A reform in marketing

Product sales charts resemble pyramids in which lower-end products usually have more customers. In a mature product, manufacturers must enter the low-cost segment if they want to expand their customer base.

To compete many phone makers have had to fight for market share using economies of scale. Some big players have released inexpensive models, with $50 or $100 phones popular throughout the world.

Statistics from market research agencies show that shipment of mobile phones costing less than 1,000 yuan rose from 37.8 percent in the second quarter of 2005 to 41.3 percent in the first quarter of 2006. Nokia saw 40 percent of its shipments made up by phones priced less than 1,000 yuan.

Low-priced phones do not mean low profits. Instead, they help bring more profit through a larger scale of production. Let's take Nokia as an example its mid- and low-price strategy has not eroded its margin and net profits have been growing steadily.

The strategy to enter rural markets further highlights the importance of inexpensive phones. Towns and rural markets outside metropolitan centers have a strong demand for lower-priced phones, while globally, emerging markets like Vietnam offer new territory for inexpensive mobiles.

As the rural market becomes a priority for Chinese telecoms, so phone makers want to win favor from operators with good price-to-performance.

In a mature market, phone makers also need to renew existing customers in large cities along with finding new buyers. Lower prices mean people change their phones more frequently. Currently, the replacement cycle in China is about 12 to 18 months and replacement already accounts for 70 percent of phone purchase.

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