Why did first Nokia Lumias fail and what it means to the prospects of Lumia 920 and other NWPs. Part 1

This post is a translation of the article written by Eldar Murtazin on Mobile-Review.com. It looks into the business and product planning mistakes that made the first Nokia Lumia Windows Phones such a failure in 2012. The data and analysis is mostly from retailer driven Russian market, but can be easily extrapolated to operator driven markets as well. We look into internal Nokia business and product line formation issues, for which operator subsidies do not matter much. The merits of Windows Phone OS itself, as well as product quality issues of Nokia devices are outside of the scope of this article too. 

Today Lumia line has 4 devices running Windows 7.x and is the backbone of Nokia smartphone sales. Let’s try to remember how and when the 4 Lumia devices began selling in Russia:

To launch the new line Nokia chose simple and easy to understand strategy. First – a flagship, Lumia 800 was launched, then came cheaper devices – Lumia 710, followed by Lumia 610. But the key, representative smartphone was still the 800. All advertising and marketing activities in late 2011 and early 2012 were focused around it. Since the end of spring 2012 Nokia cut advertising budgets, and started promoting all 3 Lumia devices without making much distinctions among them.

It was a pretty usual smartphone launch process for Nokia, but it had one very serious shortcoming. The company was used to have one flagship device which, like a locomotive, was pulling all other sales. At the end of 2011 Lumia 800 became such a flagship. But, after only a bit more than a month, a new high-end Lumia 900 was announced, and made it obvious that 800 is only a temporary flagship. The situation in Russia was made even by previous heavy promotion of N9 as Nokia flagship device. For the market that works on a 1 year product renewal cycle (Russia) this plethora of flagships is not an advantage. People are used to invest their money into a phone for one year, and while they expect a gradual price decline, they also expect their device to be competitive during that year (e.g. SamsungGalaxy S/S2, iPhone 4/4s).

And it is not that Nokia didn’t understand it. Nokia knew perfectly well how to launch the new product lines pulled by one flagship device. The problem was on a technical side. The launch of Windows Phone wasn’t planned well in advance, and the company didn’t have engineers who knew how to work with Qualcomm platforms. Nokia was acting as a follower and was exploring a market that was new to it. And it didn’t have the ability to build a product that could compete with iPhone or Android smartphones in such a short time. Nokia management knew that and they decided to compromise.

In March 2011 Nokia adopted a Windows Phone device development plan that had foreseen a high rate of device renewal from the very start. “We should be launching new devices in a rhythm that might be every couple of months, every three months, something like that“, Nokia smartphone EVP Jo Harlow told PC Mag.

Nokia understood that such frequent device launches will cause problems with partners, manufacturing and logistics. But they decided that potential gains will be worth it. As the main benefit, Nokia was expecting the explosive growth of sales which would quickly clear the retail channels from the old models, making a place for the new ones. In the beginning of 2011 Nokia already knew that transition to Windows Phone 8 will be painful, and that old devices will not be upgradable. To create a solid basis of customers, which would promote Windows Phone 8 sales via their choice, Nokia set a key goal to deliver two generations of WP7 devices during the transition period. All the problems of WP7 to WP8 incompatibility were deemed to be acceptable risk, if company would be able to achieve the initial goals. Nokia allocated unprecedented promotion budget for Lumia 800 flagship, to kick-start the whole process. This model was supposed to become the battering ram to vault the new smartphone line into the market, consolidate Nokia’s position and pull the sales of additional models. Also – it should have set the stage for quick release of the second generation of Windows Phone 7 devices. It didn’t happen.

The management believed that Nokia customer and brand loyalty is still high enough for the explosive growth of Lumia 800. And made a risky bet on that assumption, openly ignoring InterBrand data which showed 6 point year on year decline for the Finns.

Unable to correctly gauge its position in the market, Nokia made several minor miscalculations, none of each was fatal. But added together they grew into a set of mistakes that killed all company initiatives. The euphoria around the PR from the new Nokia Windows Phone device launch leaked into product and inventory planning. As a result, Nokia made 3.5 times more devices than they were able to sell in one quarter. Initial Lumia 800 sales promotion via advertising and bonuses to partners pushed Nokia to the next mistake. Lumia 800 sales were pronounced successful before the real the retail results rolled in. To fulfill this phantom demand, Nokia further increased device manufacturing orders.

