Case Study of Second Generation Cordless Telephone in Hong Kong
A Case Study of A New Product in Hong Kong, 1995 Cordless Telephone Second Generation (CT2)
William Y S Chan
Jul 2012
A Project Assignment
Submitted in Partial Fulfillment
Of the requirement for the Professional Qualification
Certified Management Accountant (CMA)
Of the Institute of Certified Management Accountant, Australia
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Table of Contents
Chapter 1 Introduction
3
Chapter 2 Objective
4
Literature Review – (1) New Product Development Process
4
(2) Product Life Cycle (PLC) and Diffusion Theory of
Innovations (DTI)
5
(3) Consumer Buying Models
10
(4) Product Features of CT2 (standard)
15
Chapter 3 Scope of Study
(1) Customer Secondary Survey
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18
(2) Summary of Survey Findings
(3) Competitive Position of CT2 in Hong Kong 1992-94
(4) Market information of the telecommunication sector
Comments & Analysis
(5) Market Information of CT2 Sector
Comments & Analysis
18
21
22
23
Chapter 4 Recommendations and Conclusion
27
Chapter 5 References
28
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Chapter 1
Introduction
Second Generation Cordless Telephone (CT2) was once a newly developed telecommunication device in early 1990s for use at home, in office and on street, originated in the United Kingdom. At home, CT2 could be used simply as cordless phone to make and receive calls by plugging the home-based unit into the phone line socket. In office, CT2 could be used by connecting to a direct line or a newly developed cordless PABX system which allowed high portability at any location in the office premises. On street, CT2 users could dial out within 150 meters of the specified tele-point based stations provided that the users have subscribed the telecommunication services from the network company. CT2 was frequently referred to by the marketing name "Telepoint." (See Figure 1)
Figure 1 CT2 handset & home-based unit
In the late 80’s, the Hong Kong Government identified there was very high demand for mobile/cordless telecommunication services from the public and analogue cellular phone services no longer satisfied the general public needs. The government invited some tenders to operate & provide CT2 telepoint network services. Four licenses were then granted to four licensees, viz. Chevalier, HK Telecom (trading CSL as operator), Hutchison and Pacific TeleLink. (in alphabetical order)
Hutchison was the first operator to launch CT2 services, followed by Chevalier in early 1992. Hutchison and Chevalier were able to capture less than 40,000 users, only about 40% of the original expected market size. The main reasons for poor achievement of the new product were
(a) technical product performance, and
(b) relative poor connectivity of the public network.
Pacific TeleLink later launched their services one year later in Mar 1993, despite the slow growth market as well as the unfavourable market conditions.
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Chapter 2
Objectives
1. To identify from perspectives of product/service users, the critical success factors
(CSF) of viability of a new product mobile/cordless communication devices (CT2 in our case) services operation in Hong Kong
2. To evaluate critically the performance of the product/services against the CSF identified. 3. To recommend mobile communication services operators, in terms of marketing strategies, to enhance competitive edge of the new product mobile/cordless communication devices (CT2 in our case).
Literature Review
1. New product development process (NPDP) – CT2 was once a newly developed device of telecommunication originated in UK and absolutely new to Hong Kong.
First of all, we start with some literature review regarding the process of New
Product Development (NPD).
Figure 2 illustrates the new product development process which includes (a) Idea Generation; (b) Screening; (c)
Business Plan Development/Feasibility Studies; (d)
Prototype Development; (e) Test Marketing; and (f)
Commercialization.
(a) Idea Generation is sometimes called opportunity identification, which indeed is a process of creatively recognizing opportunities along with the firm’s ongoing or standing strategies about innovation. (For example, seven concepts identified.)
(b) Screening is sometimes called Pre-technical
Evaluation, a stage when the ideas that came from idea generation activity are evaluated. Usually it uses a scoring model of some type and results in a decision to undertake development or quit. (For example, five concepts are screened out as acceptable)
(c) If it is to go ahead, the people involved should write out a statement of what is wanted in the new product – description, definition or protocol i.e. the
Figure 2 New Product
Development Process
(source: Bennett, 1988)
benefit, rather than the features, of the new item. A new product business plan including estimates from personnel of production (costs), marketing (sales,
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market share & promotion budgets), and accounting (profit margins) must be analyzed to prevent potential disaster. (E.g. Two were dropped for not profitable.) (d) In our example, three product concepts survived the business test and each will be developed into a prototype – an actual version of the product that will help developers evaluate its feasibility, costs and characteristics. Some concepts will be abandoned at this stage usually for unexpected high costs of production.
(e) During test marketing, the product is actually introduced into selected geographical markets where developers can observe how consumers and dealers react to the handling, use and promotion of the product. It is a form of experimental method of marketing research. Methods, say in-store interviews, questionnaires, telephone surveys, and observations etc. must be established to collect feedback
(f)
Given success in test markets, during commercialization developers establish full-scale production, set prices, lay out a distribution network and make final promotion plan to introduce the product in all its markets.
Figure 3 Mortality of Idea During Product Development Process (Source: New
Product Management for the 1980s, Booz, Allen & Hamilton, NY, 1982)
Product development begins with screening, moves on to revenue & cost analysis, followed by laboratory development, market testing and concludes with commercialization. Large numbers of new product ideas are passed into the system at one end, but only a few successful items reach the market. (Figure 3)
2. Product Life Cycle (PLC) and Diffusion Theory of Innovations (DTI)
In this case study, we will use some popular models to help our analysis regarding the new product CT2 operations in Hong Kong.
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Product Life Cycle (PLC) is a popular concept describes stages in the sales history of a product category or form, recognizing it to have a finite life. This concept draws an analogy between biological life cycles and the pattern of sales growth exhibited by successful products. It is one of the first attempts to form an analytical framework for determining marketing strategy. Figure 4 shows the idealized product life cycle which includes curve and unit profit trends as well as the market extension of the life cycle.
Underlying the life cycle is the diffusion process and associated adopter categories which are classified according to their timing of entry onto the market. Figure 5 indicates the proportion of the total market of each category and the idealized diffusion pattern. – Diffusion Theory of Innovation (DTI)
Figure 4 Product Life Cycle and Marketing Mix
Figure 5 Adopter Category as a Function of the Relative Time of Adoption
The DTI asserts that Innovators represent 2.5% of the market that will immediately accept the new product and try it. The early adopters are those who (13.5% of the
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market) will make or break the product, depending upon their experiences and opinions. If favourable, acceptance grows rapidly and most of the market enters quickly. The last group to accept the product, the laggards, buys for the first time
(about 16% of the market), often when innovators and early adopters have moved to alternative products. Innovators are important in new product introductions for they affect later adopters and retail availability. However, innovators are usually not influentials. They are too innovative to be credible. They do help to create awareness of a new product, and perform a product testing function that is observed by the influentials. The most important group of opinion leaders are the 13 % early adopters. These people are highly respected and have the most extensive social networks. The early majority also have some value of as opinion leaders while the late majority and laggards are slow to adopt and have no value as influentials.
(Dalrymple & Parsons, 1990)
Each stage of the life cycle represents different marketing challenges.
At the introductory stage, the task is to create awareness and achieve acceptance by opinion leaders within the early adopter group. During growth, the challenge is to maintain supply and quality consistency, while establishing brand identification and market position. At the maturity stage, the firm needs to maintain or improve its profit, defend its position and look for growth segments of the market. In decline, cost reduction, pricing and targeting are important to profitability, and planning is required to determine exit timing. Examples of products at different life-cycle stages in Europe in the early 1990s are shown in Table
Introduction
Growth
Maturity
Decline
Filmless cameras
Computer Scanners
Stress wave sensing
Expert systems
CD Players
Fax transmission
Laptop computers
Golf
Microwave ovens
Washing machines
Brandy
Refrigerators
Draught ale
Typewriters
Squash
7-inch records
Source: McDonald & Brown (1990)
Strategic Implications
The strategic implications of life-cycle model are that each stage warrants different objectives, marketing mix, strategies and different management focus. Day (1986) and Wasson (1974) have both conducted comprehensive analyses of life-cycle management and propose marketing strategy guidelines for each stage. Each of them
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adds between growth and maturity an intermediate stage termed “competitive turbulence”, which recognizes the implications of the effects of a slowdown in market growth and over-supply, brought on by the entry of new competitors and increase in capacity by existing ones. Day and Wasson provide a summary of the general strategy implications of life-cycle model
Example: When it was introduced, telex offered an efficient, quick text-transfer service as an alternative to the postal service. It rapidly became an essential business communication tool with maximum market penetration in the early 1980s. British
Telecom implemented life-cycle extension strategies by adding features to telex terminals, enhancing user capabilities, allowing text transfer to computers and targeting non-user segments such as small business. The rapid growth of facsimile systems since the mid-1980s has brought about the decline of telex and a need for
British Telecom to change its strategy to retain divestment or reformulation to enable future profit to be made on much lower telex volumes.
