Research Notes

Higher Stock Rotation Risks and the danger of wrong decisions

This tendency towards handset manufacturers increasingly focusing on micro-segmentation will lead to a significant increase in the number of different handset models that need to be marketed at any given time. When many different handset models are being launched, the total turnover of each individual model will be more limited, than when customers could only choose between a limited number of models.

That different market players need to have different types of handset models in stock will of course have a large influence on the level of “Stock Rotation Risk” – a stock risk that will hit both distributors, mobile operators and dealers.

Previously the number of handset models was relatively limited, which meant there was a relatively modest risk of ending up with a surplus stock of obsolete mobile phones. With the significantly increasing number of models in the manufacturers’ handset portfolios, this risk has however also increased significantly for all the links in the distribution chain of mobile handsets.

The heavily marketed N-Gage handset from Nokia is one example of the risk there can be in having a stock of handset models targeted towards specific customer segments. Nokia’s N-Gage handset was a huge sales flop and led to a great number of mobile operators and dealers burning their fingers on large stocks of un-sellable N-Gage handsets.

The handset manufacturers focus on micro-segmentation will have a large effect on the future of distribution of mobile handsets, because the players will have to organise themselves differently to minimise their Stock Rotation Risk. The distribution strategies currently being used are simply too inappropriate for the distribution of mobile handsets when subjected to the terms of the future market. Both the mobile distributors and mobile operators that currently are distributing mobile handsets themselves will therefore have no choice but to redefine their distribution strategies.

A good number of mobile operators have lost a considerable amount of money on trying to handle control of distribution of mobile handsets in their own stores. Distribution of mobile handsets is a business with wafer-thin profit margins, where mistakes in stock control cost a fortune on the bottom line – a lesson many mobile operators have unfortunately learned the expensive way. The “Stock rotation risk” is large, as prices on mobile handsets vary significantly as new handset models are introduced and older models phased out. This stock rotation risk becomes even larger as handsets life-cycles consistently become shorter and as each handset manufacturer each year introduces an increasingly larger number of new models. Experience shows in this connection that logistics in this area is not among mobile operator’s core competencies. By outsourcing to experts in logistics, mobile operators can minimise both their costs and stock rotation risk in connection with handset distribution to their stores.

And the same time outsourcing handset distribution will free large financial resources, that mobile operators otherwise have bound in the very capital-intensive distribution business.

An outsourcing of handset distribution will also have the added spin-off that the mobile operators marketing department will have a larger freedom regarding which campaigns they want to run. If the mobile operator handles the handset distribution themselves, the campaigns will to a certain extent, be controlled by which handset models the distribution department coincidentally has in stock, or maybe even has much to many of. This type of sub-optimisation can be avoided by outsourcing.

Strand Consult has identified 10 Mega-trends, that each is analysed in depth in a new report “Mega trends in the mobile industry – a question of life and death” (300+ pages). Due to these Mega-trends, the mobile telephony market is in the middle of an upheaval of the whole value chain, which will lead to the implementation of new business procedures and revenue sharing models. The report analyses the effect that the 10 Mega-trends will have on the handset manufacturers, content providers, mobile operators and dealers respectively and the report puts forward suggestions on which considerations and measures the individual market players should take to prepare for the effect of the 10 Mega-trends.

Mega trends in the mobile industry – a question of life and death

Contact us to get a copy of the report

Request the report