When Motorola released its earnings report for the second quarter ending June 2005, analyst and competitors alike were stumped. The company posted revenues of $8.83 billion up from $7.4 billion a year ago and earnings of $993 million against a $203 million loss a year ago. Selling 34 million handsets, the cell phone unit accounted for 55% of the quarterly revenue and $ 498 million in operating earnings. Motorola’s market share increased to 18.1%, a gain of 3.3%, establishing itself firmly as the second largest manufacturer behind Nokia (33% market share). This was an impressive turnaround for a company that had seen market share decline from a high of 51% during 1996 to a low of 13% in 2004 pushing it behind the market leader Nokia and the South Korean rival Samsung.
A key contributor to Motorola’s turnaround was the RAZR V3 (Razr), the thinnest phone ever developed. This ultra-slim and ultra sleek clamshell (flip-phone), which resembled a metal credit card when folded in two, won the coveted Gold Award for 2005 at the annual Industrial Design Excellence Award.
Motorola’s Journey through the Decades
From 1980s to 2000s Headquartered in Libertyville, Chicago, Motorola as founded in 1928 by Paul Galvin. Initially known as Galvin Manufacturing, the company created the world’s first commercially successful car radio in 1930. This was followed by walkie-talkie in World War II, the car phone and the pager in 1940 and 1950s. Throughout the 1960 and the 1970, Motorola focused its research on developing a hand held communication device for the masses. Motorola launched its first cellular phone, the “DynaTac” , in 1983. A decade later, engineers at Motorola successfully launched “Star Tac”. This was the first clamshell and was known as the wearable phone. It transformed Motorola into a trendsetter. By, 1995, the company became the undisputed leader of the global call phone market with a 54% share.
Around the same period, competitors such as Ericsson and Nokia brought digital technology to the US. This technology helped these companies incorporate features like better voice quality and greater data storage into their cellular handsets. Unlike its competitors, Motorola refrained from incorporating digital technology in its products. It continued with Star Tac and concentrated on the European and Asian markets rather than its main market, the US. Motorola’s cell phones were perceived as clunky, non-user friendly and expensive by the market.
Motorola’s market share declined further in 2002 and 2003 when, due to problems in its supply chain management, the company could not fulfill the demand for colour and camera phones, ceding holiday sales to Nokia and Samsung. Motorola’s lackluster performance helped Samsung to increase share 13% in 2003 from 7% in 2001.
Designing the Razr
After the loss that Motorola suffered in 2001, Galvin hired Mike Zafirovski, a 24 year GE veteran, to reignite handset sales. Understanding the importance of design, Zafirovski brought in outside talent such as Tim Parsey a former Apple executive, Jim Wicks , who had spent a decade at Sony’s innovation centre, to head the design centre at Motorola. By 2003, the design team at Motorola added 120 new members. Motorola produced some hit cell phones such as the V70 ( which was a keyhole shaped phone, which opened with a swivel like blade knife) among others.
However, Razr was different. Not only did it sport a unique design, but also became a major commercial hit. Contrary to the prevailing trend, the Razr as created from the designers’ wish list without much market research input going into its development.
Major innovations in design and engineering were undertaken for developing the Razr. To make the phone as thin as possible, designer used metal alloys such as aluminum and magnesium, for the phone instead of the commonly used plastic. However, the thinness resulted in increased fragility. Therefore, the outer casing was made of anodized aluminum to enable the phone to withstand daily wear and tear. The use of metal alloy made the phone extremely light weight 100gms. But since the phone was a clamshell design were foldable, the depth of the model depended on the thickness of the keypad. With the conventional raised keys, the thickness of the Razr would have increased dramatically.
To solve this problem, engineers successfully designed the first ever touchpad to be used in a cell phone as the input device. The touchpad was made from a single flat sheet of magnesium and the keys were chemically etched on the surface. The keys were then separated and by thin silicon strips and a blue backlight were used to illuminate the numbers and symbols. This revolutionary keypad was thus wafer- thin and futuristic looking with only one-third the thickness of the conventional keypads. As a result, the phone was less than 14mm thick when closed.
For the first time in Motorola’s history, a high-end fashion phone reached completion within 10 months, two months quicker than the normal cycle. After the initial rounds of testing, the Razr was declared fully functional by June 2004, and launched in the market in the fall of the same year.
Marketing the Razr
The Razr was the first product from Motorola to deliver on the fashion-meets functionality promise. For the Razr’s advertising campaign, Geoffrey Frost, spot term “transformer” opened in a dark room with a brunette watching a home video on her flat TV. After a while, all the consumer electronic gizmos turned into squares and coalesce into one slim and sleek Moto Razr phone.
For the Asia Pacific region Motorola bypassed the traditional approach and teamed up with BBC to produce short vignettes to sharpen the cool association of the Razr.
In rare show of marketing aggressiveness, Motorola also succeeded in signing Maria Sharapova for the Razr endorsement, which was her first worldwide sponsorship deal. She created the buzz around the Razr and worked with the company on different design ideas helping designers to figure out what was cool.
With the phone’s popularity skyrocketing, T-mobile also came on-board, announcing the availability of the Razr at its retail outlets by July 2005.
