Convergence Strategy: il caso Nokia.

Nokia Convergence Strategy MUMM Conference Day 2007 Rome, 9th May

Background scenario

Lower Global Average Selling Price => lower Margins

Mature Markets (Europe and North America): one digit growth => tough competition for Brand switchover and investments for loyalty

High Subsidy by Telecom Operators => tough negotiations and strong consumers’ attitude to lower prices

Booming Markets (China, India and Latin America) but low range products => low Margins

Faster commercial product lifecycle => high Investments in R&D

Mix of financial investments coming from Multi-Businesses Companies

Quite strong Convergence demand coming from Mobile and Fixed Operators

Actual Business Models are still effective to have two digits Operating Margin in MP Industry? No! New Value Added Businesses are necessary Convergence is the main driver to enter in new Businesses

Convergence is not a pure sum of two different needs/industries Convergence is something more: new Categories, new Businesses, new Experiences, new Benefits, new Markets

Digital Contents

High capacity Memories, fast Processors, longlasting batteries

Stable and fast Operating System for Mobile Phones

Wider Transmission Band (GPRS, UMTS, HSPA, …)

“ everything, everytime, everywhere”

Needs of customization (ring tones, wallpapers, UI, cover, etc..):

Everybody has a MP

Deregulation

Liberalization

Margin erosion

Tough Negotiations

Drivers for Convergence What’s Convergence Technology Consumers Legislation Competition

Nokia Convergence Strategy: General Approach Networks Experiences Technology Mobile Business Wi-Fi/Wi-Max Push e-mail VoIP UMA Multimedia MPix MPEG4 MP3 Carl Zeiss High Touch Design New Material Form Factor Sport New Material SW Features

Convergence Strategy: New Requisites

Complementary Strategy => Experience completion:

High End User Price

Not compelling Features

Not recognized Brand in the new Business

Frontal Attack Strategy => Product substitution

Partnerships Acquisitions

Competitor now Partner: Siemens

New Competitors: Apple, Sony PSP, Nintendo, Nikon, etc…

Co-Opetitors: Microsoft, Canon, HP, BleckBerry, Tom Tom, Yahoo

Fundamental to complete the new Business Value Proposition and to gain credibility:

Carl Zeiss, Gaming Publishers, Epson, Kodak, Adobe, IBM, Oracle, JBL, Sennheiser, Bose, Top of the Pops, Tom Tom, Route 66, Skype, Flickr,Google

Loudeye (OD2), Gate5, Intellisync .....and more to come

Strategies Competition

What is our starting point?

Vision and Mission In a world where everyone can be connected, we take a very human approach to technology .

Towards the four billion milestone

Source: Global brand tracking data ex Japan-Korea. Brand preference weighted by population. #2 Competitor Nokia Others 2004 2005 Q2’06 Global Brand Preference % Brand Preference by Area China APAC Latin America N. America MEA Europe 39 43 45 Nokia wins consumers hearts and minds by 4:1 margin… Italy

… and is one of the most loved and fastest growing brands in the world. Source: Interbrand Corp, Business Week, July 2006 6.

Nokia:

Brand Number 6

First European Brand

First non-US Brand

First Telco Brand

1. 2. 3. 4. 5. 7. 8. 9. 10. Value Change 2005 vs. ’06 -1% -5% +5% +4% -9% +14% +12% +5% +6% +9%

Why is this important?

Because great brands help grow gross margin… ASP Volume Market Pressure … while building long term brand equity.

?

… and while we are all the same …we have different needs

“ I expect the new global consumer segmentation model to re-install our reputation as having the best consumer understanding in the industry” Olli-Pekka Kallasvuo – August 2005 Nokia’s Consumer Segmentation is of key strategic importance

Nokia’s segmentation model Portfolio Planning Product Creation Campaign Development Sales Portfolio Management Category Management Design Product Managers Programme Managers TPO Managers Campaign Management Campaign Planning Country Marketing Marketing planning Country Management Account Teams Sales Team Quantifiable Actionable One model in place from planning through to sales ensuring a common language Targeting consumers with the right messages Quantification of new solution opportunities Selling solutions to customers to address specific consumers Solution targeting specific desires of specific consumers

Global segmentation

Continuously refreshable research

10 billion data points

77,000 Consumers x 1.5 hour interview

21 countries

122 questions

Understanding of: Values, Beliefs, Attitudes, Lifestyle

Nokia Consumer Segmentation: a two dimensional space - the Axis Rational Aspirational High Involvement Low Involvement

Vertical Axis – based on behavior High Involvement Low Involvement

How do consumers actually behave?