Life-cycle patterns vary in practice. Some new products skip the introductory stage and grow rapidly from the outset. These are usually products that are readily understood by the market and for which a latent demand exists. Colour television and cellular mobile telephones are examples. New fads exhibit only rapid growth and rapid decline because of a novelty appeal, seasonality and association with special events. Some products show a decline, then a regrowth pattern. Industrial and consumer durables, such as farm machinery and refrigerators, reveal this cyclical pattern. The Diffusion Theory of innovation (DTI) is a theory concerning the spread over of innovation, ideas, and technology through cultures. (Everett Rogers, 1962) This has been extensively studied by sociologists, psychologists, and anthropologists. The concept was first studied by the French sociologist Gabriel Tarde (1890) and by
German and Austrian anthropologists such as Friedrich Ratzel and Leo Frobenius.
The theory states that there are many qualities in different people that cause them to accept or not to accept an innovation. There are also many qualities of innovations that can cause people to readily accept them or to resist them.
According to Diffusion Theory, there are five stages to the process of adopting an innovation. The first stage is knowledge, in which an individual becomes aware of an innovation but has no information about it. Next is persuasion, in which the individual becomes actively interested in seeking knowledge about the innovation. In the third stage, decision, the individual weighs the advantages and disadvantages of
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the innovation and decides whether or not to adopt it.
After the decision comes implementation, in which the individual actually does adopt and use the innovation. Confirmation is the final stage. After making adopting the innovation, the individual makes a final decision about whether or not to continue using it based on his own personal experience with it. These same stages apply, to varying degrees, to groups of people in addition to individuals.
Figure 6 Adopter Category and Diffusion Curve
The dynamics of the diffusion process provide useful targeting insights. Target customer groups change over time. It is easier to obtain market share growth during the growth stage of the life cycle as customers form opinions of brands and try alternatives. As the market matures, customers become more knowledgeable and their perceptions of the product type and brands within it change. Distinctions between brands are reduced and the product type becomes “ordinary “, having lost its newness and mystique. Customers progressively develop a “commodity” homogeneity view of the product.
At maturity stage of some markets, weaker competitors might choose to retain profit margins by withdrawing advertising support. (Figure 6)
An empirical study by Buzzell & Cook (1969) examined the sales histories of 192 consumer products and found that more than half of them (52%) followed the general PLC pattern. However, “Forget the PLC” was the command made in a famous article (Dhalla & Yuspeh, 1976) which based upon conceptual and operational arguments of – (a) products are not living things, hence the biological metaphor is entirely misleading; (b) the life cycle of a product is the dependent variable, being a
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function of the way in which the product is managed over time. It is not an independent variable; (c) the PLC cannot be valid for product class, product form and for brands – indeed an important function of a brand name is to create a franchise that has value over time, permitting changes to take place in the product formulation;
(d) trying to fit PLC curves into empirical sales data is a sterile exercise in taxonomy;
(e) the four phases or stages in the life cycle are not clearly definable; (f) it is impossible to determine at any moment in time exactly where a product is in its life cycle; and hence, (1) the concept cannot be used as a planning tool; (2) there is evidence that companies who have tried to use the PLC as a planning tool have made costly errors and passed up promising opportunities. (Thomas 1994)
Michael J Thomas (1994) of Strathclyde Business School concludes that PLC is not a universally valid model, but rather an ideal type from which fundamental insight into the behavior of most product forms over time can be ducted but which in application needs very careful handling.
PLC concept, however, provides the fundamentals for analyzing marketing decision of
CT2 in the following areas – (i) competition; (ii) marketing strategy; (iii) strategic pricing; (iv) advertising promotion and (v) distribution channels
3. Consumer Buying Models
Throughout the 1960s attempts were made to integrate a variety of theories, research findings and concepts from the behavioral sciences into a general framework which could be used to explain and predict consumer behavior. In doing this, the principal writers such as Nicosia (1966), Engel, Kollat and Blackwell (1968) and Sheth (1969) paid more recognition to the consumer’s psychological state before, during and after the purchase. The process has been summarized by Howard (1983) who suggested that buyer behavior is “largely determined by how the customer thinks and processes information”.
However, this idea of an information – attitude – intention – purchase sequence has also been commented on by Foxall (1987): “ ….a rational decision sequence. They credit consumers with considerable capacities for receiving and handling quantities of information and undertaking extensive pre-purchase searches and evaluations.
They rely heavily upon the ideas of cognitive decision making in which information is received and classified … via mental processing, transformed into the attitudes and intention which determine brand choice and related aspects …. as analogous with
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that of computers; the consumer has been depicted in terms of a ‘central control unit’….” Foxall (1987) criticized further as follows: (1) the models assume an unrealistic degree of consumer rationality; (2) observed behavior often differs significantly from what is described; (3) the implied decision process is too simplistic and sequential; (4) insufficient recognition is given to the relative importance of different types of decisions – high involvement vs. low involvement vs. repeated purchase; (5) the model assume consumers have seemingly infinite capacity for receiving and ordering information -- in practice, they ignore, forget, distort, misunderstand or make far less use than this; (6) attitudes towards low involvement products are often very weak and emerge after the purchase and not before as models suggest; (7) many purchases seem not to be preceded by a decision process; (8) strong brand attitudes often fail to emerge even when products have been brought on a number of occasions; (9) consumers often drastically limit their search for information, even for consumer durables; (10) when brands are similar in terms of their basic attributes, consumers seemingly do not discriminate between them but instead select form a repertoire of brands. (Wilson et al – 1992, p116)
General Consumer Buying Model
Figure 7 Customer Buying Process
A series of models have been proposed ( say, Nicocia, Howard-Sheth, and
Engel-Kollat-Blackwell, etc.) which focus not simply upon the buying decision, but upon the process leading up to this decision, the decision itself and then subsequently post-purchase behavior. An example of this sort of model is illustrated in Figure 7. The process begins with the recognition of a problem or a want. This may emerge as the result of an internal stimulus or an external stimulus in form of an advertisement or even a colleague’s comment. This leads to the search for
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information which might be at the level simply of a heighted awareness or attention to advertising or at the deeper level of extensive information searching. In either case, the search process is likely to involve one or more of four distinct sources: (a) personal sources; (b) public sources; (c) commercial sources; and (d) experimental sources. The relative importance of each of these varies greatly from person to person and product to product.
Figure 8 Factors Influencing Problem Recognition
The buyer decision process begins with problem recognition. This occurs when a person perceives a difference between what he or she has (say, poor communication reception of the device) and what he or she would like (say, a clear communication reception). Problem recognition can be awakened by information on past experience stored in memory, basic motives, or cues from reference groups (say, colleagues) and family influence (Figure 8). Problem recognition also can be activated by an outside stimulus, say advertising.
Figure 9 Marital Roles in 25 Purchase Decisions (source: Davis & Rigaux
“Perception of Marital Roles in Decision Process” Journal of Consumer Research, V1,
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June 1974, p.54)
Joint decision making by the husband and wife tends to decline over the family life cycle. Results of a study of family role specialization for different purchase decisions are shown in Figure 9; respondents used a 3-point scale to identify family member influence (1= husband, 2= joint, 3 = wife) for each decision. Averages for each decision can be read off the vertical axis. The horizontal axis is used to show the percentage of respondents giving the joint response. Expensive and jointly consumed purchases, as might be expected, tend to fall into the joint or syncratic region, whereas role specialization based on expertise or stereotypical sex roles is indicated by the purchases found in the two dominant regions.
Figure 10 The Search Process
Figure 11 Alternative Evaluation
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The stage of evaluation of purchase decision model is the most complicate and the least understood part of the process. Many influencing factors are difficult to observe; yet a general model of the evaluation stage is illustrated in Figure 10. It involves a comparison of the data with the buyer’s evaluative criteria. In the case of the CT2 purchase concerned, the criteria included price (handset, call charge per minute & monthly charges), technical functions of dail-in and dail-out, reception, weight & size, convenience (station required), ease of operations, etc. The next step in purchase involve the buyer’s asking herself whether the CT2 or some other devices would deliver the economy and performance desired in the handset. These beliefs are stored in memory and tell the buyer the consequences of different purchases based on the evaluative criteria. When the buyer’s beliefs and evaluations are put together to form attitudes which refer to mental states of readiness to purchase that are organized through experiences and influence behavior.
Figure 12 The Purchase Decision
Once determined a product alternative, the consumer is required to complete the purchase (Figure 12). This might be influenced by buyer’s intentions as well as other special condition in the marketplace, say, stock available. Consumers may determine to buy the product, but if they have to travel 50 miles to the nearest dealer shop, they are not apt to buy it. Helpful and knowledgeable salespeople who can explain product features and demonstrate benefits (rather than limitation & shortcomings) are often able to close the deal with higher-profit merchandise. One study revealed that three-fourths of those interviewed in five cities said quality of salespeople was a factor in choice of a shopping center.
(Dalrymple
&
Parsons
1990,
p.109)
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Figure 13 Post-purchase Behavior
Customer expectations are compared with actual product experience; the degree of satisfaction or dissatisfaction assessed. Highly satisfied customers will usually alter their beliefs about a product in a positive direction, and be converted to repeat buyers. Products or services that do not live up to the buyer’s expectation may result in customer dissatisfaction. Customers may return to the dealer (the operator, say in our case of CT2) and ask for an exchange, refund, repairs or complaint. If the problem is handled carefully by the dealer, the buyer’s positive beliefs in the product will be restored. If customer complaints are rebuffed, a negative belief structure is formed and repeat purchase probabilities decline. In case of low-value goods or services, dissatisfied customers usually do not go back to the dealer for an adjustment and simply exercise their resentment by not buying again. When customers’ complaints are not handled adequately, they may result in appeals to outside agencies. The ensuring publicity can lead to lawsuits, product recalls, loss of goodwill and reduced market shares. Firms that fail to deal with dissatisfied customers may end up having to deal with increased government regulation and decreased revenue.
