Nokia Pricing Strategy Essay Example

the first GSM network to Radkilinia, a Finnish company in 1991, and in 1992,Nokia 1011 - a precursor for all Nokia's current GSM phones - was introduced. In the 1990s, Nokia provided GSM services to 90 operators across the world. Another significant move of the company during this period was the divestment of its non-core operations like IT.

The company focused on two core businesses - mobile phones and telecommunications networks. Between 1992 and 1996, the company exited from the rubber and cable businesses as well. Nokia in India Nokia entered the Indian market in 1994. The first ever GSM call in India was made on a Nokia 2110 mobile phone on its own network in 1995.When Nokia entered India, the telecom policies were not conducive to the growth of the mobile phone industry. The tariffs levied on importing mobile phones were as high as 27%, usage charges were at Rs.

16 per minute and, at these high rates, consumers did not take to mobile phones. Nokia also had to face tough competition from other powerful global players like Motorola, Sony, Siemens and Ericsson. Scope of the study: Nokia has emerged as one of the most recognized brands in India, surpassing some of the Indian business conglomerates in terms of revenues.Nokia considers India as one of the most important markets for its future growth; the company has been facing stiff competition in the recent years from Korean players like Samsung and LG.

After cutting prices to restore lost market share, Nokia has reverted to its old pricing strategy of maximizing profit and cash generation. Nokia has made the pricing transition amid expectations that the Finnish

group has stopped the slide in its market share. Nokia Corporation slowed down its effort to slash prices. In Europe, Nokia maintains its leadership on "ease of use" and reliability, but in the U. S. market, all brands are now considered equal.

"The key risk for Nokia in continuing to play on prices is that it could be further pushed toward the low end of the market". Nokia can sustain a price war for longer than any of its competitors. Earlier this week, Nokia said it expects to invest $100 million to $150 million in construction of a manufacturing facility for mobile devices at Chennai, India. Methodology: First degree Price Discrimination: In first degree price discrimination, price varies by customer's willingness or ability to pay.This arises from the fact that the value of goods is subjective.

A customer with low price elasticity is less deterred by a higher price than a customer with high price elasticity of demand. As long as the price elasticity (in absolute value) for a customer is less than one, it is very advantageous to increase the price: the seller gets more money for fewer goods. With an increase of the price elasticity tends to rise above one. One can show that in the optimum the price, as it varies by customer, is inversely proportional to one minus the reciprocal of the price elasticity of that customer at that price.

This assumes that the consumer passively reacts to the price set by the seller, and that the seller knows the demand curve of the customer. In practice however there is a bargaining situation, which is more complex: the customer may try to influence the

price, such as by pretending to like the product less than he or she really does or by threatening not to buy it. An alternative way to understand First Degree Price Discrimination is as follows: This type of price discrimination is primarily theoretical because it requires the seller of a good or service to know the absolute maximum price that every consumer is willing to pay.As above, it is true that consumers have different price elasticities, but the seller is not concerned with such. The seller is concerned with the maximum willingness to pay (or reservation price) of each customer. By knowing the reservation price, the seller is able to absorb the entire market surplus, thus taking all consumer surplus from the consumer and transforming it into revenues.

From a social welfare perspective, first degree price discrimination is not undesirable.That is, the market is still entirely efficient and there is no deadweight loss to society. However, it is the complete opposite of a perfectly competitive market. In a perfectly competitive market, the consumers receive the bulk of surplus. In a market with first degree price discrimination, the seller(s) capture all surplus. Efficiency is unchanged but the wealth is transferred.

This type of market does not much exist in reality, hence it is primarily theoretical. Nokia introduces its phone at the highest price to extract the entire consumer surplus it can.