Motorola Inc.’s Strategic Options

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The mobile handset market is rapidly on the change according to the 2007 Global Handset Market Forecast, and surprisingly, both the high and low ends of handset pricing have become more important. With the advent of globalization, there is a greater need for rapid communication and mobile handsets have been very vital to people. Worldwide handset shipments are expected to increase to 1.46 billion by 2012, driven in part by increasing availability of low-cost and ultra-low-cost handsets in emerging nations.

Total handset revenues will increase at a compound annual growth rate of 1.7% to a total ofUS$165.4 billion by 2012 and third-generation (3G) handsets will represent half of the worldwide revenue for cellular handsets. These are the findings according to the 2007 Global Handset Market Forecast (In-Stat/MDR, 2007). Shaun Collins points to a vast middle class in India and rising incomes in other emerging markets (Reuters, 2007). India and China are undergoing a rapid industrialization phase and as a result, the countries have boosted disposable incomes and phone networks. India and China are thus two huge emerging markets for handset makers to tap into.

Over the past two years, China has enjoyed growth of 5 million users a month, while Indian monthly growth now averages 6 million. Tarmo Virki reports, based on Strategy Analytics, that there has been an increased demand in Asia and Africa for mobile handsets in the June-September period of 2006 (Virki, 2007).

In the handset industry with a rapid growth potential, Motorola has been the world’s second biggest mobile manufacturer after Nokia. It has been recognized as one among America’s Most Admired Companies by Fortune Magazine, USA, 2007 and one among the Strongest Brands by BusinessWeek, USA, 2006. It also ranks 12 among the Top 500 Innovators List compiled by InformationWeek, USA (Motorola, 2007).

On September 21, 1983, Motorola made history when the FCC approved the DynaTAC 8000X phone, the world’s first commercial portable cell phone. Motorola handsets are quality products that meet excellent standards. The official website claims that Motorola provides customers with the most compelling mobile experiences available – from the iconic MOTORAZR to the forward-thinking MOTO Q (Motorola, 2007).

The problem that Motorola faces today is a steady decline in its sales. Katie Allen in her article published in The Guardian, January 6, 2007, suggests that Motorola faces a gloomy future that is affecting the entire mobile phone market. In early trading in New York in January 2007, shares in Motorola, maker of the Razr handset, were down 8% at $18.90. Motorola has rattled the mobile phone industry with downbeat sales forecasts (Allen, 2007).

According to market research group Gartner, Motorola, the world’s No. 2 handset maker, shipped 65.7 million phones to distributors in the fourth quarter of 2006, but only 61 million were sold to consumers. However, it only reflected a general trend in the handset market. Overall, mobile phone makers shipped close to 300 million phones to resellers in the fourth quarter, but more than 15 million had not yet been sold to consumers, Gartner said in its quarterly overview of handset sell-through sales to consumers. The hand set division was facing huge problem with 36% sales down. Motorola had slipped from the first to the third place among handset manufacturing (market share at 13%) in 2006 (Allen, 2007). According to a study by Strategy Analytics, Nokia is the market leader in the handset market with Motorola coming in at a second.

The study found that Nokia is the market leader with 36 per cent global share, up from 33% for the same period the previous year. Nokia’s gain came largely at the expense of Motorola. With a total of 45 million handsets sold, Motorola saw its share of the market drop to 18 per cent, down from 22 per cent a year ago (ElectricNews.net, 2007). Lately, Motorola’s share of the global handset market is estimated to be 13 per cent, down 50 basis points from the second quarter of 2007, ranking Motorola number three behind Nokia and Samsung Electronics. In the latest quarter Motorola continued to lose market share in the Asia Pacific region, including India, but it regained its lead in Latin America and kept its lead in North America (Taylor, 2007).

Two of the factors for the downfall in sales of Motorola handsets have been found to be Motorola’s inventory build-up and fading popularity of certain models. It is widely felt that Motorola introduced its low-cost FONE handset too late in the emerging markets. Gartner analyst Carolina Milanesi says that distribution takes longer in emerging markets, and the November launch of Motorola’s FONE meant it had missed part of the year-end holiday gift season (Reuters, 2007).

