Licensing Journal Volume 35, January 2015: What's in a Name? Lesson from the Demise of the Nokia Brand

1. JANUARY 2015
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V O L U M E 3 5 N U M B E R 1
LicensingTHE
JournalEdited by Gregory J. Battersby and Charles W. Grimes

2. JANUARY 2015 T h e L i c e n s i n g J o u r n a l 1
Efrat Kasznik is president of Foresight Valuation
Group, a Silicon-valley based IP valuation,
strategy, and startup advisory firm. Ms. Kasznik
is a Lecturer on IP Management at the Stanford
Graduate School of Business, and is listed
on the IAM 300 list of leading IP strategists,
2013-2014. She can be reached at ekasznik@
foresightvaluation.com. This article was
published originally in a slightly modified version
by the IAM Magazine.
In an interview with CNBC, Finland’s Prime
Minister, Alexander Stubb, recently blamed Apple
for the demise of the Finnish economy’s two most
prominent industries, which in turn led to an eco-
nomic downturn and a ratings downgrade for the
country: “A little bit paradoxically I guess one could
say that the iPhone killed Nokia and the iPad killed
the Finnish paper industry.” While the Finnish forest
industry is likely to rebound—as Mr. Stubb quickly
noted—Nokia seems to have lost not only its mobile
device unit, which was sold to Microsoft in April 2014
for $7.5 billion, but also its mobile “Nokia” brand.
Microsoft officially announced in October 2014 its
decision to discontinue the Nokia branding on smart-
phones, replacing it by the name Microsoft Lumia.
Although the Nokia name will no longer be used for
smartphones, low-end devices will still be sold under
the Nokia brand, which still has some cachet in
Europe and developing markets.
A closer look at the Nokia brand, in light of
Microsoft’s decision, reveals a fast devaluation the
likes of which rarely have been seen in the consumer
space. After being ranked #5 on the 2007 World’s
Most Valuable Brands list compiled by brand consult-
ing firm InterBrand, with an estimated $33.7 billion
brand valuation, Nokia dropped to #98 in 2014, with
a brand value of slightly over $4 billion, a stagger-
ing 90 percent decline in value in just seven years.
A quick review of the InterBrand list reveals that, of
the 2007 top 10 ranked brands, most have fairly con-
sistently stayed in the top 10, while others have stayed
close to the top 10. Regardless of their placement on
the list, all of the 2007 top 10 brands increased in
value between 2007 and 2014, with the exception of
Nokia (and GE)—as shown in Exhibit 1.
Professor David Aaker of the Haas School of
Business at UC Berkeley, who is considered the father
What’s in a Name? Lessons from the
Demise of the Nokia Brand
Efrat Kasznik
Exhibit 1—World Most Valuable Brands, 2007 v. 2014
Brand 2007 Rank
2007 Value
($B, Rounded) 2014 Rank
2014 Value
($B, Rounded)
Coke 1 65 3 82
Microsoft 2 59 5 61
IBM 3 57 4 72
GE 4 52 6 45
Nokia 5 34 98 4
Toyota 6 32 8 42
Intel 7 31 12 34
McDonald’s 8 29 9 42
Disney 9 29 13 32
Mercedes-Benz 10 24 10 34
Source: InterBrand

