Under Pressure

The mobile phone market that seemed unperturbed by the global economic
slowdown is starting to show indications of slump in demand. Even as mobile
subscriptions in India may grow by 10-12 mn a month, market trackers have
observed that sales of high-end handsets are on a decline. While the
manufacturers have been pinning their hopes on the high-end handsets markets to
strengthen their hold, in India the retailers and distributors say the sales
have shrunk.

Gartner expects the market to show flat growth in the year ahead and handset
makers do not hope to match the heady 25% growth of 2008. Estimates by the
Cellular Operators' Association of India show that most new sales will come from
entry-level phones so the value of sales will stagnate.

According to Subhash Chandra of Sangeetha Mobiles, there is a marginal
decline of about 10-15% in the sales of 'expensive' phones The consumer's
confidence is low. There is a lot of anxiety in the market. The consumer wants
to spend money very cautiously. Phones above Rs 10,000 have seen some decline in
sales since last December, agrees Ravi Basan of Telemart.

“All across there has been a gradual decline over the past six months. The
customer is very sensitive to the market,” says Sanjeev Mahajan, CEO, HotSpot
Retail. This kind of a backsliding can be attributed to the present state of the
market.

Besides, the replacement customer is also under pressure. Mahajan of Hotspot
added, “Consumers who used to change phones every eighteen months on an average
are postponing their decision due to the slowdown. It was hoped that replacement
buyer will contribute about 60% of the total sales, but this is not happening.”
This is because the replacement market, which accounts for around a third of the
total market is falling with customers postponing decisions to upgrade and new
subscribers buying cheaper or second-hand sets. “Most replacement sales are for
upgraded models, thus definitely there will be some impact on the sales of these
upgraded models that fall under the high-end category,” he reasons.

Another factor, says Chandra, that could have led to this deterioration is
that the POP (point of purchase) ads and publicity spends have dried up.
“Ideally, 25% of a manufacturer's spend is on publicity, but with the market
seeing a slowdown they have put a control on this spend. There is nothing
alluring that the customer finds when he come to a store, so how can he be
motivated to buy.”

He says it will be a little early to gauge the exact loss as usually the
period between February to March witnesses lesser sales of handsets. It is only
when the financial year closes that we would be able to find out what has been
the real damage.

However, Sunil Dutt, country head, Samsung Mobile, does not observe any such
downtrend in the sales for the high-end handsets. He says the over all sales of
handsets has fallen, but it is not specific to the high-end ones. “Of the total
handsets sold in India only 6-7 % are high-end, so does that mean a great
change?”

Handsets below Rs 3,000 accounted for 63% of the market, Dutt says that this
share would increase, since most new subscribers come from the emerging markets
of rural India.

Win Some Lose Some

Not that all the high-end handsets have had a bad show. Industry sources say
Nokia's recently launched 5800 has done unexpectedly well. The consumer is
actually waiting for things to happen. Innovating with application and design
holds the key to bringing about a change in the current market situation. D
Satish Babu of Univercell says Nokia 5800 did well because it had a lot of
novelty and the much-needed hype. Similarly, LG Cookie brought in motion sensing
as the new thing for Rs 12,000. He says the market mood is slow. The buyer is
awaiting something that would have features that would give the handset the
distinction of being 'high-end'.

Amidst the present market condition there are some big brands that are facing
challenging times.

Among those who are facing hard luck are the PDA brands, Sony Ericsson and
some of the Motorola handsets. The weak dollar has hit the imports and one of
the sufferers is-HTC, retailers say. There are some others who fall under
high-end fashion category that have made money.

Anshul Gupta, principal analyst for Gartner, says, the consumers looking for
high-end phones would largely look at 'value for money' and the need to use
these features. “The consumer sentiment for the high-end phones will be driven
by need and not by desire to use features like Wi-Fi, 3G, 5 megapixel camera
amongst others. It will be largely driven by ease of use and features of use.”

The customer is no longer prepared to spend for something that he does not
want or use. Unlike earlier, when the user would buy a handset with almost
everything from a simple radio to 3G support, the customer today clearly
understands and identifies the features he can and wants to use. A buyer
evaluates potential of each feature before he makes a purchase.

Cheap, Yet Good

A number of handsets available in the market that are doing good are those
that offer value for money. One, because the customer is very conscious while
picking up a hand phone. And two,distributors say since major part of the growth
in the handset segment comes from tier-2 and tier-3 areas where simple handsets
with some features like FM radio are doing extremely well. Hence the under Rs
3,000 handsets are very popular.

Besides, the Government's decision to ban import of Chinese handsets without
a unique IMEI number has helped some of the other Chinese brands like Micromax
and Rage to gain ground in India. Some such brands have witnessed 100% growth in
the last six months. Micromax alone has grown 50% over the last six months. The
mid-range and entry level phones are cheap, with features of a high-end handset.

The ASP (average selling price) has been falling not only in the cities but
also in the tier-2 and tier-3 areas. Most of the new brands, which are being
launched are in the tier-2 and tier-3 cities and are in the price range of Rs
2,000 to Rs 7,000. And they claim to offer the latest and hi-end features. It
also goes without saying that most of them would be sourced from China, says
Babu.

Redefining High

The trend is a temporary one and once the consumers' fears are taken care
of, things are set to get better. So what can give the shrinking sales a new
lease of life? Chandra of Sangeetha suggests the manufacturers should work on
eliminating consumer fear and the retailers could help by offering interesting
schemes like selling the handset on EMI. “We have lately started experimenting
with such offers, the results may not have been exemplary but then it has
definitely shown an interesting way of attracting the consumer.”

Mahajan says there is an important area that needs to be worked upon.
“High-end needs to be redefined. If we were to compare iPhone with other options
available in the market buyer felt cheated after buying iPhone for Rs 26,000, as
against Nokia 5800 that costs Rs 19,000.”

Innovation is needed, says Basan, “but innovations come at a cost and take
time. There is a difference between innovation and technology. Newer technology
is definitely reaching the buyer.”

The buyer should be able to make a distinction between what is high-end.
There should be no ambiguity on definition of a high-end handset. There should
be unique features that qualify a handset to be classified under high-end.

Heena Jhingan

heenaj@cybermedia.co.in