MASTER OF SCIENCE IN BUSINESS ADMINISTRATION Strategy and Management in International Organizations Department of Engineering and Management ISRN LIU-IEI-FIL-A--13/01596--SE Spring Semester 2013 The Effect of Customer Preferences Dynamism on Incumbent Firms The Case of Nokia in the Mobile Phone industry Adnan Kandeel Dinsel Sali Tutor: Per Åman Upphovsrätt Detta dokument hålls tillgängligt på Internet – eller dess framtida ersättare – under 25 år från publiceringsdatum under förutsättning att inga extraordinära omständigheter uppstår. Tillgång till dokumentet innebär tillstånd för var och en att läsa, ladda ner, skriva ut enstaka kopior för enskilt bruk och att använda det oförändrat för ickekommersiell forskning och för undervisning. Överföring av upphovsrätten vid en senare tidpunkt kan inte upphäva detta tillstånd. All annan användning av dokumentet kräver upphovsmannens medgivande. För att garantera äktheten, säkerheten och tillgängligheten finns lösningar av teknisk och administrativ art. Upphovsmannens ideella rätt innefattar rätt att bli nämnd som upphovsman i den omfattning som god sed kräver vid användning av dokumentet på ovan beskrivna sätt samt skydd mot att dokumentet ändras eller presenteras i sådan form eller i sådant sammanhang som är kränkande för upphovsmannens litterära eller konstnärliga anseende eller egenart. För ytterligare information om Linköping University Electronic Press se förlagets hemsida http://www.ep.liu.se/. Copyright The publishers will keep this document online on the Internet – or its possible replacement – for a period of 25 years starting from the date of publication barring exceptional circumstances. The online availability of the document implies permanent permission for anyone to read, to download, or to print out single copies for his/her own use and to use it unchanged for non- commercial research and educational purposes. Subsequent transfers of copyright cannot revoke this permission. All other uses of the document are conditional upon the consent of the copyright owner. The publisher has taken technical and administrative measures to assure authenticity, security and accessibility. According to intellectual property law the author has the right to be mentioned when his/her work is accessed as described above and to be protected against infringement. For additional information about Linköping University Electronic Press and its procedures for publication and for assurance of document integrity, please refer to its www home page: http://www.ep.liu.se/. © Adnan Kandeel and Dinsel Sali ii ABSTRACT Title: The Effect of Customer Preferences Dynamism on Incumbent Firms: The Case of Nokia in the Mobile Phone industry. Authors: Adnan Kandeel [email protected] Dinsel Sali [email protected] Faculty: Department of Management and Engineering Date: 27th of May 2013 Background: The study of the dynamism of customer preferences’ effect on incumbent firms offers in-depth understanding of the active role of customers in affecting the position of incumbent firms which has been neglected in the vast majority of literature that examined the declining position of incumbent firms. Aim: The aim of this thesis is to examine the dynamism of customer preferences’ effect on incumbent firms. Definitions: Incumbent firm: the dominant firm in an industry. Customer preferences: the collection of attributes including explicit and implicit attributes of a certain product. Preference stereotypes: the implicit prejudgement by customers about a certain product that can not be ascribed to an explicit attribute. Methodology: A qualitative approach where online historical data from 1100 Nokia Mobile phone user reviews for 11 years were collected, profiled, and then analyzed. Completion and results: Incumbent firms are affected by the dynamism of explicit and implicit preferences through their effect on radical and incremental innovation. Furthermore, preference stereotypes can affect incumbent firms’ ability to impact the change of product meanings through radical innovation and investment in technology. Keywords: Incumbent firms, Customer preferences dynamism, Radical innovation iii ACKOWLEDGMENT "No matter what accomplishments you make, somebody helps you.” Althea Gibson We would like to express our gratitude to all those who helped us to accomplish the writing of this thesis. This could not have been possible without the kind assistance of the thesis supervisor Per Åman, and the constant support and guidance of Jörgen Ljung, Marie Bengtsson, and all other professors in the SMIO program. We would also like to thank our colleagues from the SMIO program for their valuable feedback and fruitful discussions. Finally, words can never express our love, gratefulness, and appreciation to each and every single member of our beloved families