Mobile phone marketers call on China

A look inside the world's largest handset market

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BEIJING -- Mobile phone manufacturers have good reason to be excited about China. Of the 1.5 billion mobile phone subscribers around the globe, more than 330 million are in China, making it the single largest user market on the planet.

Although 60 million new customers enter China’s mobile phone market every year, less than 30% of China’s total population is connected to a wireless service today and demand is growing rapidly in the country’s smaller cities and rural areas. By 2008, China Mobile, the country’s dominant service provider, estimates it will have 500 million mobile phone users, which still represents just one-third of all Chinese consumers.

“This is one of the fastest-growing markets in the world, but it’s under penetrated as far as China is concerned. It definitely represents our biggest growth opportunity,” said Beijing-based Michael Tatelman, Motorola’s general manager of mobile devices, North Asia (See Player Profile).

Foreign players are investing accordingly. Mr. Tatelman’s company, for example, is one of the largest investors in China among all industries. One of seven Motorola employees around the world is in the mainland, and its largest factory worldwide is in China.

Up to 1,000 models available
But, like marketers of everything in China from cars to soap, the challenge lies in figuring out how to translate the country’s potential into profits. In most Western countries, wireless providers attract consumers by offering heavily subsidized phones with service contracts, thereby limiting the number of choices faced by consumers, as well as the number of channels that handset manufacturers need to partner with. As a near monopoly, China Mobile lacks the competitive pressures to subsidize handset costs, so consumers are left to pick up the tab--and choose their own phone.

“For a first-time buyer, which most Chinese are, the number of choices offered to them is phenomenal. There are close to 1,000 models in the largest retail stores, so the challenge is how to stand out with a good design and brand image, but you also need best location in the stores,” said Maurice Tan. Until last month, Mr. Tan was Nokia’s VP-marketing for mobile phones in Greater China, based in Beijing. “Customers can get hijacked [in the retail store] by strong promoters offering another product.”

A recent study by WPP Group’s MindShare media agency indicates most Chinese now select their mobile phone brand based on emotional issues rather than functional attributes. But, in a market as large and diverse as China, preferences do vary along age, location and income lines.

Younger Chinese, for example, expect style, design and fun features. Their phones serve more as fashion accessories, music players and miniature game consoles rather than mere tools for voice communication. But older consumers demand sturdy, high performance phones with advanced features like PDAs.

Smaller cities are less sophisticated
Geographically, China is a “very fragmented market,” said Mr. Tan. In the early days of mobile phone usage, Nokia would select products it knew would be “clear winners” and push the brand nationally on the basis of those models. “That worked for a while, but we discovered we had to finetune that approach, because third and fourth tier city consumers [meaning those in less sophisticated markets] are not as sophisticated as consumers in Beijing and Shanghai, and they’re constrained by price.” In China’s smaller cities, for example, it’s still rare to see a cell phone price tag top $200.

Third- and fourth-tier cities will form a “key battleground where overseas and domestic vendors will square off,” said Chris Han, senior analyst at Norson Telecom Consulting in Beijing. Nokia, Motorola and Samsung, the top three foreign brands that currently control more than one-third of China’s overall mobile phone market, also face strong competition from local rivals like Bird, TCL, Hisense, Soutec and ZTE. In 2003, local brands managed to grow their overall market share to 44%.

To fight back, Nokia, followed by Motorola and Samsung, began systematically shifting their marketing budgets from above-the-line ads into in-store marketing materials that speak directly with consumers at the point of sale.

Local brands are still “growing fast in China. With continuous growth expected in the mobile phone market as well as greater improvement in the technology of the domestic players, the gap between the market share of the foreign and local brands is expected to narrow in the future,” predicted Rita Chan, Shanghai-based director-client service in China at Nielsen Media Research.

The market eventually will stabilize with three types of handset venders among the survivors, according to Mr. Han. The future winners include companies that acquire 3G licenses, local players like Bird that invest little in R&D but have strong distribution channels and a wide range of models and prices, and finally, a smattering of high-end models from marketers like Motorola and Nokia that appeal to urban consumers.

Fast Facts

Amount spent on advertising of mobile phones in China in 2004: $373,293,000, according to Nielsen Media Research

China Mobile subscriptions (in millions):
2000: 85
2001: 145
2002: 207
2003: 269
2004: 335
2005: 385 (est)
2006: 425 (est)
2007: 460 (est)
2008: 500 (est)
Source: China Mobile

Mobile handset market share in China (2003, 2004)
1 Nokia 14.4%, 15.8%
2 Motorola 16.6%, 13.6%
3 Samsung 9.3%, 10.6%
4 Bird 10.4%, 10.5%
5 TCL 8.6%, 7.1%
Source: Norson Telecom Consulting

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