In the beginning of January Nokia learned that Lumia 800/710 sales were way below forecasts in every launch country, including Finland. And that it will take until the end of the second quarter just to sell the devices that were already in the channel. Nokia fell into the faulty product planning trap – new volumes of products kept arriving and they had to sell, because the second generation of devices was about to be launched.

Partners also were already putting big pressure on Nokia to do something. And the only solution to the stale inventory problem Finnish company was able to find, was a rapid price reduction for Lumia 800/710. Nokia 710 went on sale on Dec 15th for a price of 13 490 Rubles, a month later you could buy it for 10 990 or, if you tried hard enough, even cheaper. 18.5% price decline in 30 days. What’s interesting, Nokia barely changed their official prices since then. They couldn’t – they’ve reached the price cutting bottom they could afford. Lumia 800 price went down 10% in a month back then.

In the beginning of January 2012 Nokia turned to price cutting because they were forced to. It was a necessary measure to clear excess inventory. It wasn’t anything catastrophic… yet. If Nokia would have cancelled the two budget devices – Lumia 610 and 510 – and quickly pivoted to the production of second generation of WP7 phones. Unfortunately, Nokia managers decided to compromise – they cancelled 510, decided to keep Lumia 610, but moved its launch to spring 2012. At the end of March Nokia understood that the sales of Lumia line were not simply below the forecasts – they were catastrophically low.

Before that day – Nokia still optimistically believed that Windows Phone will replace Symbian sales without a drop in volumes. A completely unsubstantiated hope.

Take a look at a chart above [from Feb 11th presentation, ed]. Inside Nokia – they believed that they would be able to fully replace Symbian sales with Windows Phone. But that didn’t happen, for many reasons, the main one being Windows Phone 7.5 OS itself.

The situation was made even worse by the presence of Lumia 900, which was a necessary device for the United States. But for Nokia to make it the least bit cost-effective – they had to launch it worldwide. Which got them the new flagship. By March 2012 Nokia finally cancelled the second generation of Windows 7.x Phones, and refocused all their efforts to the launch of Windows Phone 8 by the end of the year. In spring 2012 the idea of the marketing battering ram was abandoned, the advertising for current models slashed to the level of affordable support to the current sales numbers.

Lumia consumer appeal, the defects of first Nokia 800 and then 710 phones are deliberately not a part of this story. Those issues do not matter from the business point of view. If you look at the situation from biz POV, the main fault for Lumia sales crash rests not with the market, and not with deficiencies of Windows Phone 7.5. Samsung, for example, was able to plan and sell Windows Phones 7.5 profitably. The failure rests squarely with Nokia management and mistakes they made. They have invested money and employee time into the devices that were doomed from the start (WP7.5 second gen.) and then cancelled them. Faulty market forecasts, mistakes in logistics and worsening overall Nokia situation, including perception and PR – all of that hurt them. But the amount of devastation should have been so much less, if only Nokia would have adequately gauged the demand for Windows Phone smartphones and didn’t make product planning mistakes.

This is the first part of the article, where we took a detailed look at Nokia mistakes that doomed Lumia line in 2012. In the second part we’ll look at the consequences of those mistakes and what it means to the prospects of Nokia Windows Phone 8 devices.

Author: Stasys Bielinis

While I like to play with the latest gadgets, I am even more interested in broad technology trends. With mobile now taking over the world - following the latest technology news, looking for insights, sharing and discussing them with passionate audience - it's hard to imagine a better place for me to be. You can find me on Twitter as @UVStaska'

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  • http://www.allaboutsymbian.com Rafe Blandford

    The assumption that ever Nokia expected 1:1 replacement for Symbian to Windows Phone is incorrect (as you can probably guess from the note below the chart – not a forecast). There was actually uncertainty about sales, as can be seen in the wide range for the forecasts (both internally and externally).

    Not saying there weren’t mistakes. Sales were lower than anticipated, and did lead likely to some price cuts (some of these were quite localised too – e.g. 710 in UK) and there were some inventory issues (because of the uncertainty mentioned above). But at least some of that was about a stronger than expected Android performance.

    Some of the device cancellations alluded to above happened before the original ones went on sale (normal – lots of proposed devices never make it). But I don’t have much knowledge on this.