3. 2 T h e L i c e n s i n g J o u r n a l JANUARY 2015
of modern branding strategy, has defined brands
as a “vital form of corporate equity, a measurable
asset whose value is as important to a business as its
capital infrastructure and staff.” While a brand name
is not the only attribute guiding product choices, it
certainly is considered central enough that Microsoft
went through the trouble of rebranding the Nokia
smartphones. What lessons can we learn from the
Nokia example about the factors that impact brand
valuation in the marketplace? Below are several
observations related to brand values that could per-
haps shed some light on Microsoft’s decision.
Brands Drive Their Value
from Underlying Products
Brands drive sales of products, while product sales
in return strengthen the value of the brand. That being
said, products can still sell without strong brands, but
there are no strong brands that exist without prod-
ucts. Nokia’s brand value is tightly correlated to its
decline in market share: its cell phone business has
been through a steep decline since the introduction of
the iPhone in 2007. The once formidable player, with
over 40 percent of the world’s mobile phone market
at its peak in 2007, Nokia saw its market share erode
quickly to less than 5 percent by 2014, losing ground
first to Apple and later on to Samsung and other
Android handset makers. (See Exhibit 2.)
Interestingly enough, both Apple and Samsung
entered the top 10 InterBrand list since 2007, with
Apple placing #1 with a brand value of $119 billion
and Samsung placing #7 with $46 billion in 2014. The
Microsoft brand itself currently is estimated at over
$60 billion in value, so it is reasonable to assume that
it could carry much higher smartphone sales than the
Nokia brand could have.
Brands Need Constant
Nurturing to Maintain
and Grow Their Value
While Nokia invested heavily in research and
development over the years and is credited with
building the first cell phone in the mid-1990s, cre-
ating a valuable patent portfolio along the way, it
reportedly has been lacking on the marketing side.
A 2013 New Yorker article, recounting the Nokia
sale to Microsoft, stated: “Nokia overestimated the
strength of its brand, and believed that even if it was
late to the smartphone game it would be able to catch
up quickly.” The article goes on to explain: “Nokia
also failed to recognize that brands today aren’t as
resilient as they once were. The high-tech era has
taught people to expect constant innovation; when
companies fall behind, consumers are quick to pun-
ish them.”
That is an interesting observation, given the
makeup of the top 10 brands on the InterBrand list
from 2007 that survived through 2014. Spread across
several industries—automotive (Toyota, Mercedes-
Benz), food & beverage (Coke, McDonald’s), and
entertainment (Disney)—these are all companies that
have one thing in common: they invest significant
Exhibit 2—Global Smartphone Market Share:
2008–2013
’08 ’09 ’10
Motorola
BlackBerry
Nokia
Samsung
Apple
’11 ’12 1st Half ’13
10
20
30
40
50%
Source: Gartner

4. amounts of money annually in marketing, maintain-
ing, and constantly evolving their brand identity,
sometimes across multiple products. Most of the
companies ranked as top 10 brands for 2014 also are
listed on the Advertising Age top 25 list of advertisers
for 2013, including: McDonald’s at $957 million (#9
on brand list), Toyota at $879 million (#8 on brand
list), and Samsung at $597 million (#7 on brand list).
About 40 Percent of Brands
Get Discontinued in Post
M&A Integration
An MIT-Sloan study on post-merger branding
strategy done in 2006, which covered over 200
acquisitions larger than $250 million done in the
period from 1995 to 2005, revealed that 40 percent
of the companies followed a strategy called “back-
ing the stronger horse.” The strategy is based on the
combined entity adopting the name and symbol of
the lead company (the buyer). Notable examples of
that strategy include: DHL’s acquisition of Airborne
Express and Verizon’s acquisition of MCI. The advan-
tage of this approach lies in its simplicity: the merger
is positioned as an upgrade for the employees and
customers of the less prestigious brand.
“Backing the stronger horse” is the most com-
mon approach among several possible post-merger
branding options, which include: adopting the tar-
get’s brand, creating some combination of the two,
or creating an entirely new brand. It highlights the
benefits of scale from adopting one unified and well-
known identity for the merged entity. In the case of
Microsoft, the choice was obvious because it was
the stronger of the two brands. However, the deci-
sion to drop the target’s brand does not always go
very smoothly, as one can conclude from the Board
dispute at HP related to the post-acquisition dis-
continuation of the Compaq brand, then estimated
at $25 billion. It eventually was decided to continue
using the brand for limited retail purposes.
In conclusion, the Microsoft branding decision
follows in the footsteps of 40 percent of M&A deals
in choosing the stronger brand of the buyer, with the
hopes of driving higher smartphone sales. The Nokia
brand suffered from declining product sales and did
not compete well against the Samsung and Apple
brands, both with a higher InterBrand value score
and significant marketing spending to sustain their
brands. Microsoft selected the stronger brand to try
and reverse that trend. It remains to be seen how well
the Microsoft Lumia phones sell in the marketplace,
and whether Microsoft has backed the right horse.
Copyright © 2015 CCH Incorporated. All Rights Reserved.
Reprinted from The Licensing Journal, January 2015, Volume 35, Number 1, pages 15–17,
with permission from Wolters Kluwer, New York, NY,
1-800-638-8437, www.wklawbusiness.com