For mobile phone manufacturers, choosing carriers as channel partners is a major decision. There are many channel conflicts in the manufacturer/carrier relationship. This post explores that relationship through a comparison of two options available for manufacturers: exclusivity with a single carrier or availability through multiple carriers. Then I will discuss why I think Nokia’s flagship Lumia’s Canadian launch with a single carrier (Rogers) is flawed.

Benefits (of single carrier strategy)

–          Higher negotiating power for manufacturer because carriers gain from 1) increase in subscribers attracted by the exclusive offering, 2) satisfying current customers, 3) facing less competition in the rate the carrier charges for phone plans with the exclusive phone. The manufacturer can in turn negotiate for:

• Better promotion of the phone on television, print ads, and website
• Greater carrier support through stores and greater willingness for carriers to train employees on the product because it is exclusively offered
• Higher subsidy of phone

–          Generate pent up demand for consumers who would like the phone but are unwilling to switch carriers for possible future phones or when the exclusivity contract expires

–          More exclusivity and less likelihood for phone to be dismissed as another commodity offering

Negatives (of single carrier strategy)

–          Loss of sales from people unwilling to switch carriers

–          Increase risk and dependence on carrier to execute successful promotion and sales of the phone

–          Reach and educate less people on the product by taking the phone out of consideration when carriers offer phone upgrades

Case study: Nokia Lumia 920

Nokia chose an exclusivity agreement through Rogers for its flagship Lumia 920 launch. I propose the execution of this strategy is flawed for a single reason: Rogers is not promoting the Lumia well.

The case for Nokia’s strategy for exclusivity with Rogers:

–          Rogers is the largest out of Canada’s 3 large wireless carriers, accounting for 35% market share along with its subsidiary Fido which effectively reduces the number of marketplace contacts for Nokia

–          Rogers, along with Telus and Bell, offer LTE support and technology to operate the Lumia fully

–          Rogers has had the lowest monthly churn rate of the big 3 carriers for the last 3/5 years

–          Exclusivity arrangement with a single carrier can build excitement for the Lumia 920 and Windows 8 OS by differentiating the phone which benefits Nokia which has yet to succeed in entering the high-end smartphone market

The case against exclusivity with Rogers:

–          Based on the website, Rogers is acting in its own interests to focus the promotion on Windows 8 OS rather than the Nokia Lumia, which is one of two phones available (the other being an HTC phone)

• The HTC phone is similar looking to the Lumia, the Rogers website does not differentiate at all between the two
• Rogers has a benefit in promoting the operating system rather than the phone because introducing a successful third OS will reduce the bargaining power of Apple (has monopoly over Apple OS) and potentially Samsung
• By diverting loyalty away from the manufacturer (Nokia in this case), Rogers reduces the bargaining power of the manufacturer in favor of the carrier – the carrier can then bargain to pay less subsidies to the manufacturer

In conclusion: Nokia’s strategy in Canada with its Rogers exclusive Lumia 920 launch would have benefited from better contracts regarding co-marketing of the phone. Furthermore, while the Lumia is exclusive, the HTC 8x Windows Phone is not and given this Nokia will likely lose any demand build up as consumers unwilling to switch carriers will chose the HTC 8x.

*Wireless carrier data from CRTC’s annual communications report for 2012: http://www.crtc.gc.ca/eng/publications/reports/policymonitoring/2012/cmr2012.pdf

*Other data from Rogers, Telus, Bell annual reports and websites.

Product:

From its website, Nokia Lumia 920 is a sleek smartphone recently introduced internationally into a smart-phone market in a growth stage. It is powered by the Windows operating system, a potential third candidate into the oligopoly that is iOS and Android. It boasts a sleek 4.3” display, solid lightweight construction, was “built for better reception”, and features ‘Pureview Camera’ with HD video recording, video call capabilities and induction charging. Reviews on the Lumia 920 generally state it is a solid product.

Price:

*data for Canada from Rogers

It is worth noting that the no contract option for Lumia is available from carriers only on a ‘month to month’ plan while the no contract price for iPhone or Galaxy are available from the corporate store fully unlocked.