(4) Product Features of CT2 (standard)
CT2 cordless standard is the second generation of cordless phones that were first employed in Britain in 1989. This generation of cordless phones was based on digital technology and had many advantages over its analogue predecessor. It was designed for use in both home and office environment. The following points provide a brief overview about the technology and the features of this generation of cordless
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phones:-
Figure 14 History of Cell Phones
Because of the use of digital technology, the cordless phones had better speech quality, were more resistant to interference, noise and fading as compared to the earlier generation.
The digital signals were also very hard to intercept and decode, and thus provided a high level of security. The user needed to enter a PIN number in the cordless phone to gain access to it. Thus it provided safety against misuse if the handset fell in to the hands of a stranger.
The system was allocated a bandwidth ranging from 864.10 mhz to 868.10 MHz and the channel allocation to the users was on dynamic basis. Forty channels were assigned in this range, each having a bandwidth of 100 KHz. The digital modulation technique that was used in this generation of handsets was Gaussian Frequency shift keying. It also employed Time Division Duplexing (TDD) between the forward and the reverse link. A CT2 frame consisted of 2 ms, the reverse link from handset to the cordless base set supported in the first 1ms while the forward link from the base set to the portable handset supported in the next 1ms of the frame. Thus because of the use of
TDD, only one 100 KHz channel was employed for two way communication between the base set and the portable unit. Each channel supported a data rate of 72 kbps with 32 kbps each for the forward and the reverse link.
The rest 8 kbps was used for control signals. Speech waveforms were coded using
ADPCM at a rate of 32 kbps.
Resembling cordless phones and portable cellular telephones, CT-2 telephones are
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smaller, lighter and transmit signals via radio waves to a small base station which connects the call to the public telephone network. When linked to a public base station, CT-2 telephones are used only for outgoing calls; when linked to a private base station in either the home or office, incoming and outgoing calls can be made just as with a normal cordless phone.
CT-2 offers users four major benefits: 1) It 's less costly than cellular because of its method of accessing the Public Switched Telephone Network (PSTN) and the ability to user lower power handsets; 2) It has high speech quality and privacy resulting from the use of a digital radio link; 3) CT-2 has high access security resulting from digital call management; and 4) Because of digital call management, it has the capability to support multiple handsets on one base station and to transfer a call between handsets.
CT-2, however, is not really a competitive alternative to cellular telephony, because it addresses different market segments. London-based BIS Strategic Decisions, a market research firm specializing in information technology, agrees with many in the industry that, when marketed properly, CT-2 has a three-fold market - as a replacement in the home for CT-1, wireless PBX in the office, and public Telepoint service. 17
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Chapter 3
Scope of the Study
Customer secondary survey was used to investigate the consumer’s perception as well as the attitude, usage and propensity to buy (in specified period) of the product/service and hence to identify the critical success factors (CSF) of viability of a new product mobile/ cordless communication devices (CT2 in our case) services operation in Hong Kong
We then try to evaluate critically the performance of the product/services against the
CSF identified.
(1) Customer secondary survey
Data were drawn from secondary customer survey conducted by colleague Y K Chan
(1995) with fieldwork period Jan-Mar 1995, in an unpublished paper.
Sample categories and respective sizes –
Categories
Sample size
Existing CT2 users
100
Non-CT2 users
(a) Pager user
159
(b) Non-pager user
43
Total
302
(2) Summary of Survey Findings
1. New product awareness was considered high at 90% and 80% respectively for pager users and non-users.
2. More than 65% (pager users & non-users) identified key feature of ‘one-way dial out only’ while about 60% (pager users & non-users) identified another key feature of ‘can’t receive in-call’
3. About 30% (pager users & non-users) perceived ‘the need of base station’
4. Slightly less than 20% (pager users & non-users) considered CT2 ‘small size and light weight’ (compared with cellular mobile phone)
5. About 14% (pager users & non-users) identified CT2 as ‘cordless phone’; 5%
(pager users & non-users) recognized CT2 also ‘usable at home’.
6. About 8% (pager users & non-users) thought CT2 was ‘convenient to use’.
7. 23% pager users considered CT2 ‘low-price’ while only 12% non-users admitted
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the same. Significant difference was observed.
8. 24% non-users expressly indicated that CT2 ‘to be used with pager’ while only
7% users indicated the same. Significant difference also observed.
9. Regarding the perceived benefits, most salient one was ‘low-price’. (about 58% users & non-users)
10. Second most salient benefit was ‘small size and light weight’ (39% users vs. 51% non-users) 11. Third most salient benefit was ‘convenient to use’. (about 22% users & non-users) 12. Other cited benefits included ‘return pager calls’ (9% users & non-users), ‘little worry about wrong numbers’ (6% users & non-users)
13. Regarding the criteria of selection of CT2 service operators,
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Irrelevant
Unimportant
Undecided
Important
Very Important
Figure 15 Criteria of Selection of CT2 Service Operators
(a) Network Coverage, (b) Quality of Reception, (c) Reliability, (d) Maintenance, (e)
Charge per Minute, (f) Monthly Charges and (g) Handset Price were considered more important criteria of selection of service operators. Handset Design and
Availability of Other Services seemed to be less important in their criteria of selection. 14. Propensity to Buy in next 12 months.
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Very Unlikely
Unlikely
Undecided
Likely
Very Likely
0
10
20
Pager User
30
40
50
60
Pager Non-User
Figure 16 Propensity to Buy CT2 in Next 12 Months
72% of pager non-users reported that ‘unlikely to buy CT2 service in next 12 months’ while 35% pager users indicated some inclination ‘to buy the service in next 12 months.’ The possible reason might be: they preferred to have cellular mobile phone in lieu of pager plus CT2 communication device.
15. Existing CT2 user usage pattern – CT2 users tended to use their communication device everyday, making an average of 4 calls per day. Most of them used it for
‘returning pager calls’ in less than three minutes. It was quite understandable that communication time would not be very long since CT2 was not a genuine mobile phone but a portable ‘phone booth in your pocket’. (quoted from
Chevalier’s advertisement Mar 24 1993)
16. Propensity to recommend the service to others – about 70% reported that they would recommend the service to others for its ‘low-price’ and ‘acceptable wide network coverage’. 13% reported that they would not recommend the service while 17% reported that ‘undecided to recommend the service’ for ‘No reception of in-call’, ‘Friends will make own decisions’, ‘Expensive’, ‘Network coverage not wide enough’ and ‘Poor reception quality’, etc.
17. Propensity to continue to use the service – about 90% existing users reported that they would continue to use the service. For the reminding 10% who reported ‘No’ or ‘Undecided’ for the service shortcomings of “insufficient network coverage’ and ‘could not get through the connections always’. Further investigation revealed that those unlikely to continue to use the service would have the least propensity to recommend to others.
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(3) Competitive Position of CT2 in Hong Kong 1992-94
There were four license holders in the market for the time being, namely, Chevalier,
HK Telecom (trading as CSL operator), Hutchison and Pacific TeleLink. (in alphabetical order); however, it was reported that CSL of the HK Telecom would not go for the project for the poor development of the same in UK and technical support.
Operators
Date Launch
Projected users by year end
Subscribed users *
Expected saturation
Hutchison
1992-3-28
80,000*
30,000*
200,000-400,000*
Chevalier
1992-4-28
20,000*
8,000*
400,000*
Pacific TeleLink
1993-3-28
20,000^
----
500,000^
(Source: *Hong Kong Economic Times Daily Nov 2, 1992 & ^Mar 13 1993)
Figure 17 CT2 Operators in HK, Date Launch and Subscription: Actual & Project
It was reported that as at Mar 1993, there were 40,000 to 42,000 CT2 users in the territories and overall projected users by year end to be 90,000 – 100,000, followed by an annual growth of 65,000 in next two years. Pacific TeleLink would launch its service with hopes of grabbing up to 30% of the telepoint market which was then shared by Hutchison’s ‘Tien Dey Seen’ and Chevalier Telepoint. The newcomer promised to market its services in a different way from the incumbents, stressing that CT2 phones were quite different to their more expensive cellular predecessors.
Their customers could choose to have a small pager integrated into their handsets.
