In Drive to the Bottom, a Winning Strategy for Nokia

In Drive to the Bottom, a Winning Strategy for Nokia

Nokia sees better sales as it drives smartphone prices down

Although Nokia is set to release its expensive flagship Lumia 1020 this week, the future of this once-dominant smartphone maker might in fact be in the other end of the market. With affordable devices like the Lumia 520, 620, and the coming “phablet” 625, Nokia is now seeing its greatest sales-volume successes since adopting Windows Phone. It took a few years, but Nokia might have finally found a recipe for success in the post-Symbian world.

Nokia’s strategy for its Lumia lineup of Windows Phone handsets originally mimicked Microsoft’s more general strategy for the platform: Hit at the high end of the market. With devices such as the Lumia 800, 900, and 920, Nokia aimed for "iPhone land" and found relatively few buyers. It wasn’t until the firm released the low-end and inexpensive Lumia 620 that sales started to jump. And this year, Nokia has dramatically expanded its Lumia lineup with a slew of new devices, many of which are quite affordable.

Related: "Nokia Smartphone Sales Skyrocket as Losses Fall"

With the success of the 620, Nokia expanded its presence in the volume markets of the future: Emerging markets and the prepaid phone (no contract) market. The Lumia 520, released just a few short months ago, is already the single most frequently used Windows Phone handset in the world, according to data gathered by the market researchers at AdDuplex. And the Lumia 620, which shipped late last year, is now number three.

These devices, as well as derivatives like the T-Mobile-based Lumia 521, sell for as little as $99 without a contract, though depending on the market and devices, prices can shoot up to $200 (again without a contract). But this is a bargain in a world in which a contract-less iPhone 5 costs $650 or more. And the availability of these kinds of phones isn't just reshaping the wireless industry; it’s recasting Nokia as its savior.

Consider the alternatives. Apple must sell two- and three-year-old iPhone 4 and 4S models in order to give the appearance of having a more diverse set of offerings. And although you can get an ancient iPhone 4 for “free” if you sign up for a two-year contract, a two-year-old iPhone 4S costs $99 with the same contract. You can get a brand-new Lumia 521 with no contract for the same price. A no-contract iPhone 4 costs $450, while the iPhone 4S is a whopping $549. (For that price, you could buy a no-contract Lumia 920, which is new to 2013, not new to 2011.) Pricing on Samsung devices is similar, though of course Samsung isn’t flogging three-year-old devices as if they were new. Like Nokia, it actually creates a range of devices and refreshes them regularly.

The firm still hasn’t approached the unit-sales levels it once commanded with Symbian, but Nokia’s Windows Phone handset sales have indeed skyrocketed. Year-over-year quarterly sales almost doubled to 7.4 million units recently. And that was a big leap over the previous quarter’s 5.6 million units as well. The trajectory isn’t just upward, it’s racing upward.

Of course, not all is well with Nokia. Although Lumias see big market-share numbers in some countries in Europe and Aisa, the firm continues to perform poorly in the United States. And its Lumia sales to China—a key emerging market and soon to be the biggest single smartphone market in the world—actually declined in the most recent quarter. Devices such as the Lumia 520 and the recently announced Lumia 625 seem perfectly suited for China. (Indeed, China is a launch country for the 625.)

Another thing Nokia continues to get wrong is its continued reliance on wireless-carrier exclusives. Devices such as the Lumia 920, 928, 925, and now the genre-busting Lumia 1020, are all sold only by certain carriers in certain countries. In the United States, this means AT&T, which has shown a certain ambivalence to Windows Phone in its retail stores at best, and an outright hostility to the platform depending on which store you frequent. Why would Nokia continue to so closely partner with such terrible allies?

Because it has no choice, of course. With dwindling influence and lackluster unit sales compared with Android and iPhone, Nokia commands no influence with the carriers at all. By offering the major carriers exclusive access to certain flagship devices, Nokia can at least get its foot in the door. The flipside is that they’re at the whim of retail salespeople who often don’t care about Windows Phone, or Nokia, at all.

But that’s just another reason why the low end of the market—and emerging markets—are so important to the future of Nokia, its Lumia lineup, and Windows Phone in general. If you can’t beat Android or iPhone feature-for-feature or in the apps race, going for volume is a perfectly viable strategy.

Related: "Nokia Shareholders Express Growing Impatience with Turnaround Efforts"

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