who supported us all the way through. Adnan Kandeel & Dinsel Sali Linköping – Sweden 27th of May 2013 iv TABLE OF CONTENTS TABLE OF CONTENTS ------------------------------------------------------------------------------------------------------------------------V LIST OF FIGURES ---------------------------------------------------------------------------------------------------------------------vii LIST OF TABLES -----------------------------------------------------------------------------------------------------------------------vii LIST OF CHARTS --------------------------------------------------------------------------------------------------------------------- viii 1. CHAPTER I ---------------------------------------------------------------------------------------------------------------------------------- 1 1.1. INTRODUCTION ------------------------------------------------------------------------------------------------------------------ 1 1.2 PROBLEM AREA ------------------------------------------------------------------------------------------------------------------ 3 1.3. PURPOSE OF THE RESEARCH-------------------------------------------------------------------------------------------------- 4 1.4. CHALLENGE ----------------------------------------------------------------------------------------------------------------------- 4 1.5. GAP OF THE RESEARCH THEORY --------------------------------------------------------------------------------------------- 5 1.6. STRUCTURE OF THE THESIS --------------------------------------------------------------------------------------------------- 6 2. CHAPTER II---------------------------------------------------------------------------------------------------------------------------------- 7 2.1. METHODOLOGY --------------------------------------------------------------------------------------------------------------------- 7 2.1.1. RESEARCH APPROACH ------------------------------------------------------------------------------------------------------- 7 2.1.2. RESEARCH DESIGN------------------------------------------------------------------------------------------------------------ 8 2.1.3. RESEARCH METHOD AND DATA COLLECTION -------------------------------------------------------------------------- 8 2.1.4. RELIABILITY AND VALIDITY IN THE CONTEXT OF BUSINESS RESEARCH ----------------------------------------- 12 2.1.4.1. RELIABILITY ---------------------------------------------------------------------------------------------------------------- 12 2.1.4.2. VALIDITY -------------------------------------------------------------------------------------------------------------------- 12 2.1.5. LIMITATIONS OF THE STUDY --------------------------------------------------------------------------------------------- 12 3. CHAPTER III ------------------------------------------------------------------------------------------------------------------------------- 14 3.1 THEORETICAL FRAMEWORK-------------------------------------------------------------------------------------------------------- 14 3.1.1 THE INCUMBENT FIRM ----------------------------------------------------------------------------------------------------- 14 3.1.2 THE TECHNOLOGICAL DIMENSION -------------------------------------------------------------------------------------- 16 3.1.3. DESIGN-DRIVEN INNOVATION DIMENSION --------------------------------------------------------------------------- 18 3.1.4. THE CUSTOMER DIMENSION --------------------------------------------------------------------------------------------- 22 3.1.5. CUSTOMER PREFERENCES DEFINITION -------------------------------------------------------------------------------- 23 3.1.6. CUSTOMER PREFERENCE FORMATION -------------------------------------------------------------------------------- 27 3.1.6.1. The PSYCHOLOGICAL FACTOR ----------------------------------------------------------------------------------------- 27 3.1.6.2. THE SOCIAL FACTOR ----------------------------------------------------------------------------------------------------- 29 3.1.6.4 THE ADVERTISING FACTOR --------------------------------------------------------------------------------------------- 34 3.1.7 DYNAMISM OF CUSTOMER PREFERENCES ----------------------------------------------------------------------------- 35 3.1.7.1 PREFERENCES TRAJECTORIES ------------------------------------------------------------------------------------------- 37 3.1.8. PREFERENCES AS MEMORY (PAM) AND FUNCTIONAL RELATIONSHIPS ---------------------------------------- 40 3.1.9. PREFERENCE MEASUREMENT-------------------------------------------------------------------------------------------- 41 4. CHAPTER IV ------------------------------------------------------------------------------------------------------------------------------