  • http://twitter.com/ErArKh Erik Khachatryan

    You know… Here, in Russia, everybody claims Eldar in being extremely incompetent journalist.

  • http://pulse.yahoo.com/_RSK4Z4DM6PNE6K3JIDAMURONCU Arun

    Not just in Russia, everywhere its the same now.

    “In the beginning of January Nokia learned that Lumia 800/710 sales were way below forecasts in every launch country, including Finland”

    Eldar is a joke. Sales of Lumia began in Finland on February 1st!!!

  • http://twitter.com/MediaCastleX Mike E. Delta

    It’s just a different world these days, I happily bought the 710, wishing I could have also had the 900 (still do, kind of). I am now torn between the Nokia Lumia 920/820 and HTC Windows Phone 8X/S…

  • eldarmurtazin

    You discussing my thoughts here – thats a good thing. Because no one will know what you think :)

  • Kyle

    I skimmed the article but partially agree with one point. The promotion of the Lumia 800 as a flagship device seemed to be a misstep. In North America, the larger screen and LTE of the Lumia 900 were the major differentiators but that was probably enough to classify the device as the flagship. Had the 900 been limited to just the NA market that would have left the 800 to rule in other parts of the world, but that didn’t happen. So the huge advertising push for the 800 in Europe created some residual excitement in NA, and yet the 800 had next to no impact here because we were told to wait for something better. That mixed messaging that may have caused some to see the 800 as a failure and therefore they wrote off Nokia’s whole Lumia brand too soon.

    Nokia obviously knew the next step was a larger phone so they should have marketed the beauty side of the 800. Even though the 800 and the N9 shared the same styling, the N9 was the forbidden fruit which took away from the Lumia slightly. If they had a different colour available at launch that would have been enough to allow the Lumia 800 to step out on its own a bit. I’m not talking about sales numbers here (obviously the 800 outsold the N9), I’m talking about desirability.

    I fear that they’ve now done the same thing but pushing the Lumia 900 as the flagship but lacking dual core and with no pureview. They decided to push down the pricing to get people in the door, but that muddles the image of it being flagship. I’m not saying it was wrong to be aggressive, but it wasn’t ready to be compared toe-to-toe with the rest of the market and therefore it got negative press. Once again they could have pushed the messaging heavily towards design and ease of use and let the pricing do the rest of the talking.

    Now the Lumia 920 appears to be the true competitor that we’ve been waiting for, but will people just assume that this is another warmed over product that will come up short? Had they built up to this moment where people where waiting to get their hands on a phone that was both beautiful and power ful, there could have been significant momentum for Nokia. As it stands, I worry that they’re going to jump to price cutting too soon and Nokia is going to become the Hyundai of smartphones (at least the Hyundai of old I should say) where everything you’d want is there, but without price concessions they just don’t sell.

  • http://twitter.com/MugenBatteries Mugen Power

    Trying to get a hold of common sense here :)

  • http://www.staska.net Staska

    Well, it depends – re: replacement. There probably was a lot of uncertainty as to Q4 2010 results and keeping sales at that level. The expectations/product manufacturing plans of Lumia/Symbian 1:1 sales replacement as of Q1 2012 – sounds very feasible.

    I used to lean towards – “Yes – there were some mistakes, but…” for a long time. As you probably know :) But that “but” is almost gone now, and I am almost done with excuses for Nokia. Android or no Android – they (and Elop particularly) have royally screwed up the transition, to the point that there is a serious doubt of whether they’ll survive as independent company for the next couple of years.

    Especially after Sept. 5 madness: http://www.unwiredview.com/2012/08/30/wp8-launch-on-oct-29th-new-lumias-announced-on-sept-5th-nokia-is-there-any-method-to-this-madness/ Why the heck did they do that?!

    Btw – check back on Wednesday afternoon for Part 2 of this article. There are some interesting details there :)

  • Eugene

    Everybody? Who for example? Of corse except those guys who took money for writing positive reviews.

  • http://www.staska.net Staska

    You know… there are a lot of people arguing that Neil Armstrong didn’t walk on the moon, that it all was just a hoax. Even more insisting that Obama wasn’t born in U.S. Doesn’t make them right. They are just stupid ignorant envious hacks