Analyst Angle: Why market share doesn’t tell the whole story (But you knew that already)

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 Jupiter Research’s Julie Ask, Current Analysis’ Avi Greengart and iGR’s Iain Gillott.
Last month, I discussed how measuring and understanding online behavior could provide carriers and device makers new insights into overall consumer behavior. This month, I want to dive into one of the most important insights this medium allows us: The chance to finally understand the conversion rate of individual products and services. In other words, to understand what share of those who consider a product actually purchase it.
Even looking at conversion rates at the company level provides new perspectives into who’s winning and losing in the U.S. market. Understanding the drivers of conversion and therefore which levers to pull for improvement is critical for companies looking to defend or grow their position in a slowing market.
In 2006, Motorola had the highest conversion rate in the U.S. among the major device manufacturers. Seventy-two percent of shoppers who considered a Motorola device bought one. Samsung trailed all their major competitors in terms of conversion. Only 41% of those who considered a Samsung device chose that manufacturer when making their purchase. Samsung’s conversion rate was two-thirds that of Nokia’s even though the two competitors have similar market shares in the U.S. This divergence means that very different strategies will be needed for each to continue growing in the U.S.
Compete calculates conversion rates by dividing the share of consumers who purchased a device from each manufacturer (roughly their market share) by the share of consumers who considered a product from that same manufacturer, what we call Interest Share. Compete calculates this interest share by observing which products consumers research online at carrier websites. With 84% of wireless shoppers planning to use the Internet to research their next purchase, online behavior provides a way to track the actual behavior of a critical mass of the wireless buying population and a medium for sampling which devices are considered before purchase.
Behind the conversion rates of each major manufacturer in 2006 lies a different story and a different charge for how each can grow in the coming year.

–Motorola: The U.S. market share leader in part earned that crown by having the highest conversion rate of all the major players in 2006. Seventy-two percent of shoppers who considered a Motorola device purchased one.
Motorola’s conversion rates are traditionally boosted by the breadth of their product portfolio. The more phones any one maker offers in a carrier’s line-up, the more likely it is receive any given sale. In particular, Motorola’s conversion has traditionally been buoyed by Nextel where every customer (save Blackberry users) will be buying a Motorola phone. While declines at Nextel have hurt Motorola’s overall conversion, the success of the Razr series was the big driver of Motorola’s share growth and conversion efficiency in 2006.
With the rollout of multiple colors of Razrs in the first half of the year and deep discounts on Razrs of all colors in the second half of the year, Motorola was the most efficient handset maker in the U.S. at converting shoppers into buyers. The company’s recent underperformance reminds us that while cutting price may increase conversion and quickly boost sales, it comes with a hit to profitability. As Motorola raises prices in the coming year expect conversion to drop. To offset, Motorola will need to see strong interest in the new products they plan to launch this year, including the Razr2.
–LG: LG is one of the few companies to have substantially improved their conversion rate over the past two years. Generally, companies grow by boosting underlying demand for their products, while conversion (which is governed more by carrier pricing and promotion decisions outside of manufacturer control) stays constant. With the release of the original Chocolate and expansion of their lineup at AT&T, LG has not only increased the number of people considering their products, but more efficiently converted those shoppers into buyers.
–Nokia: Nokia, on the other hand, has seen their conversion rate slip over the past year. Historically, their lineup of low-priced phones and strong brand history tended to attract fewer researchers than competitors, but those shoppers tended to be highly focused on Nokia products and very likely to buy them. In the past year, Nokia’s share of carriers’ device portfolios has shrunk, hurting conversion by giving shoppers fewer Nokia options to choose from. The company, however, has been able to offset lower conversion rates to some degree with increased demand around newer products. As Nokia continues to expand beyond the entry-level tier in the U.S. they will need to focus on generating demand without conversion eroding any further.
–Samsung: Samsung continues to trail all the other major handset makers in shopper conversion. Even though Samsung’s market share was similar to Nokia’s in 2006, their conversion rate of 41% was less than two-thirds that of Nokia’s. That means to attract the same number of buyers, Samsung had to attract interest from 1.5 times as many shoppers. Indeed, Samsung’s designs attracted substantial shopper interest, but their higher prices meant that fewer of those shoppers ended up buying a Samsung phone. Unlike the other majors who will need to grow by maintaining and increasing underlying interest in their products, Samsung is the one manufacturer who has a real opportunity to grow by turning those already considering their products into buyers.
The dance between manufacturers and service providers ensures plenty of challenges for handset makers that want to improve their conversion rate. Carriers have the firmer grip on the levers of end-user pricing, overall marking (due to their enormous spending) and the retail experience, all of which play critical roles in determining which handset a shopper selects. When sales disappoint, handset makers must be able to show that there is still underlying demand for weak sellers or that conversion rate is high on products with low demand. Similarly, carriers can identify which products to prune from their line-up: those with low interest and low conversion may not benefit from increased marketing or price cuts and are best dropped from the line-up.
Compete Inc is a marketing-services company that helps companies better use the Internet to understand consumer behavior. For more information, sign up for the Wireless Vantage, Compete’s free newsletter at http://www.competeinc.com/signUp/, read Compete’s general interest blog at http://blog.compete.com/, or e-mail Miro at wirelesspractice@compete.com. E-mail RCR Wireless News at rcrwebhelp@crain.com.