Local Phone Vendors are Outsmarting the Big Global Brands, So What Game Changing Strategies Can we Expect to See Through 2016?

Smartphone Trends, Market Analysis and Commentary




21 Jan 2016 - In the build up to Mobile World Congress (MWC) in Barcelona, Mariia Konovalova, Research Analyst of Futuresource Consulting explores the impact that this has had on those brands and how mobile network operators (MNOs) are changing their strategies to build new revenue streams.

Rapid smartphone adoption has seen many countries near saturation levels, dramatically affecting market dynamics. Smartphones have been the growth engine for the handset market for nearly 10 years. Worldwide smartphone shipments are expected to increase by 16.4% in 2015 to 1,491 million units. However, in 2014 this had declined from 23.6%. The decline in feature phones is also expected to slow down so the overall mobile market grew by 6.7% to 2,071 million units.

2015 saw the first real evidence that the emerging markets are also slowing as low cost, local brands have made great gains, preventing further penetration of the big global brands and restricting their growth opportunities. New local vendors like Xiaomi have celebrated massive growth spikes in 2015 capturing a market share of 15.5% in China and 4.8% Worldwide. This was fuelled by outstanding communications strategies, in-depth market knowledge that was tactically reflected in its strong online and social media presence. The pressure was also stepped up further by flash sales, low price points for attractive handsets and key strategic distribution partnership deals. All in all this has proven to date to be a winning formula.

The on-going success of local brands in providing cost-effective/low cost smartphones tailored to meet basic internet and application requirements at an affordable price point. This has resulted in rapid adoption, especially through open channels, i.e. device not bought from the MNO/service provider. By dealing directly with consumers these brands have been able to minimize costs, being especially effective through online and social media channels.

Conversely, for the first time in recent years some more developed markets have seen an increase in smartphone ASP, as countries where consumers are buying their 3rd, 4th or 5th smartphone are now looking to differentiate and are selecting higher-end features to better serve their requirements, rather than choosing the best deal for airtime. Interestingly markets which saw an increase in ASP are usually developed markets where Apple takes a large proportion of shipments like Nordics, Netherlands, Switzerland and the UK.

MNOs are reacting in both cases, offering cost-effective bundles to attract consumers from rival networks, increasingly packaging smartphones with different accessories and other (quadplay) services. In mature markets new finance models are being introduced to move consumers to higher level handsets and away from the traditional subsidy model where the cost of the smartphone is hidden within the all-in-one contract.

In developing markets the MNOs are less focused on devices and more on growth and subscriber acquisition, often partnering with popular leading apps to compete and attract consumers onto higher-level tariffs, making better use of 3G and 4G connectivity.

"The impact of this is greater use of smartphones and realization of more data on networks. As consumers move up they are looking at brands that can help address the pain points of battery life, better quality multimedia streaming, viewing and casting, improved camera functionality, security and privacy," commented Konovalova. "In 2016 new functionality, such as broader payment functionality, Virtual Reality (VR) and secure cloud service access will be driven by consumers adopting high-end smartphones. Big brands with flagships introducing these features will benefit as a result."

As the smartphone retail model adapts in both types of market, distribution outlets, especially those with a strong physical store presence (i.e. not online) are putting greater emphasis on accessories. Activity to partner and provide audio headsets, wearables, tablets, power packs, cases, etc. in-store for longer life and access to better quality streaming services (often with a free trial) is increasing to develop these new revenue streams.

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