact) and today is declining at an alarming rate. We noted how the company that is now fighting for its life saw smartphone unit shipments peak during the quarter of the fourth quarter of 2010. Of course, Apple' iPhone and Google Android played no small roles in the precipitous declines, but there's another important phenomenon at play: the Osborne effect. A trip down memory lane For a quick history lesson refresher on the Osborne effect, back in the early 1980s the Osborne Computer Corporation was enjoying robust sales of its personal computer, the Osborne 1. It was released in 1981 and considered among the first commercially successful portable microcomputers on the market. In 1983, founder Adam Osborne preannounced a couple of new next-generation models, the Executive and Vixen, touting how much better the new machines were relative to their predecessor. Importantly, these computers were not ready yet and were yet to be manufactured, so prospective customers would have to wait before getting their hands on one. Wait they did, and in the meantime sales of the existing Osborne 1 plunged and revenue dried up to the point where the company was forced into bankruptcy shortly after. Some tech historians say there were many contributing factors to Osborne's demise, with the product preannouncement being just one of many. Regardless, early announcements of unfinished products that lead to plummeting sales is now affectionately known as the Osborne effect. Back to the future This is exactly in part what's happening to Nokia as we speak, and Nokia incidentally had major strategic product announcements almost immediately after smartphone unit shipments peaked in the fourth quarter of 2010.
  • 19. 18 | P a g e Figure 1 - Smartphone Shipments over the Past Few Quarters In February 2011, Nokia and Microsoft made their love public, announcing a major strategic partnership that effectively abandoned the Symbian operating system in favour of the software giant's Windows Phone push. Nokia said it would "adopt Windows Phone as its principal smartphone strategy." This was just six months after ex-Microsoft exec Stephen Elop was named Nokia's CEO. The first fruitful offspring of this union wouldn't be born for another nine months, with the Lumia 800 launching in November in the U.K. The first U.S.-bound device would follow shortly, with the Lumia 710 released on T-Mobile's network in January of this year. You can see in that graph what happened to smartphone shipments in the meantime. Microsoft also recently gave prospective Lumia buyers even more reason to wait, when it said current devices wouldn't be upgradable to the next major version, Windows Phone 8, and that apps made for the new operating system would not be backwards-compatible.
  • 20. 19 | P a g e The Final Countdown For Nokia right now, it's a race to see whether it can get its new products to market before it runs out of cash as sales dry up. It’s sitting on about $12 billion in cash right now. Nokia also just saw its debt downgraded to junk status amid the uncertainty of its transition. It's also worth noting that this phenomenon is much stronger in hardware sales, which are generally much more difficult or expensive to upgrade (if at all) after the initial sale compared with software. For Nokia, it is transitioning to new software platforms that previous hardware configurations are not compatible with. Can they escape their self-inflicted Osborne effects?
  • 21. 20 | P a g e Research Framework of the Study Assumptions 1. The most important assumption which is made is that of rationale behaviour while assuming the consumer behaviour during the purchase of cell phones. 2. It is also assumed that the average sales price of the phones remain in trend with the present; i.e. there is no dramatic fluctuation in them. 3. The forecasts are made on the assumption that the companies will continue along the path of the policies that they have established in the past. 4. Another assumption, that will be repeated, is that the market trends will continue normally. 5. The windfall given by the deal between Nokia and Microsoft is not accounted in the projections. These are added later on while forecasting the shares of windfall to be distributed amongst its competitors. 6. The distribution of the windfall is assumed on the basis of two points primarily. a. Current market share in each region b. Average sales price 7. Finally, the effect of this deal on the industry is considered on the basis of the assumed hybrid model of forecasts which reflects a combination of the market share and the average sales price; with a particular weight being given to each competitor depending on its presence and its perception in the regional market.
  • 22. 21 | P a g e Scope and Limitations 1. The foremost limitation of the forecast is that it is based on historic data and cannot be used for the near-future prediction. The forecast is just, for the sake of getting an idea where the road is heading. 2. Future behaviour of the company with repect to its ecosystem cannot be predicted; as this is a cycle where everything depends on everything else. The developers and the carrier relationships depend on the support given by the companies. And better their support, the better product, the company can offer; which in turn leads to a better ecosystem. 3. The revenues of Nokia are forecasted solely on the basis of their handset division. Their subsidaries, such as the Nokia Siemens Network (NSN) are not accounted for. It is assumed that they function as a separate Strategic Business Unit (SBU). As a result, it limits the revenues of Nokia in this report only to their handsets division.