(Figure 17)
Hutchison’s Tien Dey Seen was reported to have signed up 35,000 customers while
Chevalier Telepoint was said to have attracted about 20,000. Pacific TeleLink chief executive remained confident his company’s late arrival would not dampen its prospects and believed the three companies would enjoy a total market up to
100,000 users by the end of the year 1993 and about half a million by 1995-96. He admitted he would be happy if his company had signed up 20,000 customers by the end of 1993. (Figure 18)
Operators
Stations connected
Subscribed users
Hutchison
4,500
> 30,000
90,000
Chevalier
2,500
20,000*
40,000
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Target users by year end 1993
Pacific TeleLink
1,800
----
20,000
(Source: Hong Kong Economic Times Daily Mar 29, 1993)
Figure 18 CT2 Operators in HK, Stations Connected, Subscription: Actual & Target
(4) Market information of the telecommunication sector
CT2
Pager
Mobile Phone
Users by 1993
Est. Penetration (%)
Main Player
(Estimated Market
Share %)
50,000 90% are pagers Introductory
80% user with other products
Maturity
> 80% are pager users Growing
Relative Product Stage in 1994
Figure 19 Market Information about Telecommunication Sector
Comment and Analysis: (a) Number of pager users 1.05M = 84% estimated market size, the pager market was almost saturated; pager user can receive the message first and reply later the incoming caller at one’s will; (b) > 80%, say 85%, of 240,000 mobile phone users were also pager users = 204,000; hence, there were about
846,000 Non-Mobile Phone Pager Users = 1.05 M – 0.204 M; those were presumed in need of instant tele-messages; (c) >90%, say 95%, of 50,000 CT2 users were also pager users = 47,500; there were about 48,000 pager users using CT2 services
(portable phone booth) rather than mobile phone services (instant 2-way communication) for various reasons, say expensive and/or bulky handset or expensive air time. (d) 846,000 – 48,000 =798,000 existing pager users were presumed in need of instant tele-messages, remained the potential market for the improved version CT2 services (i.e. CT2 handset integrated with small pager), provided the prices structure of mobile phone services and the skimming pricing strategy remained stable and not falling. (e) With sufficient advertising campaign investment and education, simple pager users would be induced to switch from pager services to improved version CT2 services (Figure 19). They could save much of
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their time in looking for telephone (or phone booth) to return call on the streets. (f)
Cellular phone and CT2 would be of different segments regarding technical functions as well as the pricing although they both were in the same telecommunication sector. (5) Market Information of CT2 Sector
Operators
Hutchison Paging
Chevalier Telepoint
Pacific TeleLink
Brands
Commencing date
Investment (HK$M)
Distribution
Tein Dey Seen
March 28 1992
600
Hutchison shops
(34)
TeleLink
March 29 1993
300
TeleLink shops
(1)
Tricom shops (6)
Adv Budget 1993
Services Available
HK$ 18 M
- CT2
- Paging
- Secretarial
Paging
- Meet-me
- Jetpage (auto paging) Motorola
1,488
Chevalier Telepoint
April 28 1992
400
Telepoint shops (3)
Chevalier shops
(21);
Dealer shops (74)
HK$ 15M
- CT2
- Auto-paging
- Page-Link
- Voice-mail
- Information
Bulletin
Shaye; GPT
1,388
1,988 (CT2 + Pager)
Shaye
1,988 (CT2 +
Pager)
Handsets Available
Handset/Package
Price (HK$)
HK$ 10M
- CT2
- Secretarial
Paging
Source: Post Office Statistics, March 1994.
Figure 20 Market Information about CT2 Sector
Comment and Analysis: As discussed above and revealed by the figures, market demand for instant tele-messages (pager) and instant 2-way communication services were extremely high. Hutchison being leader player in the telecommunication market (pager, mobile phone and CT2) achieved their First Mover Advantage (FMA) by massive advertising campaign in their launching stage of the CT2 network services – positioned with a close substitute of cellular phone and focused on its convenience and mobility. Some cellular phone users bought CT2 at lower price to replace their cellular phones; however, shortly after recognized the limited technical functions, say calls could not be made while on the move nor transferred from one
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base station to another, with negative words of mouth. Chevalier however being a follower player (1 month later) also focused on CT2 convenience and mobility, did not achieve their FMA successfully, as revealed by the subscription rate after the launch. Negative feedback received from the market regarding the technical function expectations. While cellular phones were positioned as ‘Big Brother’s Mobile Phones’,
CT2 were perceived ‘Poor People’s Mobile Phones’.
It was reported that not until March 1993, operators began to deliver repositioning advertising campaign to rectify customers’ technical function expectations. Shortly after Pacific TeleLink announced on Mar 13 that they would launch its services with the idea of ‘Your Private Phone Booth’ on Mar 28 1993, Chevalier advertised to its
CT2 as ‘A Phone Booth in Your Pocket and Complement to Your Pager’ on Mar 24.
Hutchison, as market leader, also produced a new TV commercial that briefed the benefits of CT2 with a phone booth as shooting background. (Figure 20)
It was reported that Hutchison sold Motorola handset at over HK$20,000 per unit while the same handset in US was sold only at US$1,000 (HK$7,800) per unit. Thus the margin of handset selling was almost doubled in HK market (Chan , 1995).
Cellular phone market, however, also experienced a slow growth in late 80s and early
90s mainly for capacity limit problem. CT2 was considered to have good niches in HK telecommunication market with inferior technical functionality when compared with cellular phones since the latter was expensive both handset and air time in HK.
Market demand for low-cost mobile phone was extremely high as revealed by a survey report by Irwell International Ltd (1991). CT2 operators were keen in market growth as a whole instead of securing users from competing sectors (say, cellular phone). CT2 handset price could be as low as HK$800 provided the output volume was sufficient large; however relative poor development in UK resulted in much higher production costs as HK market size was too small to achieve minimum efficiency scale of low costs.
Operators in HK initially (in early 1992) adopted a normal pricing of 30% mark-up on costs (costs at about HK$1,700) while Hutchison sold at $2,388 and Chevalier
HK$2,348. The air time subscription fees were more or less the same and price competition did not occurred. Six months later, as subscription growth was far below their expectation (Figure 17) they followed the pattern of paging business to lower the handset margins (sold at HK$ 1,688, HK$1,488, HK$1,388 depending on different pre-payment plans) to secure more subscribers. Handset price competition became more popular during the first year of launch.
Hutchison and Chevalier also emphasized their brand images and network coverage
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by setting up respective logos & signpost at street and shopping mall levels. In early
1993, operators started to adopt a brand-new promotion strategy of education and market repositioning – CT2 (improved version integrated with small pager), your personal phone booth in your pocket, rather than a substitute of the cellular phone.
CT2 growth after one year launch lagged behind operator’s expectation, but it was still much faster than that of the counterparts in the telecommunication market mainly due to the lower price (compared with cellular phone) and the complementary features (with reference to pager) as revealed by the following table:
Products
No. of Subscribers
CT2
Cellular Phone
Pager
37,44
1,000
14,925
(Source: Chan, 1995)
After the brand-new promotion program in Apr 1993 the market grew substantially and marked a record of more than 10,000 units sold in one month. This implied the new entrant of the third player re-fuel the new game of CT2 competition. Regarding the handset manufacturer, Sony and Kenwood had announced their plan of CT2 handset production. It was also expected that more handset and improved models available to the market would further fuel up the diffusion process.
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Chapter 4
Recommendations and Conclusions
1. Technical functionalities of network coverage, quality of reception and service reliability were the key Critical Success Factors (CSFs) which required huge financial investment of the operators. The operators should have conducted detailed long-term cash flow based capital budgeting with sufficient risk factor adjustment. (see points 5 and 6 below for exogenous critical factors)
2. Improved/upgraded version of handsets integrated with small pager must be provided to secure relative competitive edge over pagers and against cellular phones 3. More brands and improved models of handsets must be sourced from more manufacturers to bring down the handset prices through competition.
4. More realistic advertising and promotion programs about the functional features of the communication device in order to manage customer’s expectation properly. 5. Handset pricing as well as subscription fees structure must be carefully designed and monitored with special reference to those of cellular phone. One exogenous critical factor was the pricing of handsets and subscription plans of cellular phone.
Since Hutchison and Pacific TeleLink were both key players of Cellular Phone and
CT2 sectors, normally they would not price cut to squeeze the product. Hong
Kong Telecom (trading as CSL), however, a key cellular phone player, was granted a license for operating CT2 but decided not to go for the project, might have incentive to upset the game. SmarTone (a new cellular phone player with no vested interests in CT2) might also have strong incentive to upset the CT2 game for the customers. (see Figure 19)
6. Given the technical functionality gap discussed, CT2 operations would not be viable for long should the pricing differences of handset and subscription plans between cellular phone and CT2 were less than 60%. For example, CT2 + pager sold at HK$1,988 against cellular phone at < HK$5,000 and calling charge per minute HK$0.4 (CT2) against < HK1.0 (cellular phone). In other words, the viability of the CT2 operating system would depend very much on the pricing strategy of its superior substitute in other segment.
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Chapter 5
References
Baker, M J (1988) Marketing – An Introductory Text (4ed); Macmillan Education
Bennett, P D (1988) Marketing; McGraw Hill
Buggie, F (1981) New Product Development Strategies American Management
Association
Chan, YK (1995) An Analytical Study of the Diffusion Process of A New Product –
Cordless Telephone 2nd Generation in Hong Kong; unpublished article
Crawford, C M (1980) ‘Defining the Charter for Product Innovation’ in Britt et al,
(1983) Marketing Management and Administrative Action; McGraw Hill.
Crawford, C M (1994) New Products Management (3ed); McGraw-Hill
Dalrymple, D J and Parsons, L J (1990) Marketing Management – Strategy and
Cases (5ed); John Wiley & Sons
Evans, M (1995) ‘ Market Segmentation’ in Baker, M J (1995) The Marketing Book
(3ed) Butterworth Heinemann
Ferber, Robert (1975) ‘What Do We Know About Consumer Behavior?’ in Britt et al, (1983) Marketing Management and Administrative Action; McGraw Hill.
