While Nokia, the former leading manufacturer in China, is in heavy weather, Apple is booming in the same market. The difference, according to market analyst Shaun Rein in CNBC? Nokia lost the wealthy Chinese, where Apple is winning them.
Shaun Rein in CNBC:
My firm’s research suggests that Nokia controls only 10 percent of the market for upper middle class and wealthy Chinese, down from more than 50 percent as little as three years ago. Similar to western firms such as Best Buy and Home Depot that have retreated from the market, Nokia did not pay enough attention to local consumer needs.
They lost the surging upper-middle class market because of a foolish strategy to go down-market on pricing rather than understanding that even poorer consumers are often willing to pay premiums for phones. Nokia made the mistake of not understanding that the Chinese are no longer price sensitive for many products, and often buy products to show off.
In a study with 1500 consumers in eight cities about mobile phone shopping trends, my firm found that after a house or car, the mobile phone is the most prized possession for a majority of consumers. For many Chinese who cannot afford a house or a nice car, the mobile phone becomes the status symbol to show off.
They will save months of salary to buy the latest gadget, which is why many buy an expensive iPhone 4 that costs 30 percent more in China than in America. But Chinese consumers barely use their iPhones for voice calls, having saved so much money to buy the iPhone in order to gain status.
Nokia cheapened its brand by going too low-end to attract a wider range of customers. Wealthier and more aspiring consumers started to shy away from the brand because it became too common.