Executive summary

W e believe that Xelibri has a good chance for success even though the market is highly
competitive. Xelibri can be successful by creating a new market in fashionable phones and
using the six recommendations that have been

discussed, whilst being backed up throughout with the core competency of marketing. We
believe that the first mover advantage can be achieved despite Nokia previously launching a
fashion phone, as their brand image is still driven by

price and style. As the first manuf acturer to launch handsets that solely focuses on fashion,
we believe that Xelibri can build up a new brand image that no other company has.

However, this advantage is not sustainable in the long term and will be lost if the product is not
kept technologically relevant and up to date. Famous designers and role models should be used
to ensure the product stays at the forefront of the

fashion industry, but given that technology is the key driver of change within the industry, it
also needs to be incorporated into the phone to maximise the potential for sales.

Strategic analysis of Xelibri

3 External Analysis and Market Based View

The market based view is very important to any firm as firms must understand the external
environment that they operates in before making strategic choices. There are many factors
which influence the industry which must be analysed caref ully; examples of these include the
PESTEL analysis, globalisation drivers and the Porter’s Five Forces (Partridge, 2005).

3.1 Industry dynamics

The key driver of change in the mobile phone handset industry is technology,which is
constantly changing and being updated. Camera-phones and MMS (multi media messaging) were
labelled as the new killer applications.Technology will continue to be the driving factor in the
future. Given the decisionto focus on fashion phones with only proven reliable technology,
other more technologically advanced phones could be considered threats. This is especially true
if one particular application were to take off and become ‘standard’ on all

phones – Xelibri would need to be able to accommodate this change.

3.2 Trends in the environment – PESTEL analysis

Political

– As markets are deregulated, both operators and manufacturers are

free to act independently of government intervention

Economic

– With incomes rising, people have more disposable income, which

enables consumers to be more selective with their choice of mobile phone,

looking to other factors rather than fulfilling the most basic of user needs (text

messaging and phone calls) and price being such a key factor.

Social

– The rise of the so-called information society has made

telecommunications increasingly more important to consumers, both in terms of

work and leisure. Users are more aware of mobile phone handset choice and

advancements due to increased information availability.

Technological

– There have been many global advancements in technology such

as MMS, Bluetooth, WAP, GSM, GPRS, cameras etc. The Asian markets are

more technologically advanced than their European counterparts, for example in

2002, just 4% of phones had cameras, whereas in Asia 90% did

Environment

– There is a concern that the use of mobile phones could be

damaging to health, with tumours potentially being caused by the waves emitted

by the handsets (BBC, 2004). There is also immense wastage created by

unwanted mobile phones that are thrown away as they are non-biodegradable.

Summary of PESTEL Analysis

The most significant environmental trends f or Xelibri are technological and economic. As
technology is the key driver of change in the mobile phone industry, Xelibri phones will need to
be adapted in the future to ensure compatibility, especially with 3G technology. In addition,
Xelibri will be able to charge a high price premium as the disposable income per capita is
increasing.

3.3 Globalisation

In order for the market based view analysis to be thorough, market globalization drivers need
to be considered (Campbell et al. 2002). The mobile phone manufacturers operate and
compete internationally selling their products in different countries and continents, although
various adaptations need to be made to accommodate differences such as technology (e.g.
China uses a different
network) and language. However on the whole there is a global standardisation ofquality, with
consumers having similar expectations. Companies have also reached economies of scale and
can outsource production globally and use international networking to drive down costs.

The amount of money people are prepared to pay for a mobile phone also varies from country to
country, so Xelibri will need to have a pricing strategy that reflects these differences. The same
price should not be charged in all countries. Xelibri needs to expand its market to the USA
and other Asian countries, in order to compete with its main competitors who currently sell
handsets all over the world.

Xelibri will need to adapt the phone for China and the USA, as mobile phones in these
countries use different technologies, e.g. tri-band.

3.4 Porter’s 5 forces analysis

A firm needs to neutralise as many as possible of the five forces in order to create a competitive
advantage. Porter’s five forces framework (Porter, 1998) is used primarily to assess the
attractiveness of an industry and identify possible sources of competition. Firms will try and
neutralise or disrupt as many forces as possible in order to achieve a competitive advantage.
The forces are dependent on one

another, so the firm must understand the connections between them in order to succeed.