  • 23. 22 | P a g e Proposed Framework Approaches to the study of the distribution of the windfall created by Nokia – Microsoft deal can be studied via three categories; viz. based on current market share, the average sales price and a hybrid model. The hybrid model takes into account both the current market share and the average sales prices, giving appropriate weightage to each based on their past performances. For the final analysis and recommendations, we have adopted the hybrid model for the distribution of the windfall created by Nokia. It is important to note that; earlier studies relating to this or relative to such a deal haven’t been made yet; as this is the first time such a deal has been made, wherein a company abandons one of the leading operating systems in favour for an operating system which has just a share of 0.3% in the market. As a result, no conclusions of previous researches are available with respect to this topic.
  • 24. 23 | P a g e Variables The variables which can be used in our study can broadly be classified into two categories, viz. dependent and independent variables. Since, the topic of concern related to the Osborne effect on Nokia and the cell phone industry, our dependent variable here is the loss of market share. Dependent Variable 1. Loss of Market Share Loss of market share refers to the loss in sales and revenue by Nokia, due to a number of reasons which are later explained in the section of data analysis. Independent Variables 1. Current Market Share This refers to the current market share by each player in the industry prior to the Nokia – Microsoft deal. 2. Average Sales Price (ASP) This refers to the average of the sales price of the various different handsets sold by a company. 3. Sales Sales refers to the amount of handsets which are sold by a company in a definite amount of time. 4. Revenue Revenue refers to the income which is generated by the sale of handsets. Mathematically speaking, Revenue = Sales * ASP.
  • 25. 24 | P a g e Figure 2 - Relationship between Dependent & Independent Variables Loss in Market Share Current Market Share Sales Average Sales Price Revenue
  • 26. 25 | P a g e Rationale of Framework The above mentioned variables have only been chosen for study and analysis. Some other variables such as mobile operating system and design, ease of use, perception of loss in social status, relationship with the carriers, perception of the brand, alternative brand’s reputation, image and service quality according to the customer’s perception have not been considered here since their significance as variables in the study of customer loyalty has been proved to be of low significance, and so only the most important variables that is current market share, sales, average sales price and revenues have only been considered. Hypothesis The hypothesis for our study is that the loss in market share for Nokia is directly associated with the deal it signed with Microsoft. Nokia was a market leader prior to the deal, however, it is predicted to fall much below amongst the ranks of its competitors. This in turn, has created tremendous market opportunities for other players in the industry in order to capitalize on this collapse and gain the maximum possible windfall. Research Question How has the deal between Nokia and Microsoft resulted in shift of market balance amongst the competitors of the cell phone industry?
  • 27. 26 | P a g e Nokia – a look back Nokia was facing a crisis in the summer of 2010 - and painful cuts had to be made. Nokia owned the world's most used smartphone OS platform and was almost twice as big as its nearest smartphone manufacturer (Apple). Nokia was weeks from launching its next OS i.e. MeeGo, for which Nokia had already built a functioning migration path through Qt. All this, while Nokia's Ovi store was now the second-most-used app store. Even Nokia's CEO says this will be a difficult year of adjusting to the new world, for Nokia. We will examine dumbphones and smartphones and networks. We will examine customers, sales reps, app stores, operating systems, the developers and the ecosystem. We will examine costs, revenues, average sales prices and profits. And market shares. And we will give a view into 2011 and 2012 for the Microkia Nokisoft partnership. It cannot be a short analysis, the issues are so complex. It also cannot be superficial. This is how we see the Nokia smartphone market shares, average sales prices and revenues develop in this year 2011. quarter (2011) mkt share sales (mill) asp revenue(bill €) 1 28 29 146 4.3 2 21 25 136 3.3 3 16 21 126 2.6 4 12 17 116 2 The last quarter before Stephen Elop announced his Microsoft partnership, Nokia had 28% market share in smartphones and smartphones had a average sales price of 156 Euros (about 210 US dollars) and Nokia generated 4.4 Billion Euros of revenues in its smartphone unit - which is the most profitable part of Nokia's three big divisions.
  • 28. 27 | P a g e Primary Data As mentioned previously, the primary data used in this survey has been collected via surveys. A copy of the survey is attached at the end. The survey basically consists of 8 questions. The survey was made keeping in mind that it needed to fulfill two purposes: to verify Nokia’s decline as well as to confirm the theory of the Osborne Effect. The questions of the survey are discussed next. They’re results are then collated & discussed next, which shall give us a conclusion. The survey gathered a response of 270 respondents.
