Handsets for niche segments are making their presence felt, not only behind the mobile industry scenes, but also in the retail marketplace. Siemens Xelibri was the first bold experiment into handsets designed exclusively for niche segments (back when the German manufacturer had cash to spare). Turns out the experiment was extremely valuable for the industry, but an expensive mistake for Siemens.
Xelibri has been followed by tens of handsets every year targeting niche segments: for examples look at Vertu, ESCADA, Firefly, Vodafone Simply, Dmobo’s Disney-themed M900, i-kids, ELLE Glamphone, Bang & Olufsen Serene, Goldvish, Casio G-Zone, Voce, Jitterbug and Nordisk MobilTelefon handsets, which target at a wide range of segments: kids, fashionable females, tweens, teenagers, sports enthusiasts, senior citizens and VIPs.
ARCchart’s new report on the ‘The New Age of Handset Customisation: 2006-2011‘ takes a close look at the wonderful and risky crossroads of niche marketing and mobile handsets (I was the lead author of the report). The report documents a wide range of uniquely customised handset to date. The screenshots below tell the complete story (click twice to enlarge):
In this context, Xelibri is the earliest and probably the most fascinating case study on handsets for niche segments. And one that has many lessons to teach to the industry.
Xelibri: a valuable, but expensive lesson
Xelibri is a well-known case of manufacturer device customisation, both for its uniqueness and its ultimate failure to execute.
Quoting from the ARCchart report, ‘Siemens gave birth to Xelibri in 2001 with a view to creating a differentiated range of handset models which would support higher handset margins by appealing to consumers’ sense of fashion and style, as opposed to differentiating on technology features. In addition, by releasing two new portfolios a year, in sync with the established fashion seasons, it was intended as a vehicle to shorten the handset replacement cycle. In creating Xelibri, Siemens management opted for developing of a new handset line and an entirely new brand, free of any existing technology associations.
Xelibri was announced to the world in February 2003, with a plan to release ‘collections’ of four handsets every six months – a Spring/Summer collection and a Fall/Winter collection. The first Xelibri collection dubbed ‘Space on Earth’ was launched in March 2003 and the handsets were sold in fashion boutiques and through concessions in department stores, positioned alongside the clothes and jewellery and not the electronics. The phones were sold SIM-free, without any operator involvement in the sales process and therefore no subsidy.
The first collection did not sell well, and rumours circulated that Siemens had sold less than 100,000 units in total, despite the launch hype and the extensive (albeit not always glowing) press coverage. The second collection launched in October 2003 amid a barrage of publicity and a high profile TV campaign in a number of its key markets. The designs – all produced this time by the design consultancy IDEO – were an improvement on the first range, with each product appealing to a fairly distinct demographic Towards the end of 2003, Siemens management acknowledged that sell-through rate at distribution outlets was very poor – on some occasions as low as 100 handsets for major fashion stores. To shift stock, Xelibri handsets ended up being sold in some incongruous locations, including discount supermarkets and bargain internet sites, at discount rates up to half their original value.
Eventually, in May 2004, Xelibri was officially delivered the coup de grace by Siemens. It was the conclusion to a bold experiment, but in the end a reported total of only 720,000 handsets were sold, less than 2% of Siemens’ total handset sales in 2003, according to the Wall Street Journal.
Where did Xelibri go wrong?
While the conceptualisation and the organisational effort around Xelibri was a valid one, the project failed to execute for a number of reasons.
The handsets lacked a recognisable brand. This was intentional, as Siemens wanted to establish a brand entirely separate from its own, which it could buld into an identifiable handset ‘fashion brand’. However, building a brand on this scale requires a budget to match and years of campaigning, something which Siemens was lacking. Furthermore, the Siemens brand was never exposed to the consumer, leaving the handsets with a lack of technology assurance.
Typically, a demographic that has disposable income to spend on one or two supplemental handsets as discretionary fashion purchases is going to be a moneyed elite. In general, these consumers are sophisticated and educated men and women who are familiar and comfortable users of technology. However, the Xelibri handsets had appalling feature sets (typically only supporting voice and SMS) in a market where high-quality colour screens and integrated digital cameras were becoming the norm. Xelibri lagged the technology curve and that harmed sales.
The handsets looked and felt cheap. While aspects of the fashion market may appear entirely frivolous, great care and pride is taken in the product finish, particularly in the power brand accessories market against which Xelibri was benchmarking itself. Xelibri failed to
incorporate this, which corresponded to a low value perception. The distribution channels – fashion boutiques and department stores – did not have enough time to develop: these retailers were not accustomed to selling technology items. At the same time, shelf positioning was not controlled by Siemens, meaning that Xelibri handsets were ‘lost’ amidst unrelated items and imagery, when they should have been framed by
promotional material and images.
The lack of operator subsidy meant that a Xelibri handset costing around $250 had to compete against a sexy Nokia handset with colour screen and integrated camera sold at low cost under an operator contract. The desirability of the Xelibri range was not high enough to
place it in an entirely new product category to that occupied by the standard subsidised handset portfolios.
According to a Tier-1 manufacturer who performed a post-mortem on Xelibri, the handsets included a new hardware reference design which was created from scratch for this project. This was an unnecessary risk and a significant surplus to the Xelibri handset BOM.