Foxall, G (1995) ‘Consumer Decision Making’ in Baker, M J (1995) The Marketing
Book (3ed) Butterworth Heinemann.
Kashani, K (1998) ‘Make Yourself Heard: Ericsson’s Global Brand Campaign’ in
Jeannet, J-P and Hennessey, H D, (2003) Cases in Global Marketing Strategies
(5ed) Houghton Mifflin
Kotler, P and Singh, R (1981) ‘Marketing Warfare in the 1980s’ in Britt et al, (1983)
Marketing Management and Administrative Action; McGraw Hill
Moutinho, Luiz (1995) Cases in Marketing Management (2ed) Addison-Wesley
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Nagle, T T and Holden, R K (1995) The Strategy and Tactics of Pricing – A Guide to
Profitable Decision Making (2ed); Prentice Hall
Ricks, D A (1993) Blunders in International Business; Blackwell Publisher
Thomas, M J (1995) ‘Product Development and Management’ in Baker, M J (1995)
The Marketing Book (3ed) Butterworth Heinemann
Wilson, R M S, Gilligan, C and Pearson (1993) Strategic Marketing Management –
Planning, Implementation and Control; Butterworth Heinemann.
Winkler, J (2995) ‘Pricing’ in Baker, M J (1995) The Marketing Book (3ed)
Butterworth Heinemann
郎咸平 (2004) ’和記黃埔多元化互補戰略’ 錄入 郎咸平 (2004) 整合-中國
企業多元化與專業化整合戰略案例; 東方出版社
黃秉華 (1988) 香港商戰錄 博益出版社
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References: Baker, M J (1988) Marketing – An Introductory Text (4ed); Macmillan Education Bennett, P D (1988) Marketing; McGraw Hill Buggie, F (1981) New Product Development Strategies American Management Association Chan, YK (1995) An Analytical Study of the Diffusion Process of A New Product – Cordless Telephone 2nd Generation in Hong Kong; unpublished article Crawford, C M (1980) ‘Defining the Charter for Product Innovation’ in Britt et al, (1983) Marketing Management and Administrative Action; McGraw Hill. Crawford, C M (1994) New Products Management (3ed); McGraw-Hill Dalrymple, D J and Parsons, L J (1990) Marketing Management – Strategy and Cases (5ed); John Wiley & Sons Evans, M (1995) ‘ Market Segmentation’ in Baker, M J (1995) The Marketing Book (3ed) Butterworth Heinemann Ferber, Robert (1975) ‘What Do We Know About Consumer Behavior?’ in Britt et al, (1983) Marketing Management and Administrative Action; McGraw Hill. Foxall, G (1995) ‘Consumer Decision Making’ in Baker, M J (1995) The Marketing Book (3ed) Butterworth Heinemann. Kashani, K (1998) ‘Make Yourself Heard: Ericsson’s Global Brand Campaign’ in Jeannet, J-P and Hennessey, H D, (2003) Cases in Global Marketing Strategies (5ed) Houghton Mifflin Kotler, P and Singh, R (1981) ‘Marketing Warfare in the 1980s’ in Britt et al, (1983) Marketing Management and Administrative Action; McGraw Hill Moutinho, Luiz (1995) Cases in Marketing Management (2ed) Addison-Wesley Nagle, T T and Holden, R K (1995) The Strategy and Tactics of Pricing – A Guide to Profitable Decision Making (2ed); Prentice Hall Ricks, D A (1993) Blunders in International Business; Blackwell Publisher Thomas, M J (1995) ‘Product Development and Management’ in Baker, M J (1995) The Marketing Book (3ed) Butterworth Heinemann Wilson, R M S, Gilligan, C and Pearson (1993) Strategic Marketing Management – Winkler, J (2995) ‘Pricing’ in Baker, M J (1995) The Marketing Book (3ed) Butterworth Heinemann 郎咸平 (2004) ’和記黃埔多元化互補戰略’ 錄入 郎咸平 (2004) 整合-中國 企業多元化與專業化整合戰略案例; 東方出版社 黃秉華 (1988) 香港商戰錄 博益出版社 28
William Y S Chan
Jul 2012
A Project Assignment
Submitted in Partial Fulfillment
Of the requirement for the Professional Qualification
Certified Management Accountant (CMA)
Of the Institute of Certified Management Accountant, Australia
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Table of Contents
Chapter 1 Introduction
3
Chapter 2 Objective
4
Literature Review – (1) New Product Development Process
4
(2) Product Life Cycle (PLC) and Diffusion Theory of
Innovations (DTI)
5
(3) Consumer Buying Models
10
(4) Product Features of CT2 (standard)
15
Chapter 3 Scope of Study
(1) Customer Secondary Survey
18
18
(2) Summary of Survey Findings
(3) Competitive Position of CT2 in Hong Kong 1992-94
(4) Market information of the telecommunication sector
Comments & Analysis
(5) Market Information of CT2 Sector
Comments & Analysis
18
21
22
23
Chapter 4 Recommendations and Conclusion
27
Chapter 5 References
28
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Chapter 1
Introduction
Second Generation Cordless Telephone (CT2) was once a newly developed telecommunication device in early 1990s for use at home, in office and on street, originated in the United Kingdom. At home, CT2 could be used simply as cordless phone to make and receive calls by plugging the home-based unit into the phone line socket. In office, CT2 could be used by connecting to a direct line or a newly developed cordless PABX system which allowed high portability at any location in the office premises. On street, CT2 users could dial out within 150 meters of the specified tele-point based stations provided that the users have subscribed the telecommunication services from the network company. CT2 was frequently referred to by the marketing name "Telepoint." (See Figure 1)
Figure 1 CT2 handset & home-based unit
In the late 80’s, the Hong Kong Government identified there was very high demand for mobile/cordless telecommunication services from the public and analogue cellular phone services no longer satisfied the general public needs. The government invited some tenders to operate & provide CT2 telepoint network services. Four licenses were then granted to four licensees, viz. Chevalier, HK Telecom (trading CSL as operator), Hutchison and Pacific TeleLink. (in alphabetical order)
Hutchison was the first operator to launch CT2 services, followed by Chevalier in early 1992. Hutchison and Chevalier were able to capture less than 40,000 users, only about 40% of the original expected market size. The main reasons for poor achievement of the new product were
(a) technical product performance, and
(b) relative poor connectivity of the public network.
Pacific TeleLink later launched their services one year later in Mar 1993, despite the slow growth market as well as the unfavourable market conditions.
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Chapter 2
Objectives
1. To identify from perspectives of product/service users, the critical success factors
(CSF) of viability of a new product mobile/cordless communication devices (CT2 in our case) services operation in Hong Kong
2. To evaluate critically the performance of the product/services against the CSF identified. 3. To recommend mobile communication services operators, in terms of marketing strategies, to enhance competitive edge of the new product mobile/cordless communication devices (CT2 in our case).
Literature Review
1. New product development process (NPDP) – CT2 was once a newly developed device of telecommunication originated in UK and absolutely new to Hong Kong.
First of all, we start with some literature review regarding the process of New
Product Development (NPD).
Figure 2 illustrates the new product development process which includes (a) Idea Generation; (b) Screening; (c)
Business Plan Development/Feasibility Studies; (d)
Prototype Development; (e) Test Marketing; and (f)
Commercialization.
(a) Idea Generation is sometimes called opportunity identification, which indeed is a process of creatively recognizing opportunities along with the firm’s ongoing or standing strategies about innovation. (For example, seven concepts identified.)
(b) Screening is sometimes called Pre-technical
Evaluation, a stage when the ideas that came from idea generation activity are evaluated. Usually it uses a scoring model of some type and results in a decision to undertake development or quit. (For example, five concepts are screened out as acceptable)
(c) If it is to go ahead, the people involved should write out a statement of what is wanted in the new product – description, definition or protocol i.e. the
Figure 2 New Product
Development Process
(source: Bennett, 1988)
benefit, rather than the features, of the new item. A new product business plan including estimates from personnel of production (costs), marketing (sales,
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market share & promotion budgets), and accounting (profit margins) must be analyzed to prevent potential disaster. (E.g. Two were dropped for not profitable.) (d) In our example, three product concepts survived the business test and each will be developed into a prototype – an actual version of the product that will help developers evaluate its feasibility, costs and characteristics. Some concepts will be abandoned at this stage usually for unexpected high costs of production.
(e) During test marketing, the product is actually introduced into selected geographical markets where developers can observe how consumers and dealers react to the handling, use and promotion of the product. It is a form of experimental method of marketing research. Methods, say in-store interviews, questionnaires, telephone surveys, and observations etc. must be established to collect feedback
(f)
Given success in test markets, during commercialization developers establish full-scale production, set prices, lay out a distribution network and make final promotion plan to introduce the product in all its markets.
Figure 3 Mortality of Idea During Product Development Process (Source: New
Product Management for the 1980s, Booz, Allen & Hamilton, NY, 1982)
Product development begins with screening, moves on to revenue & cost analysis, followed by laboratory development, market testing and concludes with commercialization. Large numbers of new product ideas are passed into the system at one end, but only a few successful items reach the market. (Figure 3)
2. Product Life Cycle (PLC) and Diffusion Theory of Innovations (DTI)
In this case study, we will use some popular models to help our analysis regarding the new product CT2 operations in Hong Kong.