Place:

The Nokia Lumia is only available through carriers in the USA, Canada and various European countries i.e. Germany where it is reportedly selling well. Compared with Apple iphone or Samsung Galaxy, its rivals, Nokia’s Lumia at launch has lower availability – exclusively through AT&T in USA and Rogers in Canada – while the iPhone or Galaxy are available through most major carriers in addition to being sold by manufacturer directly without contract. Interestingly, in Germany where sales are good, the Lumia is available through a wider range of carriers. In addition, Nokia has made Lumia contract version available on Amazon, utilizing it as a listing space. Apple & Samsung list on Amazon as well, but offer the unlocked version online.

Promotion:

The promotion of Lumia was embroiled in controversy when it was revealed that in filming a demonstration for its HD Video Capture technology, a major promotional point, Nokia used a full video recorder rather than the smartphone to capture the scene intended to have been shot by the smart-phone. Aside from this initial gaffe, the marketing in its early stages focused on presenting consumers the technical details of the phone which was worse in generating hype compared with marketing giant Apple’s approach of communicating simple benefits as opposed to technical details. The promotional strategy seems to have been changed as per the recent advertisement below.

Lumia 920 Ad

In conclusion, the success of Nokia now hinges on the success of Nokia Lumia. Will the Nokia Lumia satisfy the capricious demands of this burgeoning and diverse global smart-phone market? Will the Nokia Lumia introduce Windows OS as the third major OS ecosystem? It remains to be seen and has wide implications, for device makers, cellular carriers, software designers, and consumers alike.

Issue

CPP Group, an insurance company, is being fined by the British financial authorities for $33.4m for mis-selling of credit card insurance from 2005 -2011. The credit card insurance cost between $35-84 per year and protected the consumer up to $100,000.00 in case their credit card was stolen and misused. CPP group sold 4.4m policies, directly and through banks (third party banks sold 90% of the insurance). Tracey McDermott, FSA director of enforcement, said that the issue was that “…CPP encouraged its sales agents to be overly persistent. This exposed a very large number of customers to the unacceptable risk of buying products they did not want or need.” In addition, banks have been made liable for credit card theft since 2009, making the CPP’s insurance redundant.

http://www.ft.com/intl/cms/s/0/379ae58c-2fe9-11e2-891b-00144feabdc0.html

Analysis

The issue here is caused by the large asymmetry of information between the consumer and the producer. CPP and the banks selling the insurance for CPP understood the risks better than the consumers, in addition to knowing that the insurance was redundant since 2009. Banks benefit by selling the insurance as this meant they themselves would not be liable for stolen credit card losses. But what is the actual service being sold by CPP?

Excerpt from CPP Group website

Card Protection Service: “Report lost or stolen cards with one call from anywhere in the world. Key features include card cancellation and re-issue, emergency cash advance, protection for keys, valuable document replacement, handbag and wallet replacement.”

http://www.cppgroupplc.com/consumer-products.shtml#card-protection

Conclusion

Where does the responsibility lie? CPP’s card protection service included additional services for the consumer, for $35-84 per year – not a large cost – so consumers weren’t receiving zero value from the insurance package. In addition, when banks sold 90% of CPP insurance and the salespeople being the primary point of contact for consumers who bought directly from CPP, the issue of establishing responsibility becomes convoluted. I would be in favor of the FSA acting to decrease information asymmetry between consumers and producers rather than handing out hefty fines which threaten immediately the jobs of over 1000 CPP employees. While CPP and the banks that helped sell the insurance may have skewed moral compasses when they sell something that appears to be valuable but is redundant, consumers should understand what they value and be able to do due-diligence. Without specific analysis of the “overly persistent” selling techniques, it is hard to not evoke the old adage ‘buyer beware’.

On an overcast evening, a young man walked into a grocery store, the red “S” of the store’s logo a glimmering reflection on the slightly wet pavement. The young man knew what he came for – milk, 1%, 4L – and preferably with a later expiry date. He had been through this routine before, many times in fact, that he wouldn’t have given it another thought. Until he saw … it.

There, slightly obstructing his way to the milk, was a sign: ‘Buy 3 boxes of Post cereal and get a 4L milk free’. The young man briefly pondered this – ‘how much am I saving?’, ‘do I need cereal?’ – and the answer was a resounding ‘YES!’ The young man said to himself: “saving $4 on $18of cereal and milk is like saving 25%, and cereal is non-perishable, plus, I have milk to go with it!”