Source: William and Joan Schreyer Business Library. 2005. Tools for Industry
Analysis.

Entry Barriers

Due to the ever changing technology within the industry, there are very high capital
requirements needed to invest in the research and development, which needs to be constantly
carried out by the firms to keep up with the latest trends as companies differentiate themselves on
who has the most up to date handset with the latest technological features.

There is very high expected retaliation from the leading players in the market, as any attempt to
differentiate the mobile phone, be it through technology,applications, design etc will result in
the existing firms releasing rival phones withsimilar or better attributes. A similar business
strategy was successfully carried out by a number of smaller manufacturers in Asia, who
copied leading designs, grabbing 1% of the market share each month of 2002.

Due to Xelibri’s affiliations with Siemens, the company will already have good access to all the
necessary supply and distribution channels which are needed to operate successfully in this
industry. This includes using EMS and ODM outsourcing models provided by companies such as
Finnish Microcell.

Economies of scale have also been reached by the firms in the market due to globalisation,
this has led to an increased degree of efficiency and therefore lower production costs.

External Analysis and Market Based View

There are very high marketing costs which are incurred by the firms, via promotion when a new
product is released.

First mover advantage provides limited scope for resurrecting an entry barrier if technology is
chosen as the means to differentiate the product, as it will be copied quickly by other firms.
However there is potential to resurrect entry barriers which are more sustainable through
effective brand marketing, with a specific focus on fashion and exclusivity.

Buyers

There is no threat of shops such as Carphone Warehouse integrating vertically to merge with
mobile phone manufacturers. However buyer power can be seen as strong – with the
existence of the network operators, who exist in an economic oligopoly.

As operators buy in bulk off manufacturers, large sums of money are involved and therefore they
can be specific with their constant demand for new technology and a f ull line of products.
These mass sales are needed to ensure the fundsnecessary to invest in research and
development for the manufacturers which is so essential to satisfy the operators demand. This
process is cyclical and favours the operators, showing their buying power in the market.

In terms of consumers the market is segmented into two main groups, the smallest being the
one of techno-junkies who are happy to pay premium prices for the latest killer application or
technology in their phone. However the majority of users buy their phones based mainly upon
price, quality and style. They appear to have no particular brand loyalties and are relatively
price-sensitive. Other consumers in countries such as China, the Philippines and Taiwan will
pay even higher prices relative to their income than their European counterparts.

Users in Great Britain and Germany are used to subsidised phone prices, however users in Italy
and Asia are not and pay full price. With their massive sunk costs, marginal cost is tiny for the
network operators so they are desperate to gain new customers, and to attract them they often
heavily subsidise phones (selling at 40-50% of production cost) or give them away free on contracts.
This ties the user into a contract which promotes loyalty as new customer recruitment is so
expensive. Buying power with the operators such as O2, Vodafone, and Orange can be seen as
powerful.

Substitutes

There are few substitutes for mobile phones although there is the potential for further
technological innovations to become better substitutes, though they will never replace them.
Examples include PC based applications such as internet telephone services and the ability to
send text messages via programs such as MSN Messenger. The other possible problem is that of
technological regression in that people may return to fixed line telephony as mobile phone call
charges escalate. However, given the massive convenience that mobile phones provide, there
are very limited substitutes available.

There has also been a convergence between mobile phones and PDA’s although a department
within Siemens has already been developing such products. Also this is a very specific customer
segment, with limited potential f or growth so Xelibri does not need to focus on this.

Suppliers

There is little threat of integration, even though the suppliers are all outsourced. In addition
switching costs between suppliers is low due to the high number of them. So supplier power is
relatively weak with limited bargaining power.

Industry Competition

There are a few main big international players, Motorola, Siemens, Nokia, Sony Ericsson,
Samsung, as well as smaller emerging copying firms in Asia. It is an intensely competitive
industry as it has reached the maturity stage, where the market is completely saturated. In
order to increase growth, market share must be taken away from competitors . It is therefore
difficult to gain market share and there is a big emphasis on efficiency. With technology as
the main driving factor for differentiation of the handsets, any changes are quickly copied, so
any competitive advantage is quickly lost. The company must be prepared for ‘copy cat’
phones.

