Telefónica Puts Its Weight Behind Nokia

| About: Nokia Corporation (NOK)

A couple of weeks ago at the Nokia (NYSE:NOK) Lumia 1020 announcement, we heard from Stephen Elop that Telefónica (NYSE:TEF) would be coming on board to push the cameraphone to its customers. This was a huge deal as the Spanish multi-national operates in over 20 countries with more than 300 million customers. This week, we have also heard that Telefónica Germany (operating under the O2 brand) will be shifting its entire retail force to Nokia Lumias from BlackBerrys (NASDAQ:BBRY). This won't please the Canadian company's shareholders too much but sadly they've become used to setbacks recently with enterprise support gradually drifting away. On the other hand, this is fantastic news for Nokia and not just because the company will directly benefit from providing these phones. Here's why.

Consumers are a complicated bunch

You and I don't really consider ourselves members of the "general public", but we very much are. Sometimes we make decisions on impulse, sometimes we take our time, sometimes we will buy something and cancel it later, sometimes we'll buy something on the recommendations of a friend, or won't because they have it. For the record, I've done all of the above in the last month and it wouldn't surprise me if lots of readers have too.

What we have is "consumer confusion" [pdf] which can come in many forms. The first is "choice overload" which my fellow contributor Andreas Hopf has touched upon in this excellent bearish piece. What he was alluding to was that perhaps with Nokia's rather large range of phones, consumers will get confused. I think he may have a partial point on that score, but again, what Telefónica did this week I hope will address that particular concern (I'll explain why shortly).

The next way we get confused is similarity. One of our readers "Solucky" pointed out for example that the L625 and L920 may have the same prices in Germany. This will naturally confuse consumers, especially if they also suffer from a lack of information about the product, which as was pointed out last year by the then head of Microsoft (NASDAQ:MSFT) Windows Phone it had an "awareness problem".

The final way we get confused I want to touch upon is when we get "information overload". One of the reasons I really admire Apple's MacBook range is it's so simple to understand. I can go big (MacBook Pro) or small (Macbook Air). I can then go smaller screen or bigger screen and my choice is made. On the other hand, last month when I was looking for a PC laptop, I was left utterly befuddled by looking at one particular website. In the end I went with Dell (NASDAQ:DELL) and most importantly, I also chatted with an online sales representative before making my purchase. Bear in mind that I am quite technically minded yet even I got very confused by the choices on offer. I also broke my budget by about 50% falling into the trap of overspending, again showing how much we get influenced by sales representatives.

Navigating our confusion

To help the consumer therefore and ultimately win it sales, Nokia needs to tackle each of the above confusion points. The first step is in simply raising brand awareness so people know about Nokia and what it is doing. I discussed how the company's attempts are succeeding here. The next step is in helping the consumer while they are researching about the product. I discussed how Nokia's high online social media influence helps it in this regard here. There is much more Nokia needs to do in this regard of course. One of my favourite TED talks of all time spoke about the "tyranny of choice". Essentially the talk spoke about the fact that if people are given too many choices, they are actually less likely to choose to buy something and so therefore need careful guidance. Nokia needs to help consumers in this regard. So if the L1020 is advertised for having fantastic camera capabilities, perhaps the L925 should be advertised for something other than its low-light camera capabilities.

The final step however is perhaps the trickiest - it is at the end-purchase point. In several articles I have pointed out that Nokia needs carriers on board to sell its phones for precisely this reason. Of course, this doesn't always work. As was pointed out excellently by Joan Lappin, AT&T (NYSE:T) has been a "crummy" partner to Nokia. Elop gave a very good reply to this question, but I think it is a fair assessment that many of its front-line sales representatives do nothing to help sell Nokia phones. I have heard too many complaints on Windows Phone forums to chalk that up to mere anecdotes, even our readers have had such experiences which they've shared on many article comment threads.

So how does Telefónica's moves help Nokia?

WPP, one of the most respected advertising agencies in the world, conducted research into shopper decisions here. Some of the key facts were:

  • 28% of shoppers will not decide which brand to buy until inside the store
  • A further 10% will change brand choices inside the store
  • 33% are influenced by in-store staff recommendations
  • Only 38% of Germans but 88% of Chinese will decide on category, brand and budget inside store

WPP's research is clear. In-store representatives can act as powerful "brand ambassadors". Now when every single sales representative of Telefónica Germany will be carrying around a Lumia 520, when every single retail manager will have a Lumia 925, Nokia will unquestionably be helped. For sure, not all staff will automatically recommend Windows Phone. They will however have a great deal of knowledge about their phone's capabilities and will be much more likely to recommend them to customers. They will therefore be able to reduce the confusion of their customers. They'll be able to recommend the right Nokia phones, at the right price point and have enough knowledge to be able to help customers navigate the complexity.

Furthermore and even more significantly, I think it is very likely this roll-out won't just be happening in Germany, but globally across Telefónica's 24 countries. Surely this can only be good news for Nokia. It would be really great if AT&T and Verizon would do something similar to help shift Nokia's phones in North America.

Final Thoughts

Telefónica's move is an unequivocal good piece of news for Nokia. Its preference for carrier exclusives has come in for a great deal of criticism here and elsewhere. I have always defended this arrangement but was worried if Nokia would make it pay off. I think those worries can start to be assuaged, certainly on Telefónica's front. I am also awaiting AT&T's marketing campaign for the L1020 and will report on that next month when I have enough information. I will also provide an update on the Lumia 925 and Lumia 928, both of which have been pushed out to only selected carriers.

It has been said that with every two steps forwards, Nokia takes one step backwards. That may be true, but ultimately, it is still moving forwards and I for one, as a Nokia long, am very happy about that.

Thanks to StormanNorman for the tip!

Disclaimer: This article is not an investment recommendation. Any analysis presented in this article is illustrative in nature, is based on an incomplete set of information and has limitations to its accuracy, and is not meant to be relied upon for investment decisions. Please consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.

Disclosure: I am long NOK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.