Replace phone every 6 months

Tend to pay higher price for mobile

Tend to buy from well known brands

More design driven purchasing behavior

Horizontal Axis – based on attitude Rational Aspirational

What do consumers want ?

I use my Mobile Phone as a fashion accessory

I would prefer a mobile phone that is great looking rather than having the latest features

I would be willing to own different Mobile Phone in different situations

I am embarrassed if my Mobile Phone looks outdated

I would like to keep up to date with the latest fashion trends

Key Attitudes: the quadrants Rational Aspirational High Involvement Low Involvement Mobile Phone as empowerment tool Mobile Phone trend leaders Mobile Phone trend followers Mobile Phone only when necessary

Italian Segmentation Model Young Explorers ( 10.3% ) Technology Stylists (5.2%) Style Leaders (5.3%) Style Followers (6.3%) Family Providers ( 12.5% ) Life Jugglers ( 6.3% ) Pragmatic Leaders (3.4%) Life Builders (8.9%) Image Seekers (0.0%) HIGHER INVOLVEMENT Simplicity Seekers ( 34.3% ) Mature Acceptors (5.6%) Technology Leaders (3.4%) LOWER INVOLVEMENT RATIONAL ASPIRATIONAL (non-existent in Europe) Key consumer need around modernity the latest and best– technology is a key driver. Key consumer need around style / fashion. Design conscious consumers. Require well designed stylish products More mainstream segments, but tend to be younger in demographics. Slower technology adoption More rational attitudes. Key consumer need is the device as a tool for empowerment Less involved with mobile telephony and consumer need is around a basic communication device

Italy Re-Fresh Segmentation Map Young Explorers Technology Leaders Technology Stylists Style Leaders Style Followers Family Providers Simplicity Seekers Mature Acceptors Life Jugglers Pragmatic Leaders Life Builders Image Seekers SI = Statistically Insignificant NE = Non Existent Globally, 11.1% of market has moved onto or above horizontal involvement axis (= most segments above axis have grown) 12.4% 6% 7.1% 1.9% 28.1% 21.6% 6.7% NE 4.5% 1.1% 3.6% 6.9% Italy Wave 1 Italy Wave 2 Global Segment Sizes NE Image Seekers (7.2%) Life Builders (13.9%) Pragmatic Leaders (7.1%) Life Jugglers (3.8%) Mature Acceptors (7.6%) Simplicity Seekers (13%) Family Providers (10.3%) Style Followers (6.3%) Style Leaders (10.6%) Technology Stylists (6.4%) Technology Leaders (6.1%) Young Explorers (7.9%) 8.9% 3.4% 6.3% 5.6% 34.3% 12.5% 4.8% 5.3% 5.2% 3.4% 10.3%

Four categories to help people navigate Young Explorers (7.9%) Technology Stylists (6.4%) Style Leaders (10.6%) Style Followers (6.3%) Family Providers (10.3%) Life Jugglers (3.8%) Pragmatic Leaders (7.1%) Life Builders (13.9%) Image Seekers (7.2%) Simplicity Seekers (13%) Mature Acceptors (7.6%) Technology Leaders (6.1%) RATIONAL ASPIRATIONAL Smart and collaborative business solutions Achieve Nokia Eseries Achieving together Live Design and style leadership Inspiring the senses Connect Essence of Nokia through balance of style and proven benefits Connecting simply Innovation and technology leadership Explore Nokia Nseries Sharing discoveries Improve marketing yield

Sharing Discoveries Achieving Together Connecting Simply Nokia connects people through very human technology to help them feel close We believe life is better when shared We believe everyone achieves more when working together We believe experiences are more valuable when shared WHAT We Believe WHAT We Promise … expressed through Nokia Connecting People We believe people need inspiration to bond even deeper Inspiring Senses … expressed through Nokia Connecting People EXPLORE Connect ACHIEVE CONNECT LIVE

1 Nokia brand 4 Categories 2 Sub-brands With distinct tonalities, not multiple personalities.