Perhaps Siemens’ most significant failure was that Xelibri simply did not engage with its target market. While most of the marketing around Xelibri positioned the handsets as an accessory for the urban and street demographic, the handsets themselves did not carry design traits, which appealed to this audience. While all of Xelibri’s failures could be corrected by Siemens with hindsight, its inability to garner respect from a fashion conscious consumer base would be difficult to rectify since it goes to the very heart of the company’s nature. Fashion companies such as Chanel, Armani, Quicksilver, Nike and Oakley have spent years and hundreds of millions of dollars understanding and engaging with their target audiences and reinforcing their respective brand values. It is questionable whether a consumer electronics manufacturer will ever be able to engage consumers in a fashion context. This is not a limitation that only BenQ Siemens faces, but indeed is applicable to all Tier-1 OEMs.
All in all, Xelibri was a valuable lesson to the handset industry, albeit a very expensive one.
Since 2004 a lot has happened. Tens more handsets for niche segments have appeared. Although no one has been as brave in delivering a unique concept as Xelibri to the market, there are plenty of other case studies worth highlighting, two in particular: Bang & Olufsen’s Serene handset and ELLE’s Glamphone.
Bang & Olufsen’s Serene: total handset redesign in true B&O style
“Bang & Olufsen is a vertically integrated business that sources and manufacturs most products internally, including its DECT handsets, with only a few of its core components, such as its LCD and Plasma screens, supplied by third parties. However, B&O decided not to develop handset technology internally since mobile communications was not a core competence. Instead, B&O decided to partner with Samsung, since the two companies had prior working relationships, but also because B&O felt the Korean manufacturer shared similar processes and a focus on quality. Samsung also had a matching strength of brand and was able to deliver an international footprint.
The Serene concept was developed by David Lewis, B&O’s Chief Designer for the past 30 years. B&O retains Lewis on a consultancy basis, as the company recognises that designers have to remain independent and work in different industries to keep track with market trends. Lewis was heavily involved in the entire design process, while the engineering team was a mix of B&O and Samsung staff. Development of the Serene handset took one and a half years from design to completed product.
The handset The Serene handset sports typical B&O industrial design and is highly customised. One of its unique features is the motorised hinge – slight pressure on the phone flip activates the motor and the phone automatically opens and closes itself. Beyond voice, the functionality of the handset has been limited to the basics: SMS, phonebook, calendar, VGA camera, calculator, dictaphone, world time, alarm and Bluetooth. B&O justifies the limited functionality and poor camera quality as a result of the decision to optimize the device for voice and emphasise simplicity and ease of use. The wheel-shaped keypad is another distinguishing characteristic, taken from B&O’s range of DECT handsets.
The screen is 2.1” QVGA (320×240 pixels) with 262K colours and the user interface has been totally redesigned, with much of the functionality found in today’s mass market phones omitted.
B&O Serene: Market reaction and strategy
According to Brian Stilling Laursen, Product Manager for Serene, the feedback B&O has received so far has been positive, with the company being thanked for breaking the boring mobile handset mould. The simplicity of operation and limited functionality has also been another source of positive feedback.
With a EUR1000 price tag, B&O’s margins for the Serene are comparable to the margins of its other entertainment products. However, small volumes and fast replacement cycles may challenge B&Os business case for Serene, with the company contemplating in early May
whether to proceed with a second version of Serene. According to David Lewis, Bang & Olufsen is quite exceptional, because they require a concept to last for at least 10 years, a requirement that is unlikely to remain true in the case of mobile handsets.
In turn, ELLE’s Glamphone project has been surprisingly succesful, given that it has produced a distinguishing design for a niche segment that has sold in 6 figure numbers.
The Glamphone: a handset for fashion-consious women
“The GlamPhone series has been made possible by the collaboration of three parties: ELLE, Tedemis and TCL Alcatel. ELLE, a leading women’s fashion magazine brand is owned by Lagardere Media, the number one special interest magazine publisher worldwide. ELLE stands for femininity, fashion and French culture. ELLE contracted with Tedemis, a French mobile phone licensing agency, to assist in the identification of a handset partner and manage license contracts between the brand and the manufacturer. Tedemis is essentially the matchmaker that brought together TCL Alcatel and ELLE.
The GlamPhone No 1 handset has sold more than 100,000 units in 1Q06, with the sales of GlamPhone range expected to reach 250,000 by 3Q06. These volumes rank the GlamPhone particularly high in the league of uniquely customised handsets. The distribution network includes Europe, Russia and Latin America, while the manufacturer is expanding sales to Asia (including Thailand and Malaysia) and the US, where it will be channelled through a San Diego-based distributor. Expansion in global sales is expected to ramp up volumes on GlamPhone handsets to 500,000 by the end of 2006.
Clearly, TCL Alcatel is satisfied with the product revenues and profitability, given that the handsets sell at a premium, compared to handsets of similar function. While GlamPhone sales account for a small fraction of the total handsets which TCL Alcatel ships annually, they account for a disproportionately greater level of its profits, and the company expects this trend to continue and grow as it adds new uniquely customised handsets to it production line.
We expect ELLE to be making in the order of $2 million to $3 million annually from the sale of GlamPhone handsets, a particularly attractive figure given that this is mostly profit arising from brand licensing”.