Initial pricing of the Nokia (NYSE:NOK) Lumia 1020 in all the worldwide markets announced so far has caught most local experts by surprise. In this article, we review the pricing in the various countries where it has already been introduced (or is soon about to be). We discuss some possible motives for Nokia with respect to this unusually high pricing. Our main conclusion is that Nokia overpriced this flagship intentionally because it does not know the demand elasticity. Worldwide pricing is likely to come down soon. It is only after that happens that the true volume potential of the phone will be realized. It is still not clear exactly what that potential is. China and Germany are two important markets (and early indicators) for the worldwide potential of this Windows Phone flagship.
While lower prices are offered with multi-year contracts, most of the world (outside the US) prefers to buy their phones at full price to get a lower monthly bill. As such, the off-contract prices announced in various countries is important. The subsidized prices announced with "strings attached" is less important in terms of trying to gauge volume demand.
The initial $300 pricing was a surprise to most. Initial reactions from professional reviewers have suggested that this pricing makes no sense. But within days of introduction, deals in the $250.00 range began to appear. More recently, there have been scattered reports of the company experimenting with $200.00 in selected geographies, namely in Huntsville, Alabama and Gainesville, Florida.
The strict restriction to these geographies of the discounting is a strong indication that Nokia is trying to discover the price elasticity of the US consumer with respect to this phone. In other words, it does not know yet if lowering the price by $100 will have a significant impact on the volume of sales. If the demand proves to be inelastic, volumes will not change much due to the lower price. A recent article by Redrut suggests that initial demand in the US has been lackluster at best. Based on these data points, my expectation is that pricing on the Lumia 1020 will probably move to $200.00 for all of the US long before Christmas.
The screenshot, below, is taken from a large on-line Chinese distributor and has been translated to English. It shows that the early feedback from China with respect to the Lumia 1020 has been quite positive.
However, at a price of $973, my concern has been that there would be limited demand for this product at this price. However, it is common for initial pricing in China for the latest tech to start off high and fall within a month or two of introduction. So I am watching closely to see how long Nokia keeps its price this high in China.
Until the Lumia 520 was introduced a few months ago, China's profile for Windows Phone purchases was surprisingly upscale:
Here, for example, is the data from two months ago, after the Lumia 520 had been introduced for only a brief period. We see that the high end Lumia 920 is the surprising market share leader among Windows Phones sold in China. For this reason, I believe the Lumia 1020 has an opportunity to do quite well in China - better, in fact, than the likely volume sales in the US over any comparable period.
The Lumia 1020 will not be generally available in the UK until next month. However, the CNET UK site is reporting that the initial pricing of the Lumia 1020 will be 550 pounds (about $860). While one could argue that a high end iPhone (with extra memory) is in the same price range, once again, the initial pricing seems high, according to the local blogs.
Pre-orders have already started at 700 euros (about $934), while the phone will become generally available next month. In addition to the standard model, O2 will offer a special 64GB edition, which is estimated to have a price of 750 euros.
Given that Germany remains one of Europe's more affluent countries, it appears to be one of Nokia's best opportunities to sell the Lumia 1020 in volume. Like most of Europe, Germany faced severe supply restrictions on previous Lumia releases - Nokia cannot afford to do that again on this release.
51000 rupees (about $808, depending on how much further the Rupee has crashed by the time you read this article) is the price in India. The high end cell phone market in India is small, but Nokia's brand name remains strong there. I doubt sales of this flagship can move the needle for Nokia but as in other countries, it may create a halo effect, furthering Nokia's overall brand appeal in this important third-world market.
Global supply could be limited initially but that would not explain the high initial US pricing, where there appears to be plenty of supply. More likely, Nokia has chosen to start off with a high price for the Lumia 1020 because it does not yet know what kind of price elasticity it is facing in the worldwide markets. Recent experiments in Florida and Alabama would support this thesis.
By starting off high, Nokia leaves itself room to adjust downward once it discovers the best price point. Certainly starting too low would give it less flexibility. What all this means to the average investor is that it may be several months more before the true fate of the Lumia 1020 is determined. Of the worldwide markets, China and Germany offer two of the best volume sales opportunities, while the US offers perhaps the best media exposure. I continue to believe that investors expecting large volume sales in the US are going to be disappointed, as this phone is more halo than hero here.
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.