On why Nokia needs the Rural Indian Market

Olli-Pekka Kallasvuo, President & CEO of Nokia was in Delhi to announce the companys plans to launch entry level handsets in India, in order to cater to the non-urban consumers. To facilitate adoption, Nokia will initially offer a base phone with microfinancing options, and is currently running pilots in order to tweak its offering to make mobiles more affordable, reports the Hindu. In terms of services on offer, Nokia is in talks with content providers for information on the weather, and market prices for agricultural products. That’s fairly similar to the Reuters Market Light product which Reuters India has piloted, and I wonder if there’s a tie-up in the offing there.

In Q1 of 2008, around 10,000 phones per hour were shipped to India. Nokia has a significant lead over its nearest competitor – LG. Nokia has a market share of 52.8 percent, followed by LG at 10.2 percent, and Samsung at 8.3 percent in terms of units shipped during the quarter ended March 31, 2008. There are around 25 handset vendors operating in India, and the average selling value of handsets has been steadily declining, according to IDC. However, IDC doesn’t mention how many of the handsets are actually sold.

Handsets are essentially consumer durable items – you really don’t need to buy a new one. The entire handset business is dependent on creating a new need – whether it is a higher resolution camera, more storage capacity, clear music, a slimmer phone, a gold or a pink phone. It is this durable nature of the handset which has driven innovation. From a feature perspective, the urban Indian markets are plateuing (do I really need a camera with more than 5 mega pixels?), and Nokia faces a significant challenge from the iPhone, which Vodafone and Airtel will introduce later this year.

A rural push offers Nokia the opportunity of entering a market that is still in its early stage of growth, and then pushing for users to upgrade their phone, feature-by-feature. Of course, rural markets do not operate in complete isolation to urban centres, but it will take time to plateu. In order to drive this growth, Nokia will have to push consumer adoption by educating users and a significant distribution and service push.

Update: As Shefaly rightly asks in the comments to this post, what does Microfinancing refer to in this context? Nokia is studying means of making it easier for rural consumers to purchase mobile phones, probably with Equated Monthly Installments (EMIs), or some tie-ups to reduce the cost of purchase. This is different from the Microfinancing that one associates with the Grameen Bank.