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Lifestyle factors like value and 'coolness' play larger role in purchasing decisions than price in emerging Asian markets

Is the low-end really all about low price‾ Maybe not. Low-income mobile users in emerging markets do not make purchasing decisions based solely on price as many industry officials believe, according to the result of a survey of mobile customers in five Asian markets. The survey concludes that vendors and carriers targeting low-income consumers in emerging markets need to undertake a more sophisticated branding and marketing strategy if they hope to operate successfully in the low-end segment.

The Brand Image Survey of Asia mobile users conducted by IE Market Research, a Vancouver, Canada-based consulting firm, found that low-income consumers actually choose their handset brands on such lifestyle factors as service, reliability, value and degree of 'coolness,' rather than price.
The survey involved telephone interviews of 2,459 wireless users in Japan, China, Korea, Indonesia and India. Combined, the countries have an installed base of more than 675 million subscribers.

'Our survey results broadly question the notion that price is the most important factor in the buying decisions of low-income consumers in emerging markets,' says Nizar Assanie, VP or research for IE Market Research. 'We also think that players like Nokia and Samsung have been able to exploit this thinking to their advantage, while others such as Motorola, Sony Ericsson and Chinese manufacturers have fallen into the trap of thinking that the only way to sell to low-income consumers is through lower prices.'

Brand loyalty

The survey found that low-income mobile users are much more brand-loyal in emerging markets. In China, India and Indonesia, 59%-65% of subscribers would purchase the same brand handset as their existing brand, a much higher level of loyalty than was found among high-income mobile users. (Only 25%-33% of these users would buy the same brand.)

'We think this higher brand loyalty is because low-income consumers are more affected by advertisements and brand associations,' explains Assanie. 'They are also more risk-averse and want to reduce the risk of dissatisfaction associated with trying a new and cheaper handset brand.'

Assanie adds that low-income consumers in these markets may associate their handset brand with the term contracts offered by carriers, which instills loyalty since the contracts often carry large penalties if customers decide to switch service providers.

Attractive qualities

A second important survey finding was that in China, India and Indonesia, other 'lifestyle qualities' such as good service, 'coolness' and creativity play into brand strength measurements.  This becomes particularly important for international handset makers that can benefit from their perceived quality advantage when battling for market share against low-cost Chinese manufacturers.

For example, the study revealed that Nokia, the market leader, benefits from its association with qualities such as reliability, value, technical advancement and good service rather than simply price. Between 14% and 37% of low-income mobile users associated Nokia with these qualities. In comparison, 10% or less of the respondents associated rival Chinese manufacturer Ningbo Bird with these non-price oriented lifestyle qualities.

'We think that this low brand strength is a reflection of Ningbo Bird's poor sales performance in 2004 and 2005 in the aftermath of price reductions by Nokia and other international players in China,' the report concludes.

'Chinese domestic manufacturers such as Ningbo Bird. Huawei and TCL lost market share as their customers, low-income mobile users, switched handsets once stronger international brands were able to meet their price-point expectations.'

The survey notes that international vendors couldn't directly match Chinese vendors' price points, but did manage to reduce prices significantly enough to create 'aspirational demand' among customers desiring to switch to a vendor perceived as offering better quality, better value and 'cooler' technology.

Lessons from India

Another important consideration when appealing to the low-income mobile consumer is product diversity. In examining Samsung's ongoing market share battle with Nokia in India, the survey found that Samsung had strong ratings (between 22% and 32%) among low-income consumers in six of the seven individual lifestyle categories such as reliability, technology, creativity, service, 'coolness' and value that were studied. Yet the vendor only has a 6.7% overall market share among India's low-income users.

The main problem, according to the survey, is that a far higher percentage of respondents (36.9%) characterized Samsung as 'cheap' compared to 24.1% for Nokia. Why was this the case‾ According to the survey, it's because 12 of 22 Samsung handsets in the Indian wireless market were priced at the entry-level - and they tended to carry lower prices than Nokia's entry-level handsets, Nokia, on the other hand, had 45 handset models in the Indian market, most priced above comparable Samsung models. Nokia actually benefited from pricing higher.

The survey found that 'this is a problem not only for Samsung, but also for other vendors whose marketing strategies emphasize 'lifestyle' but that do not appear to be convincing either the high-end market (which they are targeting) or the low-end market (where they will see the fastest growth).'

The problem may be a combination of handsets priced too low and a product line that is not sufficiently robust. 'We think offering handsets that are priced too low and lack diversity has a lot to do with this conundrum faced by players such as Samsung in emerging markets,' the report explains.

Meeting emerging demand

The results of the IE Market Research survey show vendors and service providers need to adjust their perception of low-income mobile purchasing patterns in emerging markets.

'There has been a lot of talk in the wireless telecom industry on connecting the unconnected and bridging the digital divide,' says Assanie. 'The discussion usually centers around how vendors and operators can reduce handset prices and make mobile services affordable for low-income users.' The survey results call those notions into question.

'Our analysis and surveys show that price is not the only factor affecting the buying decision of low-income consumers in emerging markets,' cautions Assanie.  'A strategy based solely on reducing prices for entry-level handsets will likely fail to attract customers in the low-end segment of these markets.'

Instead, he suggests vendors and carriers move to attract low-end customers with a sophisticated marketing strategy that emphasizes creating 'aspirational demand' among this user segment.