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Product Life Cycle (PLC) is a popular concept describes stages in the sales history of a product category or form, recognizing it to have a finite life. This concept draws an analogy between biological life cycles and the pattern of sales growth exhibited by successful products. It is one of the first attempts to form an analytical framework for determining marketing strategy. Figure 4 shows the idealized product life cycle which includes curve and unit profit trends as well as the market extension of the life cycle.
Underlying the life cycle is the diffusion process and associated adopter categories which are classified according to their timing of entry onto the market. Figure 5 indicates the proportion of the total market of each category and the idealized diffusion pattern. – Diffusion Theory of Innovation (DTI)
Figure 4 Product Life Cycle and Marketing Mix
Figure 5 Adopter Category as a Function of the Relative Time of Adoption
The DTI asserts that Innovators represent 2.5% of the market that will immediately accept the new product and try it. The early adopters are those who (13.5% of the
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market) will make or break the product, depending upon their experiences and opinions. If favourable, acceptance grows rapidly and most of the market enters quickly. The last group to accept the product, the laggards, buys for the first time
(about 16% of the market), often when innovators and early adopters have moved to alternative products. Innovators are important in new product introductions for they affect later adopters and retail availability. However, innovators are usually not influentials. They are too innovative to be credible. They do help to create awareness of a new product, and perform a product testing function that is observed by the influentials. The most important group of opinion leaders are the 13 % early adopters. These people are highly respected and have the most extensive social networks. The early majority also have some value of as opinion leaders while the late majority and laggards are slow to adopt and have no value as influentials.
(Dalrymple & Parsons, 1990)
Each stage of the life cycle represents different marketing challenges.
At the introductory stage, the task is to create awareness and achieve acceptance by opinion leaders within the early adopter group. During growth, the challenge is to maintain supply and quality consistency, while establishing brand identification and market position. At the maturity stage, the firm needs to maintain or improve its profit, defend its position and look for growth segments of the market. In decline, cost reduction, pricing and targeting are important to profitability, and planning is required to determine exit timing. Examples of products at different life-cycle stages in Europe in the early 1990s are shown in Table
Introduction
Growth
Maturity
Decline
Filmless cameras
Computer Scanners
Stress wave sensing
Expert systems
CD Players
Fax transmission
Laptop computers
Golf
Microwave ovens
Washing machines
Brandy
Refrigerators
Draught ale
Typewriters
Squash
7-inch records
Source: McDonald & Brown (1990)
Strategic Implications
The strategic implications of life-cycle model are that each stage warrants different objectives, marketing mix, strategies and different management focus. Day (1986) and Wasson (1974) have both conducted comprehensive analyses of life-cycle management and propose marketing strategy guidelines for each stage. Each of them
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adds between growth and maturity an intermediate stage termed “competitive turbulence”, which recognizes the implications of the effects of a slowdown in market growth and over-supply, brought on by the entry of new competitors and increase in capacity by existing ones. Day and Wasson provide a summary of the general strategy implications of life-cycle model
Example: When it was introduced, telex offered an efficient, quick text-transfer service as an alternative to the postal service. It rapidly became an essential business communication tool with maximum market penetration in the early 1980s. British
Telecom implemented life-cycle extension strategies by adding features to telex terminals, enhancing user capabilities, allowing text transfer to computers and targeting non-user segments such as small business. The rapid growth of facsimile systems since the mid-1980s has brought about the decline of telex and a need for
British Telecom to change its strategy to retain divestment or reformulation to enable future profit to be made on much lower telex volumes.
Life-cycle patterns vary in practice. Some new products skip the introductory stage and grow rapidly from the outset. These are usually products that are readily understood by the market and for which a latent demand exists. Colour television and cellular mobile telephones are examples. New fads exhibit only rapid growth and rapid decline because of a novelty appeal, seasonality and association with special events. Some products show a decline, then a regrowth pattern. Industrial and consumer durables, such as farm machinery and refrigerators, reveal this cyclical pattern. The Diffusion Theory of innovation (DTI) is a theory concerning the spread over of innovation, ideas, and technology through cultures. (Everett Rogers, 1962) This has been extensively studied by sociologists, psychologists, and anthropologists. The concept was first studied by the French sociologist Gabriel Tarde (1890) and by
German and Austrian anthropologists such as Friedrich Ratzel and Leo Frobenius.
The theory states that there are many qualities in different people that cause them to accept or not to accept an innovation. There are also many qualities of innovations that can cause people to readily accept them or to resist them.
According to Diffusion Theory, there are five stages to the process of adopting an innovation. The first stage is knowledge, in which an individual becomes aware of an innovation but has no information about it. Next is persuasion, in which the individual becomes actively interested in seeking knowledge about the innovation. In the third stage, decision, the individual weighs the advantages and disadvantages of
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the innovation and decides whether or not to adopt it.
After the decision comes implementation, in which the individual actually does adopt and use the innovation. Confirmation is the final stage. After making adopting the innovation, the individual makes a final decision about whether or not to continue using it based on his own personal experience with it. These same stages apply, to varying degrees, to groups of people in addition to individuals.
Figure 6 Adopter Category and Diffusion Curve
The dynamics of the diffusion process provide useful targeting insights. Target customer groups change over time. It is easier to obtain market share growth during the growth stage of the life cycle as customers form opinions of brands and try alternatives. As the market matures, customers become more knowledgeable and their perceptions of the product type and brands within it change. Distinctions between brands are reduced and the product type becomes “ordinary “, having lost its newness and mystique. Customers progressively develop a “commodity” homogeneity view of the product.
At maturity stage of some markets, weaker competitors might choose to retain profit margins by withdrawing advertising support. (Figure 6)
An empirical study by Buzzell & Cook (1969) examined the sales histories of 192 consumer products and found that more than half of them (52%) followed the general PLC pattern. However, “Forget the PLC” was the command made in a famous article (Dhalla & Yuspeh, 1976) which based upon conceptual and operational arguments of – (a) products are not living things, hence the biological metaphor is entirely misleading; (b) the life cycle of a product is the dependent variable, being a
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function of the way in which the product is managed over time. It is not an independent variable; (c) the PLC cannot be valid for product class, product form and for brands – indeed an important function of a brand name is to create a franchise that has value over time, permitting changes to take place in the product formulation;
(d) trying to fit PLC curves into empirical sales data is a sterile exercise in taxonomy;
(e) the four phases or stages in the life cycle are not clearly definable; (f) it is impossible to determine at any moment in time exactly where a product is in its life cycle; and hence, (1) the concept cannot be used as a planning tool; (2) there is evidence that companies who have tried to use the PLC as a planning tool have made costly errors and passed up promising opportunities. (Thomas 1994)
Michael J Thomas (1994) of Strathclyde Business School concludes that PLC is not a universally valid model, but rather an ideal type from which fundamental insight into the behavior of most product forms over time can be ducted but which in application needs very careful handling.
PLC concept, however, provides the fundamentals for analyzing marketing decision of
CT2 in the following areas – (i) competition; (ii) marketing strategy; (iii) strategic pricing; (iv) advertising promotion and (v) distribution channels
3. Consumer Buying Models
Throughout the 1960s attempts were made to integrate a variety of theories, research findings and concepts from the behavioral sciences into a general framework which could be used to explain and predict consumer behavior. In doing this, the principal writers such as Nicosia (1966), Engel, Kollat and Blackwell (1968) and Sheth (1969) paid more recognition to the consumer’s psychological state before, during and after the purchase. The process has been summarized by Howard (1983) who suggested that buyer behavior is “largely determined by how the customer thinks and processes information”.
However, this idea of an information – attitude – intention – purchase sequence has also been commented on by Foxall (1987): “ ….a rational decision sequence. They credit consumers with considerable capacities for receiving and handling quantities of information and undertaking extensive pre-purchase searches and evaluations.
They rely heavily upon the ideas of cognitive decision making in which information is received and classified … via mental processing, transformed into the attitudes and intention which determine brand choice and related aspects …. as analogous with
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that of computers; the consumer has been depicted in terms of a ‘central control unit’….” Foxall (1987) criticized further as follows: (1) the models assume an unrealistic degree of consumer rationality; (2) observed behavior often differs significantly from what is described; (3) the implied decision process is too simplistic and sequential; (4) insufficient recognition is given to the relative importance of different types of decisions – high involvement vs. low involvement vs. repeated purchase; (5) the model assume consumers have seemingly infinite capacity for receiving and ordering information -- in practice, they ignore, forget, distort, misunderstand or make far less use than this; (6) attitudes towards low involvement products are often very weak and emerge after the purchase and not before as models suggest; (7) many purchases seem not to be preceded by a decision process; (8) strong brand attitudes often fail to emerge even when products have been brought on a number of occasions; (9) consumers often drastically limit their search for information, even for consumer durables; (10) when brands are similar in terms of their basic attributes, consumers seemingly do not discriminate between them but instead select form a repertoire of brands. (Wilson et al – 1992, p116)
General Consumer Buying Model
Figure 7 Customer Buying Process
A series of models have been proposed ( say, Nicocia, Howard-Sheth, and
Engel-Kollat-Blackwell, etc.) which focus not simply upon the buying decision, but upon the process leading up to this decision, the decision itself and then subsequently post-purchase behavior. An example of this sort of model is illustrated in Figure 7. The process begins with the recognition of a problem or a want. This may emerge as the result of an internal stimulus or an external stimulus in form of an advertisement or even a colleague’s comment. This leads to the search for
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information which might be at the level simply of a heighted awareness or attention to advertising or at the deeper level of extensive information searching. In either case, the search process is likely to involve one or more of four distinct sources: (a) personal sources; (b) public sources; (c) commercial sources; and (d) experimental sources. The relative importance of each of these varies greatly from person to person and product to product.
