Nokia and Behavioural Economics

Ten years ago, Nokia had 98 mobile phones and smartphones on its website, and Apple had only two products: the iPhone and the iPhone 3G. During those years, Nokia was the market leader in the business. They had products ranging from the lower end to the higher end, covering every market sector. It appeared to be an airtight marketing strategy.

However, Apple was only offering two iPhones, and it was a breakthrough. Once, owning a Nokia was a sensational experience; then public opinion shifted towards the iPhone. People were gradually switching from Nokia to Apple, but Nokia didn't realise it.

During those years, Nokia’s smartphones were very poor quality, and their strategy for growing the business was to expand the product range to extremes—essentially, offering the same product with a different name and an additional feature (or features). This seemed to be working for Nokia for a very long time, and they never put in the effort to gain a deeper understanding of consumer behaviour or the reasons for the increasing popularity of the iPhone.

They knew that the iPhone was very expensive, and only a small fraction of customers would be able to afford it. So, the thinking was that this new product would not hurt Nokia. Microsoft's CEO Steve Ballmer made a statement to support this belief.

Therefore, Nokia focused on making more and more products to increase their revenue. This resulted in choice overload: that is, too many choices being available to consumers. Choice overload has been associated with unhappiness in consumers (Schwartz, 2004). It leads to decision fatigue.

To put it simply, Nokia had too many products, causing confusion for consumers trying to find the best product to match their expectations. The range of choices was overwhelming. Therefore, customers experienced decision fatigue and regret aversion. Regardless of their final decision, there was probably a better model which they had not been able to find. As a result, only a few trusted Nokia models were popular, while the rest of the range was wasting space on Nokia's website and their production line.

As the years passed, Nokia persisted in this strategy, offering too many products, whilst Apple was only offering one or two smartphones during those years. It was very easy to choose the iPhone and people were able to understand what the iPhone could do for them. Unlike Nokia's smartphones, which lacked an app system, the App store was growing steadily and offering ever more and better options.

Now, Nokia has vanished from the market. They are using the nostalgia effect, reviving old models to capture the attention of people in their mid-30s by triggering memories of their teenage years. The nostalgia effect does increase the subjective value of a product, and we do tend to spend more when the nostalgia effect is triggered. However, this did not help Nokia to recover; it remains in our memories from the 1990s.

Of course, choice overload was not the only reason Nokia lost the competition against Apple. It was, however, one of the key mistakes Nokia made at the end of the 2000s.