The FONE has also received a lukewarm response from consumers because it appeared too fancy for rural consumers, and because marketing to rural consumers turned off the appeal to fashion-conscious city slickers (Reuters, 2007). It has also been found that Motorola’s slim flip-phone RAZR is no longer popular in Europe (Reuters, 2007). Motorola also faces intense price competition with the world leader Nokia. The need for lower-cost models for large parts of emerging markets like India and China and competitive pricing due to competition with Nokia has brought down profit margins. Shaun Collins, an analyst at the telecoms consultants CCS Insight, said competitive intensity was at an all-time high.

“This is a marketplace that is making a lot more phones but it’s gaining less profit from making a lot more phones,” he said. Some of the targeted marketplaces were “ultra-low price”, he pointed out, citing Motorola’s recent launch of the Motofone handset in India for less than £20. There is also increasing competition with companies vying with each other to provide new model handsets that have many appealing features.

For example, Apple’s iPhone, though a recent release has captured the interest of the global mobile market (Waters, 2007). Eight phones can be considered rivals for the customers Apple is targeting and it’s interesting to note that Motorola is not among the eight (Waters, 2007). Another new entry is Google. Google has entered the mobile phone industry with its new Android system model that incorporates most of its internet applications (Johnson, 2007).

Some people feel that the slump in sales of Motorola is due to the RAZR model. The RAZR was launched in 2004 and was sleeker and good-looking than anything else in the market at that time. It acquired a reputation as a desirable and distinctive phone in 2004 and 2005. Already by the time the RAZR was launched, Motorola was struggling with other phones in its portfolio. The Windows-based Motorola MPx was a high-profile failure, the MPx220 was panned at launch due to poor performance, the MPx100 had been cancelled and various other phones were either incredibly late to market or were not making much of an impact.

The MPx series failed due to technical issues and also because they were far ahead of their time. Other advanced models such as the 3G E1120, the E1060 music phone and the A1010 smartphone were stylish and had great features, and yet they had to be quietly cancelled. According to the Mobile Gazette these phones failed because they were too much ahead of their time and the E1120 in particular would be a great phone today. Non-RAZR phones failed for Motorola. Motorola ROKR E1 was criticized for being outdated, and for crippled implementation of iTunes. The bad press it invited proved to be immensely damaging for Motorola (Mobile Gazette, 2007).

Again, Motorola phones by being the first sleek phones have come to be seen more as fashion phones. While newcomers such as LG have come up with innovative models such as the Chocolate and Shine devices, Motorola is stuck with clones of RAZRs in an effort to rekindle success.

Motorola must understand is this – the RAZR has had its day. Fashion-savvy customers in mature markets get easily bored. When people wander into a shop they don’t see the technology underneath – the first thing they not is yet another RAZR design which is not so very different from the one they have purchased already. Motorola’s problems have been blamed on its inventory build up. Market leader Nokia also built some inventory, but these were within safety margins (Reuters, 2007). This should be followed by Motorola. Martin Garner, of the industry experts Ovum, has noted that people who buy their first phone are not always looking for a cheap buy.

First time buyers are looking for a nice phone, he says and would be willing to spend a large amount of their disposable income for it than others. This gives a message for Motorola, not to just focus on producing cheap phones but to build phones with appealing features. Google is entering the handset market with a model that will enable people to access Google maps and Google Earth on their mobile phones. Currently, mobile phones use a variety of operating systems to access the internet including systems from Microsoft and London-based Symbian, the biggest maker of mobile-phone software, whose owners include Nokia, Ericsson and Siemens (Martin and Beaumont, 2007).

Marketing can be viewed as a set of functions that include product development, packaging, pricing, advertising, selling, distribution and customer service. This process can be studied under two phases: a strategic and a tactical phase. The strategic phase has three components: segmentation, targeting, and positioning. The tactical phase is the one that includes designing and implementing various tactics to achieve the formulated strategy. These tactics are also referred to as the “4Ps”: product, place, promotion, and price. (Kotler, 2003). A marketing strategy is implemented through decisions regarding the elements of the marketing mix that are also known as ‘controlled variables’ of marketing.

