An unlikely understanding of segmentation

One of the hazards of working as mobile telecoms analyst is you are often asked to define the major challenges facing the market. It is difficult to answer with any degree of detail; the scale and diversity of this industry means it is impossible to identify operational issues which are as relevant to an infrastructure supplier as they are to a software platform provider. However, there is one challenge which applies to everyone involved in this business: understanding customers and developing a business model which supports an ever increasing range of segments.

This in itself is an incredibly complex issue, but it can be succinctly summarised as an immediate need for the industry to build more products for a more diverse customer base without increasing costs.

There are a couple of major trends driving this. On the one hand, developed markets are saturated and driven almost entirely by replacement sales. As a result, there is an intensely competitive environment in which the user must be actively convinced to change from a device they are already comfortable with. In emerging markets, rapid growth is coming from low-income segments with very specific requirements around price, usability and distribution. Global players need to find a model which accomodates both these trends while fending off competition from a variety niche players which are operating at either end of the scale.

The size and resources of top tier handset manufacturers and operators provide an advantage in terms of the amount they can invest in consumer research and technical development. However, they also carry a heavy legacy of existing products and strategic commitments, not to mention pressure from their shareholders to demonstrate their huge size can provide a cost advantage through economies of scale.

As a result, there are some unlikely leaders emerging in the field of segmented product design. Casio, the Japanese electronic manufacturer, and Pantech, the South Korean mobile device manufacturer, are examples of this trend.

Casio G-ZoneCasio is currently enjoying a runaway success with its G-Zone handset in Japan and is poised to launch the device with Verizon in the US. The handset is a semi-ruggedised, consumer-focused device aimed at outdoor and sporting enthusiasts. It is splash- and shock-proof, featuring a mixture of rugged ‘styling’ elements, sporting functions and practical innovations to meet the needs of this particular segment.

Casio has leveraged the success of its G-Shock sports watch in both branding and product design.

With G-Zone, the Japanese manufacturer has succeeded where Nokia and Siemens have been striving to achieve for several years with their 5100 and M series products respectively.

Pantech PG-8000In South Korea, Pantech is becoming prolific with the breadth of its product range. At the Cebit trade fair the company is exhibiting about 40 different handsets, from devices focused on music enthusiasts (e.g. G-3600V, with an iPod-style control wheel) to specialised imaging products (e.g the PG-8000, which has a horizontal, camera-style orientation). It has picked up a couple of iF design awards this week for its work.

Both of these companies have previously been dismissed by many in the industry as ‘cost-competitors’, i.e. manufacturers whose primary advantage is the ability to undercut tier one players on price. However, these recent developments are prompting a re-evaluation of their prospects.

It is too early to link this into a wider trend, but I believe it is only a matter of time before a significant number of smaller handset manufacturers start to employ internal and third-party design expertise to target particular segments. Large operators like Vodafone have already shown they are willing to sign major co-development deals with manufacturers who are virtually unknown in Western markets (e.g. the Vodafone – Huawei agreement announced at 3GSM).

A combination of operator marketing, customer understanding, rapid product development cycles and low manufacturing costs give this great potential for a disruptive effect on the market.

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