Why Motorola Collapsed: The Downfall in 6 Easy Steps

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China’s leading research, consulting and IT outsourcing service provider, CCID Consulting, recently evaluated the performance of Motorola in the Mobile Phone Market. With the split of Motorola’s mobile phone business from its other businesses back in March 2008, Motorola’s market share has dropped from 22.2% in 2006 to 12% in 2007. Now ranking 3rd in market share after Samsung, the proportion of mobile phone business in Motorola has decreased from 70% to 52%. To add insult to injury, Motorola’s profit contribution in 2006 was $2.7 billion, but in 2007 it’s profit contribution hit a deficit of $1.2 billion. Below are the six errors Motorola has made, ultimately leading to the downfall of a once great mobile phone manufacturer.

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Error One. Motorola’s Addiction to Killer Product V3 Led to Disorientation in Product Development Direction

In 2005, Motorola’s profit increased 102%, its mobile phone shipment increased 40% and Motorola’s brand revives. V3 is still popular in many countries.

CCID Consulting finds out that star mobile phone products can be popular for 2-3 years before 2005, while it is not the case after then. Even the most popular mobile phone failed to maintain a good sale in more
than 1 year. V3 was a bounce-back product for Motorola in the mobile phone market, but the addiction in V3′s market success does not help Motorola in exploring new development direction. In the later 3 years, Motorola only prolongs the lifecycle of V3 fictitiously, losing the chance to catch hot spots in the mobile phone market. On the other hand, competitors of Motorola succeeded in finding suitable position in the market, such as music mobile phones of Sony- Ericsson, navigation mobile phones of Dopod.

Error Two. Slow in Launching New Products

The RAZR series brings billions of dollars for Motorola. However, Motorola has not put profit into new products R&D to consolidate its market position. As a result, Motorola is far behind its competitors in launching new products.

CCID Consulting statistics show that Motorola releases thirteen new mobile phones in 2007, far less than that of its competitors (Samsung releases 54 new products and Nokia releases 37 new products). Benefiting
from plentiful production lines, Samsung and Nokia provide different products to different channels so that there is less competition among channels. However, Motorola’s sales channels are more competitive due to
less new mobile phones, which results in lower gross profit rate.

Error Three. Price Cut Erodes Brand Image

Price cut is an evitable method for Motorola to increase sales volume. For example, upon entering the market, as a high-end product, the price of V3 is more than 6000 Yuan, while it drops to 4000 Yuan for white-collar consumers and soon to 2000 Yuan for common consumers. After production of V3 ceased, the price of V3 is 1200 Yuan. In less than 2 years, the price of V3 decreases by about 80%, which is unacceptable for most high-end users. CCID Consulting’s research reports show that consumers’ brand loyalty to Motorola is at the bottom among abroad brands. Facing the cruelty of price wars, market share and profit rate of Motorola keeps decreasing. The profit rate of Motorola is only 11.2%, while Nokia reaches 16.8% at present.

Let’s have a look at the price strategy of Nokia. For classical products, Nokia would rather stop production than reduce price frequently in order to maintain product image. For example, Nokia actively stops the production of 7650, 6610, N70, N72, N93 and develops new products to occupy the market.

Error Four. Lack of Product Feature

Mobile phone manufacturers have trained consumer to diversify in their demand on mobile phones. Except for product appearance, consumers pay more attention to configuration and functions of mobile phones. However, similar products of Nokia are superior to those of Motorola in pixels, screen definition, and memory capacities. For example, Motorola is absent in the competition of 500 million pixels mobile phones in 2007. In terms of appearance, Motorola’s new products such as U series, L series, and K series did not make a breakthrough over V3, which causes visual fatigue and even rejection towards the series.

Error Five. Fail to Emphasize on Product Selling Points V3 is a classic in both product design and market promotion. Motorola succeeds in finding the equilibrium point between technology and market.

However, Motorola loses this equilibrium after V3. For example, ‘Ming’ series mobile phones, developed by China Research Center, integrate many innovating technologies of Motorola such as name card scanning and human-machine interaction. However, these innovations are not highlighted in its market promotion.

Error Six: Disjunction of R&D and Demands

Motorola is a technology-oriented enterprise; engineer culture is intense in this company. This company considers itself as the center. Motorola has marketing department which collects information of consumers’
demands, but in this technology-oriented enterprise, consumers’ demands are difficult to hear by R&D departments. R&D departments prefer to expend much energy on complicated system, which leads to a disjunction of R&D and demands.

Besides, because of the disunity and instability of Motorola’s internal products’ planning strategy, upstream components’ purchasing costs are high. Every model of Motorola has different platforms, which brings
difficult to production, purchase and plan.

For global top communications equipment suppliers, it is an impossible task to operate system equipments and mobile phone terminals. Ericsson, Alcatel, Siemens and Nokia successively finish the choice questions.
Motorola also did this choice question in 2004, and it peeled off its semiconductor department which is its major chip supplier for Motorola mobile phone — Freescale. After four years, Motorola faces this choice
again. It is not a natural disaster, but man-made calamity.

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