Future Strategy and Challenges
With this new design, Motorola was trying to create “wickedly cool and compelling” products, which were further demarcated by using 4-letter words. The family- based design strategy led to the development of common platforms for manufacturing cell phones, which resulted in increased standardization of parts, reduced manufacturing costs and increased turnaround times. This also aided in streamlining the supply chain with the company reducing the number of suppliers from 44000 in 2001 to 36,000 in 2005, and the number of suppliers from 44,000 in 2001 to 36,000 in 2005 and the number of components it bought for its cell phones from a high of 300,000 in 2001 to 100,000 in 2005 with the further aim of reducing it to 25,000 by the mid 2006. The effort of the company were paying off 14,000 in 2001 to 36,000 in 2005 and the number of components it bought for its cell phones from a high of 300,000 in 2001 to 100,000 in 2005 with the further aim of reducing it to 25,000 by the mid 2006. The efforts of the company were paying off as profit margin increased from 4% a year ago to 10% in the 2nd quarter of 2005.
Case Study Analysis
Reviving a brand is not just feasible; it may very well be a more attractive strategy than launching a new brand. The case study Motorola brand revitalization discusses at length about how the once a market leader brand in its product category lost its entire market to its competitors. Then how the brand made a roaring come back and was able to achieve the market position which it used to lead.
Reasons for Brand Revitalization
- Declining market share: In the year 1983 Motorola launched its first cellular phone, the ‘Dynastic’. By the year 1995 the company became the undisputed leader of the global cell phone market with a 54% share. However, around the same period such as Ericsson and Nokia brought digital technology to the US. This technology helped these companies incorporate features like better voice quality and greater data storage into their cellular handsets. Unlike its competitors, Motorola refrained from incorporating digital technology in its products. It continued with its existing models and concentrated on the European and Asian markets rather than its main market, the US. Making use of this opportunity, Nokia introduced “candy bar phones” with easy-to use scrollable menus, replaceable covers and changeable ring tones, which become the rage with the young and fashion conscious cell phones users.
- Declining sales: Motorola market share declined further in 2002 and 2003 when, due to problems in supply chain management, the company could not fulfill the demand for colour and camera phones, ceding holiday sales to Nokia and Samsung. Motorola lackluster performance helped the Samsung increase its worldwide share to 13% in 2003 from 7% in 2001 cementing its number three position. Samsung inched ever closer to Motorola due to its emphasis on manufacturing user friendly and innovatively designed cell phones and in the 3rd quarter of 2004, with a market share of 13.8%, moved ahead of Motorola to become the number two player in the cell phone industry.
Strategies For Brand Revitalization
- Change in the leadership: In January 2004, the board of directors appointed Edward Zander (Zander), who had spent 15 years at Sun Microsystems as the new CEO of Motorola. Only a few weeks later, when Zander came across the Razr, which was still under development, he saw sure-shot success, an iconic product, and put the phone’s development on the fast track. The management made many changes within the firm. By 2003 the design team at Motorola added 120 new members including sociologist, psychologist, engineers, graphics designers and software and color specialists. The company opened new design centers in many countries.
- Product innovation: Major innovations in designing and engineering were undertaken for developing the Razr. To make the phone as thin as possible, designers used metal alloys such as aluminum and magnesium, for phone instead of the commonly used plastic. However thinness resulted in fragility. Therefore, outer casing was made of anodized aluminum to enable the phone to withstand daily wear and tear. The use of metal alloys made the phone extremely light weight at 100 grams. Since the phone was a clamshell, there was another dilemma that the designer had to solve. As the clamshell designs were foldable, the depth of the model depended on the thickness of the keypad. With the conventional raised keys, the thickness of the Razr would have increased dramatically. To solve this problem, engineers successfully designed the first ever touchpad to be used in a cell phone as the input device. The touch pad was made from a single flat sheet of magnesium and the keys were chemically etched on the surface. The keys were then separated by thin silicon strips and blue backlight was used to illuminate the numbers and symbols. The revolutionary keypad was wafer-thin and futuristic looking with only one-third of the conventional keypads. As a result, the phone was less then 14mm thick when closed. The other technological innovations which were incorporated changes made were Bluetooth technology, built-in camera, MP3 ring tones, and dual LCD screen (one internal and another external) along with having excellent voice quality. It was first quad band phone. For the first time in Motorola history, a high end fashion phone reached completion within ten months, two month quicker than the normal cycle. The phone was launched in the market in the fall of the year 2004.
- Awareness of changes to consumers: Motorola succeeded in signing Maria Sharapova (Wimbledon champion in 2004) for the Razr endorsement, which was her first worldwide sponsorship deal. She helped create the buzz around the Razr. By June 2005, the company released special-edition black colored Razr phones for the top 25 Academy Awards (acting and directing) nominees with plans to launch the pink Razr by the of 2005, followed by an entire range in rainbow colors in 2006.
Conclusion
With the phone’s popularity skyrocketing, T-Mobile also came on-board announcing the availability of the Razr at its retail outlets by July 2005. Building on the Razr, the company unveiled the new design strategy for its upcoming products. The company posted revenues of $8.83 billion (as against Wall Street’s estimate of $8.3 to $8.5 billion) up from $7.4 billion a year ago and earnings of $993 million against a $203 million loss a year ago. Selling 34 million handsets for the quarter as against Wall Street’s estimate of 31 million handsets, the cell phone unit accounted for 55% of the quarterly revenues and $498 million in operating earnings. Motorola market share increased to 18.1%, a gain of 3.3%, establishing itself firmly as the second largest cell phone manufacturer behind Nokia (33% market share). This was an impressive turnaround for a company that had seen its market share decline from a high of 51% during 1996 to a low of 13% in 2004 pushing it behind the market leader Nokia and Samsung.