  • 29. 28 | P a g e The Survey 1. Do you currently have a working mobile or cell phone, or not? a. Yes, I do b. No, I do not The survey begins with a simple question that confirms that everyone beginning the survey owns a mobile phone. 2. When did you buy your current phone? a. 2012 b. 2011 c. 2010 d. 2009 e. Other (please specify) The second question begins with asking when the respondent purchased their current phone. This helps us understand when their current brand of phone (next question) was purchased and how it shall fit into the decline of Nokia. 3. Which brand of mobile phone do you own at the moment? a. Nokia b. Apple c. Samsung d. HTC e. Blackberry f. LG g. Sony / Sony Ericsson h. Motorola i. Other (please specify) This question helps us understand which brand of phone, the respondent is using at the moment. Together, the previous two questions help us in identifying if their choice was a result due to the Osborne Effect of Nokia phenomenon. 4. Have you ever owned a Nokia branded phone? a. Yes b. No This question helps us confirm about how strong the Nokia brand was previously, before it started its decline.
  • 30. 29 | P a g e 5. If you are not using a Nokia phone at the moment, what factor went against it, with respect to its competitors? a. Hardware (Screen Size, RAM, Processor, Memory etc..) b. Software (Symbian / Windows) c. Aesthetics (Design, Look, Feel) This question helps us in understanding what were the reasons for which the respondent didn’t get a Nokia phone in his last purchase. 6. While making a decision regarding which mobile to buy, whom do you normally consult with? a. Friends & Family b. Shopkeepers c. Internet / Newspapers d. Other (please specify) This question helps us understand the roles that are played by different advisors while buying a phone. 7. If you wanted to buy a mobile, and a new better model (in all respects) was announced to be made available in the next few months, would you wait for it or buy a model already available? a. Wait, for the better model to be available b. Buy the currently available model This question refers to the main point of the Osborne Effect, i.e. if a better product is available, the demand for the current product starts declining. 8. If you were planning to buy a mobile, how long would you wait for a new model (already advertised via the media) to come out? a. A month b. 2-3 months c. 3-6 months d. 6-12 months e. More than a year This final question refers to the Osborne Effect as well as the case of Nokia, namely if a newer model of a phone is announced to come after a considerable delay, what would be the response – switch or wait.
  • 31. 30 | P a g e Results & Analysis Do you currently have a working mobile or cell phone, or not? The responses are collated below. Answer Choices Responses Yes, I do 270 No, I do not 0 Out of the 270 responses, everyone owned a mobile phone. This was an obvious choice.
  • 32. 31 | P a g e When did you buy your current phone? The results of the respondents are collated below. Answer Choices Responses 2012 189 2011 81 2010 0 2009 0 Others 0 It is clear from these responses that everyone bought their phone within the last two years. Within that, the majority have bought their phones in the last year.
  • 33. 32 | P a g e Which brand of mobile phone do you own at the moment? The responses of the 270 people are collated below. Answer Choices Responses Nokia 9 Apple 91 Samsung 113 HTC 22 BlackBerry 35 LG 0 Sony / Sony Ericsson 32 Motorola 0 Others 8 The responses (with that of the previous question) combine and show us that most of the phones bought within the last two years haven’t been Nokia phones.
  • 34. 33 | P a g e Have you ever owned a Nokia branded phone? The following is the collated response of the 270 respondents. Answer Choices Responses Yes 233 No 37 This question actually goes on to show how powerful Nokia was a few years back (2010-2011 to be exact), and its situation today, where it struggles for growth in single digits.
  • 35. 34 | P a g e If you are not using a Nokia phone at the moment, what factor went against it, with respect to its competitors? The responses for the survey for the following question is collated below. Answer Choices Responses Hardware 80 Software 160 Aesthetics 180 The survey shows that while the hardware of Nokia phones has been satisfactory over the years, the main points going against Nokia are its software i.e. the operating systems running in the phones and its aesthetics which includes its design, look and feel.
  • 36. 35 | P a g e While making a decision regarding which mobile to buy, whom do you normally consult with? The responses are collated below. Answer Choices Responses Friends & Family 233 Shopkeepers 13 Internet / Newspapers 126 Other 0 The response to this question helps us in identifying the various advisors that come into factor while people purchase a new phone.
  • 37. 36 | P a g e If you wanted to buy a mobile, and a new better model (in all respects) was announced to be made available in the next few months, would you wait for it or buy a model already available? The responses of the 270 respondents have been collated below. Answer Choices Responses Wait, for the better model 207 Buy the current model 63 This response helps us in confirming the Osborne Effect theory with respect to the previously mentioned Nokia case. It confirms to the theory that when a new better phone is announced and is not made available for a significant period of time, people start to wait for the better model and do not buy the currently available phones. As a result of which, sales of current phones start to dry up.
