Running head: NOKIA COMPANY ANALYSIS Nokia Company Analysis Name: Professor: Institution: Course: Date:

Running head: NOKIA COMPANY ANALYSIS Nokia Company Analysis

2. To what extent does price or non-price competition erode the profitability of the company?

Introduction Price or non-price competition can erode the profitability of any given company and can eventually lead to its collapse. This has an implication that companies ought to evaluate the activities of their competitors so that suitable strategic formulations can be adopted to evade organizational collapse. This paper will succinctly discuss the extent to which price or non-price competition can reduce the profit margins of Nokia Company. The scope of the paper will involve analysis of activities of the competitors of Nokia Company which influence customer purchasing decisions (Dobson, Starkev & Richards, 2004). This means that facets relating to product pricing, quality, and customer services will be evaluated to as to ascertain the extent of profit erosion from the Nokia Company. Effect Price Competition on Nokia Company Price competition arises when two or more companies offering similar products or services try to out do each other by lowering the prices of their commodities. Similarly, Nokia has a variety of competitors like Motorola and Techno which offer similar products to the customers. If these organizations lower the prices of their products so as to force Nokia out of the market, Nokia will also have to reciprocate by lowering its prices. This has an insinuation that it will have to incur losses because of being forced to lower its prices (Stigler, 1968). Given that the funds spent on the employees, suppliers and the manufacture of the mobile phones and their accessories remain unchanged, it is probable that the firm will lose heavily; because the expenses will outweigh the income from the sales. If the company lowers the prices of the commodities that it offers and yet the sales do not increase, then it will be forced to incur extra costs in product promotion. The costs spent in

Running head: NOKIA COMPANY ANALYSIS advertising and product promotion will raise the general cost of production. The eventual effect will be erosion of the profits generated by the company due to the limited investments. If the costs of production continuously escalate, the firm can collapse in the long run. This analysis

indicates that price competition can force a company to lower its price relative to the competitors so as to attract more customers. However, if the reduction in the prices does not attract more customers, more funds will be redirected to advertisements and product promotion which gradually raise the cost of production and hence reduce profit. Effect of Non-Price Competition Non-price competition is also a common factor that determines the profit levels of a business organization. This is done when firms engage in product promoting practices while keeping the prices of the products that they offer unchanged (Spence, 1977). For instance, the competitors to Nokia Corporation may offer high quality products or services, in terms of durability and efficiency. If Nokia does not measure to the competitors levels then it will incur massive losses. While keeping the prices of the commodities constant, product promotion and advertising commodities intensively can be a non-price competition strategy. This is also associated with additional costs of production and may reduce the profits generated if the revenue from the sales is less that the advertisement and product promotion expenses. Implementing good support system and giving the customers a long term warranty can also be a strategic formulation used by the competitors so as to get more sales of their telecommunications products. However, if Nokia Company also spends more resources in developing the support system and still get the same number of customers or less, then it will incur losses. This has an implication that the earnings that could have been retained so as to enhance effectiveness of the organizations support system will be wasted and subsequently

Running head: NOKIA COMPANY ANALYSIS erodes the profitability of the organization. On the other hand, allowing more time for warranty may make the customers to misuse the gadgets within the warranty period and therefore lead to additional costs of repair or reinstatement of the spoilt telecommunication gadgets (Lindholm, Keinonen & Kiljander, 2003). Nokia ought to assess the market structure in which it operates so as to determine the mode of competition to use. If there are few competitors in a given market,

then it can use non-price competition so as to attract a large number of consumers. Conversely, it can use price competition if there are many competitors as this will drive many competitors out of the market. Conclusion Price and non-price competition can heavily affect the profit to be generated by Nokia Company; this is indicated by the aforementioned factors. Price competition may force Nokia to reduce its prices so as to compete favorably with other telecommunication companies like Motorola and Techno. However, if reduction of product or service prices does not attract enough customers to outweigh the costs, then losses will be incurred. Non-price competition which basically involves the promotion and advertising of the commodities to the customers, may also lead to profit erosion of Nokia. This may be as a result of a lot of funds being spent in product promotion and advertising yet few customers respond to them. The final effect will be increase in the costs of production and promotion expenses relative to the income; and this will lead to erosion of profitability of Nokia Company. The nature of the market structure ought to be assessed by Nokia so as to ascertain the mode of competition to use so as to attain comparative advantage (Dobson, Starkev & Richards, 2004). Recommendations

Running head: NOKIA COMPANY ANALYSIS Analysis of Nokia Company in terms of price and non-price competition brings forth the need for specific recommendations and solutions to be put in place so as to enhance its profitability. Nokia Company should assess the practices of its competitors, like their level of discounts on purchases, the prices charged for the different products and services so that when they implement their strategies, they can out do them. The mode of advertisement chosen by Nokia Company should be different from that used by the competitors. For instance, online

marketing, use of print and electronic media can be used so as to reach many customers. Though this may be expensive in the short run, its benefits in the long run are worth it (Spence, 1977). Nokia should also use different piecing strategies so as to attract more customers, for instance, psychological pricing can be used. The prices of some products are reduced while others are retained and once the reduced prices are advertised, it is definite that customers will purchase more of the Nokia products. The eventual effect will be the increase in the profit levels due to the increased sales. Trade shows and exhibitions should be conducted in the remote areas so that a wider market can be targeted. This will maximize the sales of the company and subsequently lead to increased profits. This will also facilitate the attainment of comparative advantage against its competitors (Lindholm, Keinonen & Kiljander, 2003).

Running head: NOKIA COMPANY ANALYSIS Reference: Stigler, G. (1968). Price and Non-Price Competition The Journal of Political Economy Vol. 76, No. 1 (Jan. - Feb., 1968), pp. 149-154. Spence, M. (1977). Nonprice Competition The American Economic Review Vol. 67, No. 1, Papers and Proceedings of the Eighty-ninth Annual Meeting of the American Economic Assocation (Feb., 1977), pp. 255-259. http://www.slideshare.net/hillarypjenkins/marketing-mix-priced (accessed on 23 November 2010). Lindholm, C, Keinonen, T & Kiljander, H. (2003). Mobile usability: how Nokia changed the face of the mobile phone. New York: McGraw-Hill Professional.

Dobson, P, Starkev, K & Richards, J. (2004). Strategic management: issues and cases. Edition2, London: Wiley-Blackwell.