After the young man left the store, he thought: “What a genius promotional strategy, using an item which people regularly buy to attract them to an associated item.” After glancing at an economics textbook lying astray in the passenger seat of his car, he said to himself: “Wow! They even used the economic principle of complement goods: decreasing the price of a complement good increases the demand for the other – milk and cereal in this case.” Now the young man was on a marketing tangent: “They even used product placement – putting different types of Post cereal on the shelf so I would obviously choose three different types whereby learning about the brand more.” “And what’s more”, the young man went on, “they targeted a product that has little brand differentiation – I couldn’t care less about the brand of cereal I ate!”

He thought: “What next, free bread with purchase of Smucker’s jam?”

I offer some comments but also offer a different perspective to the acquisition of Motorola Mobility by Google.

I agree with Maria that this is a vertical acquisition. But I differ in that feel that Google, at it’s core, is a software (search engine to be more precise) business. And that the purpose of an Android open source operating platform is that with the dawn of mobile browsing, Google needs to set as many mobile browser home-pages to Google.com as possible. So I’m behind the view that the Motorola acquisition was primarily a move to secure Intellectual Property rather than turning Google onto hardware manufacturing.

Spinoffs

But before Motorola Mobility was acquired, an important event happened – a spinoff. Motorola broke up into Motorola Mobility and Motorola Solutions in January 2011. The spinoff, while a financial event, helped unlock real value in the company.

Spinoffs create value because investors like companies which are easy to understand and value. And different investors look for different mixes of investment in their portfolios. Joel Greenblatt, an investor, writes that both spinoffs and their parents perform better (10% and 6% respectively) in a three year period than their peers.

And in this case, we can see another effect of spinoffs – they make companies better suitable for acquisitions, which normally pay 30% premium over market price in Canada.

So if Motorola didn’t break up, the Google acquisition would never have happened.

http://www.gurufocus.com/news/807/how-joel-greenblatt-uncovers-the-secret-hiding-places-of-stock-market-profits

Google buys Motorola

Continuing from my earlier post on overheating emerging economies.

Argentina in Focus

Argentina has an extreme case of 24% inflation and negative 11% real rates. The actual rate of inflation for Argentina itself is under much dispute. The official government rate is 8.5%, yet private research has shown it to be as high as 25%.

Currency Spiral

This month, the Argentine government has started restricting the currency market within Argentina, likely in an attempt to slow the deflation of the Argentine Peso which as fallen over 30% against the greenback since 2007 and over 40% against the Real of Brazil, it’s biggest trading partner.

According to The Economist, this policy will likely see the emergence of a black market for foreign exchange as the people clammer to exchange their rapidly depreciating currency for the relatively solid USD.

Gaping Negative Real Rates

A real interest rate at negative 10% points to an expansionary monetary policy in an effort to boost up the economy that may be pushing the country too hard. GDP y/y came in high in 2011 but many analysts view a large slowing soon, a reason being “scarce access to credit”, likely because negative real rates discourage savings.

Government Policies

Inconsistant government policy is a reason Fitch and Moody’s rate Argentina’s currency and economy as “B”. So keeping an eye on government policy will be key to seeing how this one plays out.

External Blog post from Seeking Alpha

http://www.roubini.com/critical-issues/49388.php

http://www.oanda.com/currency/historical-rates/

Inspired by the International Business Conference last friday where speakers like the honourable Stockwell Day spoke about everything from the politics to the economies of emerging economies, I found this article from the Economist illustrating some interesting phenomenon about Emerging Markets and asks the question – how at risk are emerging economies from overheating?

This interactive spread tells many stories about the the countries illustrated.

Hong Kong in Focus

Why is Hong Kong in the chart?

Hong Kong is interesting because by most measures, it’s not an emerging economy. However, it’s as ‘hot’ as Brazil because of inflation and the shackles the Hong Kong Monetary Authority (HKMA) is in if they wanted to change that.

The Hong Kong dollar is pegged to the USD at between 7.75-7.85 HK/USD. The HKMA interferes in the currency markets to reinforce that range. But such a peg carries over into interest rate policy. To avoid arbitragers pushing up the HKD, the HKMA cannot raise interest rates to quell inflation pressures – despite strong economic growth, resulting in rapid credit growth and high inflation, especially in the housing sector as money from mainland China pours in.