  • 38. 37 | P a g e If you were planning to buy a mobile, how long would you wait for a new model (already advertised via the media) to come out? The responses of the 270 respondents have been collated below. Answer Choices Reponses A month 73 2-3 months 140 3-6 months 32 6-12 months 8 More than a year 17 This response to the survey again confirms to the Osborne Effect and the Nokia case stating, that once a popular model is announced, people do not buy currently available models which are soon going to be obsolete. And if the wait for the phones becomes long and over a prolonged period, it’s natural for people to switch over.
  • 39. 38 | P a g e Summary and Future Scope Summary The aim of this research is to understand the Osborne Effect and its implications. Basically, it is a marketing phenomenon. It shows that ill-timed announcements of future products have its consequences on the sales of current products, which in turn dries up cash flows for the company. This is further showed by the case of Nokia Corporation. The analysis of Nokia and its sales of the past few quarters have been seen in the research. It is seen that Osborne Effect was one of the primary reasons seen in its decline, which was at an alarming rate over the past few years. This has been confirmed by the analysis of both the primary as well as secondary data. Future Scope We have seen that the Osborne Effect is an effect which has been proved in the particular case of Nokia. However, it is not only confined to the case of Nokia. As we have seen in the other previously mentioned Osborne Examples, there have been many cases where this effect has been seen in practice. This is basically, a result of badly timed announcements in the marketing management. The future scope of this research of Osborne Effect can be further devised into another company in the mobile sector itself as well as in the technological sector. Technology – based Sectors The Osborne Effect is primarily seen in the sectors which are based primarily and depend heavily on technology. This is because due to the nature of rapidly changing technology, new products are announced left, right and center. Now, it is the period of duration between the availability of these products and their announcement which is very critical. So, in sectors where the competition is very high and is based on technology, companies try to outwit each other by announcing their new products based on the latest technology as soon as they can. This may often prove harmful as the actual products are not available for a long time due to various reasons which include production, R&D and other issues. Let us now have a look at a brief case of Research in Motion (RIM) which has fallen to single digit market shares, and the Osborne Effect being a main reason for the same.
  • 40. 39 | P a g e Osborne Effect – Researc h In Motion (RIM) Research in Motion is caught in quite a pickle as its BlackBerry 10 platform is pushed out to 2013. In the meantime, RIM has to conserve cash, give away handsets and work to preserve its subscriber base---especially among enterprise customers. RIM can partially thank the Osborne Effect for its woes. How did RIM get here? Aside from the obvious development delays, tablet flops and inability to match Apple's iOS or Android, RIM's plight can be boiled down to touting its allegedly magical next-gen OS--- BlackBerry 10 formerly known as QNX---at the expense of its current products. The reality is that few folks want a BlackBerry 7 device given that RIM has been talking up BlackBerry 10 since early 2011. Now that BlackBerry 10 won't land to 2013, RIM has essentially told the public that its current products stink and to wait for a superphone. And oh by the way, there's no upgrade path from BlackBerry 7 to BlackBerry 10 if and when it actually hits the market. RIM's only option may be to sell out to a company like Microsoft. RIM's tragic marketing mistake---repeated almost quarterly---is one of the biggest reasons that the company is in one tough spot. Analysts say short of a sale---perhaps to Microsoft--- RIM won't be able to get value out of its 78 million strong subscriber base. (Disnan, 2012)
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  • 42. 41 | P a g e Annexure – Survey
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  • 44. 43 | P a g e Works Cited Ahl, D. H. (2003). Osborne Computer Corporation. In Ziff-Davis, Creative Computing. Disnan, L. (2012, July 1). RIM's Osborne Effect course set in March 2011. Retrieved from ZDNet: http://www.zdnet.com/blog/btl/rims-osborne-effect-course-set-in-march-2011/81397 Grindley, P. (1985). Standards, strategy and policy: cases and stories. Oxford University Press. Osborne, A., & Dvorak, J. C. (1984). Hypergrowth: the rise and fall of Osborne Computer Corporation. Perlow, J. (2012, June 21). Osborne Effects: Death by Pre-Announcement. Retrieved from ZDNet: http://www.zdnet.com/photos/osborne-effects-death-by-pre-announcement/6370842 Webopedia. (n.d.). What is Osborne Effect? Retrieved from Webopedia: http://www.webopedia.com/TERM/O/Osborne_Effect.html Wikipedia LLC. (n.d.). Osborne Effect. Retrieved from Wikipedia: http://en.wikipedia.org/wiki/Osborne_effect