Key trends and strategic issues in mobile phone industry

There is high demand for handsets across all geographical regions. The market is maturing with
high levels of market penetration, but the pace of change is not slowing down; new services
are being introduced and the major operators are preoccupied with the advent of third-
generation (3G) licences. Market deregulation, improvements in technology and new consumer
tastes have all been important factors in the dramatic growth seen in this sector. The pace of
change may even accelerate as mobile telephony becomes increasingly integrated, not only
with fixed-link telecommunications, but also with other technologies such as computing and
multimedia. This shows how vital it is for Xelibri to keep up with technological advances, as
technology is the key driver of change in the industry,but also with changing consumer tastes.

Summary of Porters Five Forces for Xelibri

Entry barriers are medium in the mobile phone industry, which benefits Xelibri as because they
use Siemens’ resources they have the infrastructure already in place and are also backed
financially by them, funding the high R&D costs. Xelibri have to be prepared for rapid retaliation
from the competition.

Due to the strong buyer power from operators and retailers, Xelibri should pursue other methods
of distributing the phones to avoid a weak strategic position. Buyer power can be seen as a threat
as they have to power to reduce retail prices and hence damage the brand image which is a key
success factor. The limited loyalty by consumers can be exploited by Xelibri for the launch but in
the long-term this could prove a problem for sales, as there is little differentiation between
manufacturers.

The threat of substitutes is very low so this is not a strategic issue for Xelibri and does not
need to be neutralised.

Supplier power is weak as there are many available so X elibri can easily switch between them
if needed.

Industry competition is extremely high as there is an oligopoly of manufacturers who possess

a large market share between them. Xelibri will have great difficulty gaining market share in this
highly competitive industry.

Xelibri are differentiating themselves from the competition through fashion, which should lead to
increased market share but is hard to sustain due to the ease of imitation.

3.5 Strategic group analysis

A strategic group is the group of firms in an industry following the same or similar strategy along
strategic dimensions (Grant, 2002). An analysis of this highlights the most likely direct
competitors. For this example we shall presume that other competitors such as Sony Ericsson,
Samsung and Nokia etc. could enter into the fashion market as well. The strategic gap that
should be moved into is the fashion

phone market segment. However, it will be hard to sustain this advantage.

3.6 Individual competitor analysis

The major firms are obviously direct competitors – especially if the fashion range takes off,
they should be expected to retaliate with rival phones – perhaps even with better
technology. Their core competencies are in R & D as well as brand reputation such as Nokia,
who have been in the industry a long time. The competitors are focusing mainly on
technology and applications for the phone as well as general quality and styling. However
none of these companies appear to have potential for much growth as the market is so
saturated. Smaller firms in Asia who are achieving market growth should be respected as
their imitation policies have proved effective so far. These retaliations should be expected to
happen very quickly, so competitive advantage will be difficult to obtain.

This table shows that the mobile phone manufactures already cater for price/style/quality-
driven consumers, as well as techno-junkies, so these segments are already saturated. This is
why Xelibri is therefore creating a new market segment, aiming to gain market share. Mobile
phones also have to globally available.

3.7 Market segmentation analysis

The existing companies in the market seem to serve all market segments, boththe high end
technology driven buyers as well as the quality/price/style driven segment.
The differences between the countries and the prices that people are willing to pay should
also be considered. In China, Philippines and Thailand people spend a higher percentage of their
income on phones. In Italy people are used to paying full price, but in Great Britain and
Germany consumers are used to subsidized prices from network operators.

The key industry drives are still technology and what is going to be the next killer application, all
companies seem to be focusing on this. Mobile phones have not yet really been designed for
specific user groups, the marketing campaigns and focus seems to be decided after the
product has been decided. Complete consumer focus (such as the fashion conscious segment)
has as of yet not been really tapped into, though Nokia had some success with the 8210.

Xelibri should try to create a new market segment through producing a line of fashion
phones as no other companies have specifically done this. These users will be young, affluent
and willing to regularly pay premium prices for the handsets which will be updated in time with the
fashion world calendar.

