Last week was a really bad one for a pair of household names, and this week promises to be pretty awkward for a third. The eclipse of Nokia is set to become a classic business school study. From the world’s fifth most valuable brand in 2006, and a market value of E100 billion in 2007, no fashionable mobile-toter would be seen with one today, and the business is now valued at E12 billion. The fall of Sony has been no less dramatic. The producer of the best telly in nthe world, in the shape of the Trinitron, has reached the point where it is contemplating stopping production altogether. The shares have also lost nine-tenths of their value since 2007, and have fallen by two-fifths since the start of last year.
The two companies have little else in common, but in both cases the managements ignored the signals from the customers. In 2006, Nokia’s position seemed as unassailable as, say, Apple’s does today. It not only had a dominant share of a growing market, it had margins twice those of its nearest competitor (remember Motorola?). It could outspend and thus out-develop any company which threatened its hegemony.
Yet it quite failed to see what was happening in its marketplace. Apple’s reputation as the slightly edgy hardware supplier of choice was not something Nokia could do much about, but the failure to see the rise of the app was a disastrous blunder. It was not until the number of these applications passed 100,000 that Nokia acknowledged that they had changed the way mobile phones were used. By then, it was too late.
There’s a deal of ruin in a large corporation, as Adam Smith might have said, and it’s possible that Nokia’s Lumia 900 will stop the rot, although not if it sells for $99 and includes $100 of free phone calls. At least the FT likes it. The acid test will be the speed with which it attracts the app-builders. The prognosis for Sony is much worse. It looks like a corporation without a purpose. Despite a deck-clearing $6 billion loss, a core business of video games, mobile phones and cameras, coupled with a vague vision of some broad, sunlit upland, does not look convincing.
The point here is not to mourn the decline of great businesses, but to look at the cuastomer experience. Share prices of both companies halved during 2008, but the marketplace was signalling much worse to come. Nokia’s phones looked out-of-date, while the Bravia TV was (and is) a real disappointment to Trinitron fans. The customer experience proved to be a leading indicator of desperate times ahead.
Customer experience has also disappointed at Tesco, after two decades when Britain’s biggest grocer could seem to do nothing wrong. Shoppers today are going there not because they love the brand, the prices or the shops, but because they often feel (rightly or wrongly) that they have no choice. The superstores seem to be everywhere, and the company is blamed for creating “Tesco towns” and sucking the life out of the high street. However unfair, this is dangerous territory for any company to occupy. No business the size of Tesco’s can avoid the occasional operational blunder, but the usual reserve of goodwill looks as low as a reservoir in south-east England.
It’s much more important for new chief executive Philip Clarke to put this right than to make a profit in America. Clarke, who received the hospital pass from Terry Leahy, has signalled that he grasps this, by taking personal control of the UK business. On Wednesday he will reveal his strategic blueprint for the business. Let’s hope he gets a good night’s sleep tomorrow.