Analyst Angle: The Importance of Functional Branding for Handsets

Editor’s Note: Welcome to our Monday feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry. In the coming weeks look for columns from Compete’s Miro Kazakoff, Jupiter Research’s Julie Ask and iGR’s Iain Gillott.
There has long been an unmet need for merging usable, basic PIM (personal information management) functionality with the common cellphone. The problem is that smartphones have been relatively expensive, bulky, productivity-oriented devices until just this past year. The march of Moore’s Law-combined with the “thin” trend-has meant that we finally have attractive, super-thin smartphones from HTC, RIM, Motorola and Samsung that cost less than a PDA. Palm and Nokia also play in this space, though Palm needs to put its Treo on a stricter diet, and getting a smartphone in the United States from the world’s largest smartphone vendor is often improbably impossible. Still, smartphones overall have gotten smarter, cheaper and better looking. So why is the percentage of smartphone sales stuck in the single digits?
Distribution Channel Roadblocks
We thought the problem was one of technology, design, and pricing. Pricing is still an issue-more on this in a minute-but it turns out that distribution is the major roadblock. Once we had nicely designed products like the HTC 3125-a $100 super-thin clamshell Windows Mobile smartphone that looks like a cross between a Motorola Razr and a prop from “Star Trek”-we discovered that carriers simply can’t sell them.
Part of the problem is still pricing. In order to get the price down below $100 to $200 with a two-year contract, some carriers have tied the device’s rebate to the sale of data plans. The structure of these data plans assumes that enterprise users will have their company reimburse them. This does not work for consumers buying for personal use who don’t know up front if they’ll ever need web or e-mail access, never mind know that they should be willing to pay $20 to $40 a month for the privilege. A much better approach would be to allow something like Virgin Mobile’s pay-as-you-go model for data. Carriers would be able to build up data usage over time, converting heavy users to unlimited plans in the same way they have successfully sold text messaging packages.
But even if pricing issues are resolved, the distribution channel is still challenging for manufacturers, and the problem goes well beyond smartphones. A majority of U.S. consumers buy their handsets at carrier retail stores, where the employee helping you choose from among some of the world’s most complicated gadgets failed to master the Frialator at his previous job last week. Sure, that was a cheap shot, but the truth is that anyone who understands the intricacies of the voice, data and device landscape well enough to properly guide consumers through it can make more than $8.50 an hour working retail.
If you’re a handset vendor, the sales process itself also works against you. We’ve observed hundreds of retail sales sessions and they generally follow the same script:
Consumer enters the store, looks confused. (1 minute or so.)
Consumer looks around at displays, picks up a handset here or there. (The duration of this stage depends on how busy the store is; it can be endless or as short as 30 seconds.)
Once store employee is engaged, rate plans are discussed. (5 – 20 minutes.)
Consumer walks around store considering handsets and picks handset. (3 minutes maximum-store employee is anxious to complete the sale and often hovers near the customer.)
Employee finishes paperwork, explains the basics of the plan. In rare instances (somewhat more often at Sprint), employee also hurriedly explains the bare basics of phone operation. (3 – 10 minutes)
Some consumers have done research online, or know in advance that they want an advertised special or a specific product. But the majority appears to spend less than five minutes-sometimes much less-choosing their handset. We’ve even see salespeople actively push customers away from smartphones and multimedia-centric devices because they don’t want to open themselves up to questions that they can’t answer. There are approaches that carriers and vendors can take to help train sales staff, and syndicated research can certainly help (for example, Current Analysis offers retail pricing tools and syndicated competitive handset analysis). However, even the best sales tools only help employees motivated enough to learn and use them. In this environment, vendors need to make products that sell themselves.
Textual and Visual Branding
One way is to use brand expectations to clue consumers in to key functionality. Sony Ericsson has been extremely effective using Sony’s Walkman brand to sell music capabilities to consumers even on handsets that (at least at first glance) appear to be regular phones. In Europe, the company is doing the same thing with Sony’s Cybershot and Bravia brands. Devices that bear RIM’s BlackBerry brand can be assumed to do mobile e-mail even without full QWERTY keyboards, which has helped sales of RIM’s Pearl, while Samsung’s t719-which has the same key layout as the Pearl-has languished on the shelves. Apple hopes to parlay its success in iPods into iPhones, despite a radically different physical interface (unless it is in “iPod mode,” the iPhone does not appear to have any music functionality at all). Palm’s brand is associated with electronic organizers, and if Palm were to ever launch a clamshell device, consumers might reasonably assume that it allows them to synchronize calendar and contact information even though it does not look like a PDA.
When your brand doesn’t adequately convey the message, one approach is to create a new one, or co-opt someone else’s brand. Nokia does both with its N Series sub-brand for high end multimedia handsets. For its imaging-centric N Series “multimedia computers” (Nokia’s term, not mine), Nokia stamps “Carl Zeiss optics” on the case, in exclusive association with the lens maker.
Another effective alternative is to make your product’s USP (unique selling proposition) visually obvious. Verizon Wireless asked LG to butcher its beautifully minimalist Chocolate design by putting a fake scroll wheel on the front, highlighting the product’s music capabilities. It was a hit. Similarly, QWERTY keyboards mean messaging. Motorola’s work-oriented iDEN handsets are big, clunky and look like they are built to withstand a beating. Nextel built an entire business on them.
This article is based on a longer Current Analysis report which begins with an introduction tying his wife’s recent smartphone upgrade into this mess, and concludes with additional recommendations. To comment or for a copy of the full report, you can contact Avi directly at agreengart@currentanalysis.com. You can contact RCR Wireless News at rcrwebhelp@crain.com.