Product: To provide the right product to the right people at the right time at the right price is the secret of marketing. Motorola achieved huge success with its RAZR model. However, due to failure to innovate, it got stuck to the basic RAZR model. When it comes to features, Motorola always launched its new products well ahead of time and hence there was no market for it. Apart from that Motorola phones are truly quality products with great packaging, branding and features. Motorola not only designs, manufactures, sells and services wireless handsets, but also licenses its vast portfolio of intellectual property.

Place: Currently it is headquartered at Schaumburg, Illinois, USA. With operations worldwide, Motorola maintains manufacturing, sales and administrative facilities in dozens of locations. By catering to customers across nations from the internet and through regional centers, Motorola has acquired the location strategy advantage. Motorola cell phones can be bough at various stores online. The only problem had been with its inventory build up. Having excess products in store without corresponding demand has proved detrimental to the company. By having regionalized production centers, Motorola has diversified the risk of concentration of labor, production costs, and transportation costs. When production and transportation costs are cut down, the pricing can be competitive

Pricing: Motorola is best known for its competitive pricing and offers the cheapest mobile handsets in the market. It adopts low pricing strategy to encounter competition from its chief competitors Nokia and Samsung Electric.

Promotion: Motorola promotes itself well through special deals, latest gear, coupon codes; cool downloads such as ringtones, wallpapers, screensavers, videos, etc and also through advertisements. Motorola has also sought celebrity endorsement through soccer star, David Beckham. Motorola advertises in the national newspapers, computer magazines, on the Internet and TV and by placing inserts in newspapers and magazines.

Recommendations

Motorola must ensure there is inventory buildup with safety margins. This is possible only through market research.
Motorola must study the market and build products that suit the market. Most of its models failed because they were not suited to the market that existed at that time.
Motorola should create models that are totally different from the RAZR model.
It should face competition not just by lowering the price but by also cutting down on production and distribution costs.
Motorola cell phones must break free of the fashion phone label. As long as they are seen as fashion phones they are likely to get easily outdated.
Motorola must consider time as a factor while launching new model cell phones to rural and urban clients. Urban clients prefer to receive new models first.
Motorola must develop software that is compatible with a variety of handsets.
The software of Motorola should be developed in the future to include internet services and social networking sites.
When it comes to design, Motorola must change its image of being a fashion phone. Sony Ericsson phones are more understated when it comes to design and don’t fall into the fashion phone category, and Nokia like to design every phone to look a little different from the rest which keeps their range looking fresh. It would be nice if Motorola could take a lesson or two from them and not try to ape the RAZR model all the time.

Motorola is one of the most successful companies in the world. Though the marketing mix has been studied in order to understand the success and failures of Motorola, it must be mentioned that the failures maybe averted with a greater marketing research, fine tuning of external design of mobile handsets, and by trying to bring the benefits of low cost and high quality to each and every customer. It is this focus on customer value that can truly make Motorola the number one company in mobile handsets.

Bibliography

Electricnews.net (2007). Nokia plunders Motorola’s market share. The Register. Web.

In-Stat/MDR (2007). 2007 Global Handset Market Forecast. Web.

Johnson, Bobbie (2007). Google casts its net over mobile phone market – but steers clear of handsets. The Guardian. Web.

Kotler, Philip (2003). Marketing Management. 2003.

Martin, Nicole and Beaumont, Claudine (2007). Google enters mobile phone market. The Telegraph. Web.

Reuters (2007). Motorola’s Handset Inventory Builds—Survey. Tech2. Web.

Virki, Tarmo (2007). Asia and Africa demand lifts mobile phone market. Web.

Waters, Darren (2007). Who’s afraid of the iPhone? BBC News. Web.

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Motorola Inc.’s Strategic Options

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