Figure 8 Factors Influencing Problem Recognition
The buyer decision process begins with problem recognition. This occurs when a person perceives a difference between what he or she has (say, poor communication reception of the device) and what he or she would like (say, a clear communication reception). Problem recognition can be awakened by information on past experience stored in memory, basic motives, or cues from reference groups (say, colleagues) and family influence (Figure 8). Problem recognition also can be activated by an outside stimulus, say advertising.
Figure 9 Marital Roles in 25 Purchase Decisions (source: Davis & Rigaux
“Perception of Marital Roles in Decision Process” Journal of Consumer Research, V1,
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June 1974, p.54)
Joint decision making by the husband and wife tends to decline over the family life cycle. Results of a study of family role specialization for different purchase decisions are shown in Figure 9; respondents used a 3-point scale to identify family member influence (1= husband, 2= joint, 3 = wife) for each decision. Averages for each decision can be read off the vertical axis. The horizontal axis is used to show the percentage of respondents giving the joint response. Expensive and jointly consumed purchases, as might be expected, tend to fall into the joint or syncratic region, whereas role specialization based on expertise or stereotypical sex roles is indicated by the purchases found in the two dominant regions.
Figure 10 The Search Process
Figure 11 Alternative Evaluation
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The stage of evaluation of purchase decision model is the most complicate and the least understood part of the process. Many influencing factors are difficult to observe; yet a general model of the evaluation stage is illustrated in Figure 10. It involves a comparison of the data with the buyer’s evaluative criteria. In the case of the CT2 purchase concerned, the criteria included price (handset, call charge per minute & monthly charges), technical functions of dail-in and dail-out, reception, weight & size, convenience (station required), ease of operations, etc. The next step in purchase involve the buyer’s asking herself whether the CT2 or some other devices would deliver the economy and performance desired in the handset. These beliefs are stored in memory and tell the buyer the consequences of different purchases based on the evaluative criteria. When the buyer’s beliefs and evaluations are put together to form attitudes which refer to mental states of readiness to purchase that are organized through experiences and influence behavior.
Figure 12 The Purchase Decision
Once determined a product alternative, the consumer is required to complete the purchase (Figure 12). This might be influenced by buyer’s intentions as well as other special condition in the marketplace, say, stock available. Consumers may determine to buy the product, but if they have to travel 50 miles to the nearest dealer shop, they are not apt to buy it. Helpful and knowledgeable salespeople who can explain product features and demonstrate benefits (rather than limitation & shortcomings) are often able to close the deal with higher-profit merchandise. One study revealed that three-fourths of those interviewed in five cities said quality of salespeople was a factor in choice of a shopping center.
(Dalrymple
&
Parsons
1990,
p.109)
14
CS:CT2-HK
Figure 13 Post-purchase Behavior
Customer expectations are compared with actual product experience; the degree of satisfaction or dissatisfaction assessed. Highly satisfied customers will usually alter their beliefs about a product in a positive direction, and be converted to repeat buyers. Products or services that do not live up to the buyer’s expectation may result in customer dissatisfaction. Customers may return to the dealer (the operator, say in our case of CT2) and ask for an exchange, refund, repairs or complaint. If the problem is handled carefully by the dealer, the buyer’s positive beliefs in the product will be restored. If customer complaints are rebuffed, a negative belief structure is formed and repeat purchase probabilities decline. In case of low-value goods or services, dissatisfied customers usually do not go back to the dealer for an adjustment and simply exercise their resentment by not buying again. When customers’ complaints are not handled adequately, they may result in appeals to outside agencies. The ensuring publicity can lead to lawsuits, product recalls, loss of goodwill and reduced market shares. Firms that fail to deal with dissatisfied customers may end up having to deal with increased government regulation and decreased revenue.
(4) Product Features of CT2 (standard)
CT2 cordless standard is the second generation of cordless phones that were first employed in Britain in 1989. This generation of cordless phones was based on digital technology and had many advantages over its analogue predecessor. It was designed for use in both home and office environment. The following points provide a brief overview about the technology and the features of this generation of cordless
15
CS:CT2-HK
phones:-
Figure 14 History of Cell Phones
Because of the use of digital technology, the cordless phones had better speech quality, were more resistant to interference, noise and fading as compared to the earlier generation.
The digital signals were also very hard to intercept and decode, and thus provided a high level of security. The user needed to enter a PIN number in the cordless phone to gain access to it. Thus it provided safety against misuse if the handset fell in to the hands of a stranger.
The system was allocated a bandwidth ranging from 864.10 mhz to 868.10 MHz and the channel allocation to the users was on dynamic basis. Forty channels were assigned in this range, each having a bandwidth of 100 KHz. The digital modulation technique that was used in this generation of handsets was Gaussian Frequency shift keying. It also employed Time Division Duplexing (TDD) between the forward and the reverse link. A CT2 frame consisted of 2 ms, the reverse link from handset to the cordless base set supported in the first 1ms while the forward link from the base set to the portable handset supported in the next 1ms of the frame. Thus because of the use of
TDD, only one 100 KHz channel was employed for two way communication between the base set and the portable unit. Each channel supported a data rate of 72 kbps with 32 kbps each for the forward and the reverse link.
The rest 8 kbps was used for control signals. Speech waveforms were coded using
ADPCM at a rate of 32 kbps.
Resembling cordless phones and portable cellular telephones, CT-2 telephones are
16
CS:CT2-HK
smaller, lighter and transmit signals via radio waves to a small base station which connects the call to the public telephone network. When linked to a public base station, CT-2 telephones are used only for outgoing calls; when linked to a private base station in either the home or office, incoming and outgoing calls can be made just as with a normal cordless phone.
CT-2 offers users four major benefits: 1) It 's less costly than cellular because of its method of accessing the Public Switched Telephone Network (PSTN) and the ability to user lower power handsets; 2) It has high speech quality and privacy resulting from the use of a digital radio link; 3) CT-2 has high access security resulting from digital call management; and 4) Because of digital call management, it has the capability to support multiple handsets on one base station and to transfer a call between handsets.
CT-2, however, is not really a competitive alternative to cellular telephony, because it addresses different market segments. London-based BIS Strategic Decisions, a market research firm specializing in information technology, agrees with many in the industry that, when marketed properly, CT-2 has a three-fold market - as a replacement in the home for CT-1, wireless PBX in the office, and public Telepoint service. 17
CS:CT2-HK
Chapter 3
Scope of the Study
Customer secondary survey was used to investigate the consumer’s perception as well as the attitude, usage and propensity to buy (in specified period) of the product/service and hence to identify the critical success factors (CSF) of viability of a new product mobile/ cordless communication devices (CT2 in our case) services operation in Hong Kong
We then try to evaluate critically the performance of the product/services against the
CSF identified.
(1) Customer secondary survey
Data were drawn from secondary customer survey conducted by colleague Y K Chan
(1995) with fieldwork period Jan-Mar 1995, in an unpublished paper.
Sample categories and respective sizes –
Categories
Sample size
Existing CT2 users
100
Non-CT2 users
(a) Pager user
159
(b) Non-pager user
43
Total
302
(2) Summary of Survey Findings
1. New product awareness was considered high at 90% and 80% respectively for pager users and non-users.
2. More than 65% (pager users & non-users) identified key feature of ‘one-way dial out only’ while about 60% (pager users & non-users) identified another key feature of ‘can’t receive in-call’
3. About 30% (pager users & non-users) perceived ‘the need of base station’
4. Slightly less than 20% (pager users & non-users) considered CT2 ‘small size and light weight’ (compared with cellular mobile phone)
5. About 14% (pager users & non-users) identified CT2 as ‘cordless phone’; 5%
(pager users & non-users) recognized CT2 also ‘usable at home’.
6. About 8% (pager users & non-users) thought CT2 was ‘convenient to use’.
7. 23% pager users considered CT2 ‘low-price’ while only 12% non-users admitted
18
CS:CT2-HK
the same. Significant difference was observed.
8. 24% non-users expressly indicated that CT2 ‘to be used with pager’ while only
7% users indicated the same. Significant difference also observed.
9. Regarding the perceived benefits, most salient one was ‘low-price’. (about 58% users & non-users)
10. Second most salient benefit was ‘small size and light weight’ (39% users vs. 51% non-users) 11. Third most salient benefit was ‘convenient to use’. (about 22% users & non-users) 12. Other cited benefits included ‘return pager calls’ (9% users & non-users), ‘little worry about wrong numbers’ (6% users & non-users)
13. Regarding the criteria of selection of CT2 service operators,
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Irrelevant
Unimportant
Undecided
Important
Very Important
Figure 15 Criteria of Selection of CT2 Service Operators
(a) Network Coverage, (b) Quality of Reception, (c) Reliability, (d) Maintenance, (e)
Charge per Minute, (f) Monthly Charges and (g) Handset Price were considered more important criteria of selection of service operators. Handset Design and
Availability of Other Services seemed to be less important in their criteria of selection. 14. Propensity to Buy in next 12 months.
