In the past, Nokia has been the dominating player within the mobile phone industry. If you never have seen the 3310 model or played ‘Snake’ on one of the previous Finnish devices, you were probably born after the launch of the 3310 model in September 2000 (Techradar, 2014). In the upcoming years, Nokia’s senior management didn’t believe that the smartphones would conquer the mobile industry. A clear lack of vision: 1.2 billion smartphones were sold last year (NRC Q, 2014). When Nokia finally started selling smartphones, other players were already dominating the market. Nokia’s sales were dropping and the mobile department was sold to Microsoft in 2014.
Last week, Re/code announced that Nokia is planning to return to the phone market in 2016 (Re/code, 2014). Initially, Nokia agreed with Microsoft not to manufacture any mobile phones until 2016. Although this agreement was signed, the Fins are allowed to sell Nokia products if manufactured by another company. Using this loophole, Nokia can start selling phones again (Emerce, 2014).
It will be difficult for Nokia to attract customers when entering the highly competitive smartphone marker. Often marketing spending is invested in sales promotions to influence customers’ buying behaviour and attract new customers (Kim et al., 2014). To determine what the best strategy is for attracting new customers, Kim et al. (2014) compared price discounts and sampling to a more innovative method called pay-what-you-want (PWYW). When using a PWYW strategy, customers are able to determine the selling price themselves.
Kim et al. (2014) found that PWYW is an entertaining way of promoting products to consumers. It can both lead to a higher word-of-mouth effect and more consumers that want to benefit from the promotion. Furthermore, the researchers found that the prices paid in a PWYW situation are significantly different than zero. So, PWYW is not just a fancy name for free sampling; people are more likely to pay for products even when they can get it for free (although the price paid is lower than the original price). PWYW can be an attractive way for Nokia to get in contact with potential customers and to create a positive hype (Kim et al., 2014).
Compared to price discounts, in a PWYW situation consumers tend to pay less for a certain product. But, since PWYW attracts more consumers, Kim et al. (2014) found that this effect was compensated. If Nokia wants to settle in a highly diversified market again, it’s very important to reach a high number of customers. Instead of competing the current smartphone providers using price discounts, Nokia should use a PWYW strategy to reach more people and while earning more money.
Smartphones are expansive products. Therefore, using a PWYW strategy to conquer the market can be risky. Although Kim et al. (2014) didn’t investigate the effect of it, they suggest using PWYW in a more restricted way in these cases. For instance, consumers can determine their discount based on a predefined list of discount percentages. By doing this, Nokia can influence the magnitude of the promotion but still take advantage of the PWYW benefits.
Using a PWYW strategy can provide Nokia with a lot of new, and recurring(!), customers. So, are you ready to beat the Snake high score again?
Kim J. , Natter M., & Spann M. (2014) Sampling, discounts or pay-what-you-want: Two field experiments. International Journal of Research in Marketing, 31 (3), 327 – 334.
http://www.nrcq.nl/2015/04/19/smartphones-round-the-world [Accessed on April 23, 2015]
http://recode.net/2015/04/20/nokia-plots-2016-return-to-phone-market/[Accessed on April 23, 2015]
http://www.emerce.nl/nieuws/nokia-gaat-weer-smartphones-maken[Accessed on April 21, 2015]