Kelaniya Uni- Practice of Marketing- 2012 Semester 2Case No 2-

Dilemma of branded mobile phones in Sri Lanka

Communication is a field that has shown a vast development during the last decade in Sri Lanka. In the past, people had to wait for years to get a telephone connection even after paying the relevant deposit. But this has now become a tale of the past and even a manual labourer now owns a mobile phone.

This growth has resulted with many telecommunication companies vying for a market share in Sri Lanka and the Sri Lanka's telephone density has surpassed the population density. The telephone usage has risen to 100.8 lines per 100 persons in 2010 showing that fixed and mobile connections had overtaken the population. By now the ratio would further arisen.

The telephone density was 86.6 in 2009. According to data published by Central Bank, Mobile phone users grew 20.9 percent to 17.2 million while fixed access wire line which has slumped in 2009 has recovered and increased by 2.9 percent to 897,000. Industry analysts say owners of more than one mobile Subscriber Identity Module (SIM) are growing. Wireless fixed access phones have increased by 4.3 percent to 2,674,000.

Sri Lanka now has five mobile firms, in a fiercely competitive market. The three larger mobile operators - Dialog, Mobitel, a subsidiary of state-run Sri Lanka Telecom, and Etisalat, a subsidiary of Emirates Telecommunications Corporation of the UAE- controlled about 82 percent of subscriber market share at end-2010. This has left Hutchison Telecommunications Lanka, a subsidiary of Hutchison Whampoa of Hong Kong, and Bharti Airtel Lanka, a subsidiary of India's Bharti Airtel, with "weak economies of scale".

There are many brands of mobile phones sold in Sri Lanka as there is a huge demand. As per the industry analysts, Sri Lanka has an estimated handset market of about 100,000 mobile phones per month. If average price of a phone is taken as Rs. 10,000 the total market per month is around Rs. 1 Billion. Nokia used to claim about 85% of the market. Out of which 60% to 65% was sold through the agents Softlogic and the rest 20% to 25% of the Nokia phones were sold by vendors who are in the grey market (Nokia phones imported and sold by other vendors). Out of the branded phones, the rest of the market is shared between other brands such as Blackberry, HTC, Motorola, Samsung Micromax and LG. Most of the branded phones are now made in China but customers who are brand loyal trust the brand name when buying phones without regard to the origin of the phone.

During the last few years the market shares of the branded phones have been threatened by the “Cheaper Chinese Brands” (CCBs). CCBs can be defined as clones or duplicates of famous brands,non famous brands and non branded phones coming from China. Usually, high quality famous products had better features and technology but when it comes to phones it is the other way around. CCBs have more features at lower prices. Most Chinese phones come with options like television, radio, touch screen and external memory slots as standard features, all of which are not available in most

branded phones. Price of a CCB is around 1/3 of the price of a comparative branded phone.

On the other hand the leadership enjoyed by Nokia and Apple in the smart phone category also has threatened by Koreas Samsung. Therefore, a company like Nokia cannot afford to lose the lower end market where the volumes are very high.

A recent market study done by a local university reports following behavior of customers in Sri Lanka when they buy mobile phones, especially in the lower and mid range category.

1. The customers buy phones from the most convenient outlet.2. Customers for the lower end products are not brand loyal.3. These customers come and ask for a phone with a bundle of features, not a specific brand.4. These customers ask for a phone with a specific price tag. (Give me a phone for Rs. 3000)5. These customers do not worry about the quality.6. These customers do not worry or know about the safety standards of a phone.7. These customers do not worry about after sales services.8. The suppliers of these phones are informal importers, their cost is always low and they even offer credit terms to the traders where principals of the branded do not.

It is also noted that this scenario is not happening only in Sri Lanka but also in other countries like Vietnam, Philippines, Nepal, and Indonesia etc. in the Asian region.

Assume that you are asked to advise companies who are marketing branded cellular phones in Sri Lanka.

1. How do you apply the knowledge you gained during all three years, in marketing and management to describe or define dilemma of branded mobile phones in Sri Lanka?

2. As a practicing marketer what experience can you obtain from branded and non-branded products competition in other products in Sri Lanka to relate it to phone market.

3. What innovative marketing strategy that you would suggest to sustain the brand leadership?

4. Discuss pros and cons of any suggestion that you make to overcome the situation described above. (Statistics are not the exact figures but could be hypothetical to describe the general market status for education purposes).