However, the IMF predicts that HK inflation will peak this year and slow to 4-5% in 2012.

http://www.bloomberg.com/news/2011-11-22/hong-kong-s-inflation-rises-a-more-than-expected-5-8-1-.html

http://www.chinadaily.com.cn/hkedition/2011-11/23/content_14144862.htm

http://www.economist.com/node/21522520

Continuing from Ernest Fung’s blog on Walt Disney. I want to elaborate the Entreprenuerial nature of Disney.

Walt Disney built more than a company, he built an empire of imagination and creativity. Walt’s greatest creation was Disneyland. Today, 9 of the top 11 most visited parks around the world are branded Disney. While Disneyland is as much a commonly recognized noun around the world as the word ‘table’, it wasn’t always this way. Walt Disney famously was turned down over 100 times when he asked for funding because no one thought it could be successful.

What makes Disney successful is its focus on the customer experience. Like Apple, Disney delivers a package for the customer. Disney continuous to innovate today with Disney Cruise-lines.

DCL does what no other cruise lines do – they incorporate an theme based experience onto a boat, this is a strong point of difference. And they’re highly ranked and successful. We can actually see this adapted onto other cruise lines gradually adapting universal studios cartoon themes.

Because I disdain the exorbitant prices, lack of selection, long commute/pricey parking associated with shopping at the mall – I tried shopping online.

But when I was shopping on Zappos, about to select my shipping address: I failed to locate any Canadian provinces. And I found out on April, 2011, Zappos shut down their Canadian services. Why? Some brands didn’t want to distribute in Canada, Canada post charges high rates, a lack of control shipping across the border, and complicated logistics.

E-commerce encompasses all sorts of transactions including: airline tickets, banking, bill paying, online pharmacy, group buying (groupon) and while statistics may point that e-commerce is soaring in Canada, the clothing retail sector has been slow to adapt and the gap between Canadian and US e-commerce is huge.

I think there’s prime opportunity for retail E-commerce in Canada – the demographic is technologically inclined and educated and infrastructure is available and competition is low. The main points of a Zappos business model are free shipping, discounts for buying online, an intuitive and easy to use online interface, and the ability to return the merchandise either shipped (or to any store). I think there can be a successful business if one can adapt that business model to be profitable in the context of the geography, law and culture of Canada.

Jon Koon. Chinese. American. Made a million by 16. Wants a billion by 30.

“A Milli” by 16.

Jonathan Koon defines entrepreneurial. Koon initially created a market in NYC for after market car parts, using his asian connections to import decals and tuning parts to make cars STUNT. All this before MTV’s ‘Pimp My Ride’

“It was almost like a virus that spread,” says Koon.

Koon made a million in one year. And that was when he was going to high school at 16 years old.

Top tips for millionaire hopefuls: Get a business plan.
Koon saved $5,000 to start his first company, but the business plan helped him get substantial backing. “Investment is always tied to a clear opportunity for profit and that exact stream of profitability needs to be identified from the beginning,” he says. (Reuters)

 

He had connections. When he went to university and shut down his car business, he says that his business in asia got him special connections to some high power manufacturing houses. That’s when he got into fashion.

Private Stock label

Pimping and monetizing asian fashion was what Koon set out to do next. Koon was scouring the asian markets for things he could bring to america. After partnering with various designers and brands including Young Jeezy’s 8732 and Domenico Vacca who designs garments for celebrities and after creating a holding company he reports to be worth $80m, Koon launched his own brand – Private Stock – this year.

Featuring high class street wear, “fusing the lifestyles of the eastern and western worlds… Private stock products signify true distinction and exclusivity: custom weaved Japanese denim, hand-polished Brazilian leather bags, Swiss-made compacted movement watches, Italian cashmere jackets”.

Gold plated business cards

Koon is remarked by Diesel’s head of marketing in the states, Maurizio Marchiori, to not be a designer, but a visionary. And Koon has that vision. He’s shown that he can create great wealth in a short time. He takes risk and is highly innovative. People say he’s ‘one of the most inspiring people I will ever meet’, go ahead, maybe you’ll catch him at the next trade show in NYC, you might even walk away with one of his 18k plated business cards.

http://www.businessweek.com/magazine/content/11_03/b4211074000503.htm

http://blogs.reuters.com/reuters-money/2011/10/04/secrets-of-wealthy-whiz-kids-how-to-make-a-million-by-21/

http://privatestockdenim.com/about-jon-koon.html