Bo Bäckman: Price-value elasticity (PVE) – Nokia´s transformation into a Superbrand
2009/12/18
Today Nokia is the undisputable Superbrand in mobile phones – but threatened by Samsung, LG, Rim and soon Google. When and why did this happen? What did Nokia see in the market that many others did not foresee? And how do you measure factors that will turn a market upside down. In this case from an engineering product developed by technicians to a total experience (Nokia) set in motion by designers (both technical platform designers and experience designers).
The basic assumption is that it pays to do market research and that you need to go from often non committing attitudes to priorities among the consumers. And that price has to be taken into account.
What is so important that the market is prepared to pay for it? What is so unimportant that few are willing to pay?
The method – Conjoint analysis
Traditional market research often asks “what is important to you when buying a mobile phone”? The answers you get are often a Christmas wish list. “I want it all at a low price”. The trick is not to ask about each feature at a time but instead combine the factors systematically and ask about a whole with a price tag. The basic assumption is that the market can prioritize between offers . They can weigh between price and utilities. Even more subtle utilizes like image. “I want to be seen in an Odd Molly dress and besides I love their unique design. They cost more but it is worth it”. When you buy a detergent you have a large selection of brands to choose from but you often know what you are looking for, what features you prioritize. A price reduction on a detergent you usually do not buy might jolt your priorities. “That is a good price and I know the product. I buy that instead of my old brand and will save money”
Attitudes are often measured in research. Priorities are what should be measured. The method that can handle priorities is Conjoint – Considered Jointly. Not sequential questions as in traditional research but in a systematic fashion that uses “Full concepts” instead of one question at a time.
The respondent in the survey assess a”whole” – not attitudes to each feature. Not price by itself, not design by itself but the tradeoff between price and design. You need to find the priorities, the tradeoff between features and price
The Nokia case
The study was initiated by SVID, Stiftelsen Svensk Industridesign, who was primarily interested in the impact of design. Below are the attributes and the parameters that were used. It is a simple model that focused on elasticity for design vs. price. What trade off between designs and price was the market prepared to make? At that time (end of the 1990:ies) there were two main design features: The more square Ericsson design and Nokia´s more organic design. Today the design of mobile phones has entered a new realm. But still possible to analyze with a Conjoint method.
Conjoint is a very cost effective method done on the net today. It is easy to set up but you must not have many attributes and parameters. It makes answering the questions too complex and will reduce reliability and validity. As it is a cost effective, fast (2-4 days with analysis) method it is possible to do more than one test. You can refine by penetrating deeper into a parameter.
The results
Price was the single most important factor followed by design. The more technical aspects and manufacturer had less impact on the choice of a new mobile phone.
Simulation – The eternal “What if” question.
What if we raise price – what is the price elasticity? Will we lose market share?
What if we introduce a new design – what is the value elasticity? Will the new design attract new customers and at what price?
After the survey and the initial analysis the interviews were set up in a database. We “constructed” two phones:
1. A Nokia design with different prices
2. An Ericsson design with different prices
The technical aspects were the same – we wanted to focus on:
1. Value – design
2. Price – what was the design worth
In the simulation phase we analysed a number of “phones” in order to find what the design was worth.
With the same price 25% would chose Ericsson with its design. 54% Nokia.
If an Ericsson cost 500 Nokia could charge 1 000 and still get the same choice share. The design had doubled the value of a Nokia.
Segmentation before you start
Today the market is much more fragmented with specific target groups and a large variety of features and applications. This means that you need to segment before doing a Conjoint.
A broad segmentation in Sweden today:
1. The silent majority (51%) – just calling and answering
2. The talkative (30%) – communicating with the phone
3. The applicationists (15%) – the terminal as a tool for experience and the daily life
Choose segment and do a Conjoint. It is worth it.