3.8 Industry life cycle analysis

The industry has reached the mature stage of its life cycle, where demand is fairly constant. In
terms of strategic issues, to increase market share, Xelibri will have to turn the market into a
hypercompetitive one. In this new market, Xelibri will differentiate through creating fashion
phones and not using technology as the key driver of change. This will stimulate demand and
hopefully lead to increased market share through creating a ‘turbulent, face-changing,
uncertain business environment’. The advantage will be temporary, and achieving a
competitive advantage will depend on Xelibri’s abilit y to change, speed, flexibility, innovation
and disruption of markets (Johnson and Scholes, 2001).

4 Internal analysis and Resource Based View

The resource based view is vital in understanding how to exploit the firm’s capabilities in
order to achieve a sustainable competitive advantage. The main aim is to assess the strengths
and weaknesses of the firm and then to identify the core competencies from the internal analysis
(Best, 2001). The organisation must also take into account how best to deploy their resources
and not just identify them.

4.1 Resources analysis

Tangible assets

Financially Xelibri are not constrained as they have been given an unlimited budget from Rudi
Lamprecht, the Siemens ICM Group President. Xelibri is currently made up of 42 people f rom 17
countries, mainly Siemens MP employees and external fashion designers and consultants.

Intangible assets

Many Xelibri employees have gained knowledge of the mobile phone industry through working
for Siemens and the external fashion consultants bring with them their knowledge of the fashion
industry. At the moment the Siemens brand is known for its f unctionality but Xelibri is a new brand
and wants to create a reputation for producing fashionable phones. It will be an important decision
where to launch the brand with non-existent brand awareness.

Leveraging Xelibri’s Resources

Concentrating - Focusing on a small market niche

Accumulating - Use Siemens own production resources

- Use fashion expert’s knowledge

Complementing - Marketing initiates the value chain

Conserving - Recycling same chips for different handsets

Recovering - Have first mover advantage combined with a large marketing

campaign to ensure awareness and hopefully sales

Xelibri’s first mover advantage, combined with their expertise in marketing should result in a
good brand reputation, which will help to gain market share and encourage multiple phone
ownership.

Analysis of current strategies

Through the launch of Xelibri, Siemens are diversifying within the mobile phone market.
However, as Xelibri aim to create a new fashion conscious market, it should not infringe on
Siemens current mobile phone market too severely. As Xelibri is within the Siemens portfolio,
Xelibri will benefit from economies of scope.
Problems with corporate parent

As the corporate parent, Siemens have set the objective of minimum return goals of 8-11% by
2005. This may result in Xelibri focusing too much on the goals set by the corporate parent
rather than being customer facing (Goold et al. 2006). Essentially, Siemens as the corporate
parent has identified a niche in the mobile phone market and has provided the resources for
Xelibri to grasp the opportunity to create the new segment in fashionable phones. This
strategy as a corporate parent may backfire if Xelibri is not successful, as it will be unpopular
with shareholders and may deter corporate investment in the future. According to (Goold et
al. 2006) corporate hierarchies inevitably result in some value destruction as resources are
wasted in reporting and senior corporate managers divide their time between a number of
business units. Inevitably this is also the case in Siemens, with Lamprecht and other senior
managers attempting to manage several business units.

Future strategic options

Price

Pricing is vital to a brand’s image. Xelibri must therefore set the price high enough to ensure the
product is considered to be exclusive but not so high that it will discourage potential
consumers. The main options for Xelibri are to price it above the rest of the market or to price it
on the same level as the competition.

Distribution

The decision of where to stock Xelibri phones will also have an impact on the brand image.
One could stock the phones in either high fashion designer department stores such as
Selfridges or Harvey Nicholls or through mobile phone retailers such as the Carphone Warehouse.

Countries

The major world markets for mobiles are Europe, Asia and America. Wealth varies widely across
Europe so only the most fashionable and wealthiest European countries would be suited to
Xelibri phones. In some Asian countries consumers pay relatively high prices for handsets but a
recent trend has emerged of smaller Asian phone manufacturers to copy the leading manuf
acturers’ phone design. A

different network, tri-band, is used in the USA so the phones would have to be adapted.

Operators

The buyer power of operators and retailers is very high, meaning they have large degree of
control over the price of the product for end-consumers. Xelibri could be sold exclusively
through one mobile phone operator, sold through all operators or the phone could be sold
independently with no operator contract.

Brand Marketing
Branding Xelibri is the critical issue, because it is a new brand, with no brand loyalty. As
Xelibri’s core competency of marketing and sales is potentially imitable, they should make it difficult
to emulate. Advertising is undoubtedly important but in the fashion world, PR and fashion role
models are normally more important. If a celebrity is seen with a product, consumers will also
want to own it.

Technology

The lack of new technology in Xelibri phones could prove a problem in the future, as technology
is the key driver of change in the mobile phone industry. The market is extremely dynamic; if
Xelibri lag behind, this could potentially damage sales Strategy evaluation and selection After
analysing the possible strategic options that Xelibri could follow, Xelibri should follow the
following strategic recommendations. These recommendations have been made following
careful analysis of what has so far been discussed in this report.

Strategy evaluation and selection

Technology

Due to the dynamic market, Xelibri cannot afford to have out of date technology even if
their phones do look more stylish than the competition. Every seasonal collection should
therefore have reasonably new technology in addition to the stylish design.

Future strategic options

To ensure that Xelibri stays at the forefront of the fashion world, top designers could be
employed and role models used to endorse the products. This would add great weight to the brand
and increase its reputation and hopefully, ultimately also its success. Stella McCartney or Karl
Lagerfeld would be a suitable candidate for such a role.

Due to the technology-driven nature of the industry, Xelibri should try to incorporate some of
the latest technology into their phones, to further add value to their product, so that just being
fashionable is not being solely relied upon.

We also believe that entering into the US market should be considered in the future,
although there will have to be technological changes with the phones to ensure they are
compatible with the different tri-band network.Setting up Xelibri stores is also a future option, in a
similar style to the ones Apple have created, which convey the brand image of fashion and
exclusivit y as well as being another outlet to sell the product.

As a very last resort, if the phone line does not take off, a price drop could be considered,
however we would strongly advise against this as it would severely damage the image of an
exclusive brand and hamper any chances of being able to charge a premium price on the new
design of phones in the future.

11.2 Future strategic alliances

There could be potential benefit through an alliance with a leading fashion house such as
Diesel. Collaboration with a powerful brand would enhance Xelibri’s fashionable image and
hopefully lead to further sales through the positive associations with this alliance.

Sponsorship of high-profile events should also be considered to increase brand awareness –

for example, the Clothes Show Live, in the UK, would be a suitable event.Finally selling
through a network operator and achieving bulk sales could be a future step, however the loss
of the ability to set the price and the potential for the phone to be subsidised or given out for
free on a contract, could detract from the

Future recommendations in the long-term

Exclusivity of the brand, However, the increase in revenue from selling a larger quantity of
phones could compensate for this. Also selling through phone retailers such as the Carphone
Warehouse could increase sales, care would again have to be taken to ensure that the
appropriate brand image is conveyed when handling over control of the sale in store to
them.Exclusivity and the quality of the brand would need to be strongly emphasised.

Conclusion

After considering the internal and external analysis, it is clear that there is a wealth of strategic
issues that need to be considered. Taking into account current strategy, Xelibri will have to
address these issues to achieve a long term sustainable competitive advantage. Whilst Xelibri
have a first mover advantage in the new fashion phone market, they will require more than this to
be viable in the long term. As the key driver of change within the mobile phone industry is
technology, to make their competitive advantage sustainable, Xelibri will need to ensure that
the fashion phones are technologically relevant. Although the market is extremely competitive
and dynamic, through first mover advantage and a focus upon brand marketing, Xelibri will
be able to achieve the necessary sales volume to satisfy Siemens’ stakeholders.

To summarise, Xelibri should be successful through focusing upon the creation of a new market
segment. An initial launch into Europe and Asia would raise publicity and ensure first mover
advantage. In addition, through pricing the phone between € 300 and € 400, and selling the
phones only at high fashion stores, Xelibri will ensure exclusivity. However, as has been
discussed throughout this report, Xelibri is likely to fail unless the phones are technologically
relevant and up to date, therefore, the technology in the phones should match technology
within the industry. Finally, through the use popular designers and role models, Xelibri should be
able to ensure the product stays at the forefront of the fashion industry.