19
CS:CT2-HK
Very Unlikely
Unlikely
Undecided
Likely
Very Likely
0
10
20
Pager User
30
40
50
60
Pager Non-User
Figure 16 Propensity to Buy CT2 in Next 12 Months
72% of pager non-users reported that ‘unlikely to buy CT2 service in next 12 months’ while 35% pager users indicated some inclination ‘to buy the service in next 12 months.’ The possible reason might be: they preferred to have cellular mobile phone in lieu of pager plus CT2 communication device.
15. Existing CT2 user usage pattern – CT2 users tended to use their communication device everyday, making an average of 4 calls per day. Most of them used it for
‘returning pager calls’ in less than three minutes. It was quite understandable that communication time would not be very long since CT2 was not a genuine mobile phone but a portable ‘phone booth in your pocket’. (quoted from
Chevalier’s advertisement Mar 24 1993)
16. Propensity to recommend the service to others – about 70% reported that they would recommend the service to others for its ‘low-price’ and ‘acceptable wide network coverage’. 13% reported that they would not recommend the service while 17% reported that ‘undecided to recommend the service’ for ‘No reception of in-call’, ‘Friends will make own decisions’, ‘Expensive’, ‘Network coverage not wide enough’ and ‘Poor reception quality’, etc.
17. Propensity to continue to use the service – about 90% existing users reported that they would continue to use the service. For the reminding 10% who reported ‘No’ or ‘Undecided’ for the service shortcomings of “insufficient network coverage’ and ‘could not get through the connections always’. Further investigation revealed that those unlikely to continue to use the service would have the least propensity to recommend to others.
20
CS:CT2-HK
(3) Competitive Position of CT2 in Hong Kong 1992-94
There were four license holders in the market for the time being, namely, Chevalier,
HK Telecom (trading as CSL operator), Hutchison and Pacific TeleLink. (in alphabetical order); however, it was reported that CSL of the HK Telecom would not go for the project for the poor development of the same in UK and technical support.
Operators
Date Launch
Projected users by year end
Subscribed users *
Expected saturation
Hutchison
1992-3-28
80,000*
30,000*
200,000-400,000*
Chevalier
1992-4-28
20,000*
8,000*
400,000*
Pacific TeleLink
1993-3-28
20,000^
----
500,000^
(Source: *Hong Kong Economic Times Daily Nov 2, 1992 & ^Mar 13 1993)
Figure 17 CT2 Operators in HK, Date Launch and Subscription: Actual & Project
It was reported that as at Mar 1993, there were 40,000 to 42,000 CT2 users in the territories and overall projected users by year end to be 90,000 – 100,000, followed by an annual growth of 65,000 in next two years. Pacific TeleLink would launch its service with hopes of grabbing up to 30% of the telepoint market which was then shared by Hutchison’s ‘Tien Dey Seen’ and Chevalier Telepoint. The newcomer promised to market its services in a different way from the incumbents, stressing that CT2 phones were quite different to their more expensive cellular predecessors.
Their customers could choose to have a small pager integrated into their handsets.
(Figure 17)
Hutchison’s Tien Dey Seen was reported to have signed up 35,000 customers while
Chevalier Telepoint was said to have attracted about 20,000. Pacific TeleLink chief executive remained confident his company’s late arrival would not dampen its prospects and believed the three companies would enjoy a total market up to
100,000 users by the end of the year 1993 and about half a million by 1995-96. He admitted he would be happy if his company had signed up 20,000 customers by the end of 1993. (Figure 18)
Operators
Stations connected
Subscribed users
Hutchison
4,500
> 30,000
90,000
Chevalier
2,500
20,000*
40,000
21
CS:CT2-HK
Target users by year end 1993
Pacific TeleLink
1,800
----
20,000
(Source: Hong Kong Economic Times Daily Mar 29, 1993)
Figure 18 CT2 Operators in HK, Stations Connected, Subscription: Actual & Target
(4) Market information of the telecommunication sector
CT2
Pager
Mobile Phone
Users by 1993
Est. Penetration (%)
Main Player
(Estimated Market
Share %)
50,000 90% are pagers Introductory
80% user with other products
Maturity
> 80% are pager users Growing
Relative Product Stage in 1994
Figure 19 Market Information about Telecommunication Sector
Comment and Analysis: (a) Number of pager users 1.05M = 84% estimated market size, the pager market was almost saturated; pager user can receive the message first and reply later the incoming caller at one’s will; (b) > 80%, say 85%, of 240,000 mobile phone users were also pager users = 204,000; hence, there were about
846,000 Non-Mobile Phone Pager Users = 1.05 M – 0.204 M; those were presumed in need of instant tele-messages; (c) >90%, say 95%, of 50,000 CT2 users were also pager users = 47,500; there were about 48,000 pager users using CT2 services
(portable phone booth) rather than mobile phone services (instant 2-way communication) for various reasons, say expensive and/or bulky handset or expensive air time. (d) 846,000 – 48,000 =798,000 existing pager users were presumed in need of instant tele-messages, remained the potential market for the improved version CT2 services (i.e. CT2 handset integrated with small pager), provided the prices structure of mobile phone services and the skimming pricing strategy remained stable and not falling. (e) With sufficient advertising campaign investment and education, simple pager users would be induced to switch from pager services to improved version CT2 services (Figure 19). They could save much of
22
CS:CT2-HK
their time in looking for telephone (or phone booth) to return call on the streets. (f)
Cellular phone and CT2 would be of different segments regarding technical functions as well as the pricing although they both were in the same telecommunication sector. (5) Market Information of CT2 Sector
Operators
Hutchison Paging
Chevalier Telepoint
Pacific TeleLink
Brands
Commencing date
Investment (HK$M)
Distribution
Tein Dey Seen
March 28 1992
600
Hutchison shops
(34)
TeleLink
March 29 1993
300
TeleLink shops
(1)
Tricom shops (6)
Adv Budget 1993
Services Available
HK$ 18 M
- CT2
- Paging
- Secretarial
Paging
- Meet-me
- Jetpage (auto paging) Motorola
1,488
Chevalier Telepoint
April 28 1992
400
Telepoint shops (3)
Chevalier shops
(21);
Dealer shops (74)
HK$ 15M
- CT2
- Auto-paging
- Page-Link
- Voice-mail
- Information
Bulletin
Shaye; GPT
1,388
1,988 (CT2 + Pager)
Shaye
1,988 (CT2 +
Pager)
Handsets Available
Handset/Package
Price (HK$)
HK$ 10M
- CT2
- Secretarial
Paging
Source: Post Office Statistics, March 1994.
Figure 20 Market Information about CT2 Sector
Comment and Analysis: As discussed above and revealed by the figures, market demand for instant tele-messages (pager) and instant 2-way communication services were extremely high. Hutchison being leader player in the telecommunication market (pager, mobile phone and CT2) achieved their First Mover Advantage (FMA) by massive advertising campaign in their launching stage of the CT2 network services – positioned with a close substitute of cellular phone and focused on its convenience and mobility. Some cellular phone users bought CT2 at lower price to replace their cellular phones; however, shortly after recognized the limited technical functions, say calls could not be made while on the move nor transferred from one
23
CS:CT2-HK
base station to another, with negative words of mouth. Chevalier however being a follower player (1 month later) also focused on CT2 convenience and mobility, did not achieve their FMA successfully, as revealed by the subscription rate after the launch. Negative feedback received from the market regarding the technical function expectations. While cellular phones were positioned as ‘Big Brother’s Mobile Phones’,
CT2 were perceived ‘Poor People’s Mobile Phones’.
It was reported that not until March 1993, operators began to deliver repositioning advertising campaign to rectify customers’ technical function expectations. Shortly after Pacific TeleLink announced on Mar 13 that they would launch its services with the idea of ‘Your Private Phone Booth’ on Mar 28 1993, Chevalier advertised to its
CT2 as ‘A Phone Booth in Your Pocket and Complement to Your Pager’ on Mar 24.
Hutchison, as market leader, also produced a new TV commercial that briefed the benefits of CT2 with a phone booth as shooting background. (Figure 20)
It was reported that Hutchison sold Motorola handset at over HK$20,000 per unit while the same handset in US was sold only at US$1,000 (HK$7,800) per unit. Thus the margin of handset selling was almost doubled in HK market (Chan , 1995).
Cellular phone market, however, also experienced a slow growth in late 80s and early
90s mainly for capacity limit problem. CT2 was considered to have good niches in HK telecommunication market with inferior technical functionality when compared with cellular phones since the latter was expensive both handset and air time in HK.
Market demand for low-cost mobile phone was extremely high as revealed by a survey report by Irwell International Ltd (1991). CT2 operators were keen in market growth as a whole instead of securing users from competing sectors (say, cellular phone). CT2 handset price could be as low as HK$800 provided the output volume was sufficient large; however relative poor development in UK resulted in much higher production costs as HK market size was too small to achieve minimum efficiency scale of low costs.
Operators in HK initially (in early 1992) adopted a normal pricing of 30% mark-up on costs (costs at about HK$1,700) while Hutchison sold at $2,388 and Chevalier
HK$2,348. The air time subscription fees were more or less the same and price competition did not occurred. Six months later, as subscription growth was far below their expectation (Figure 17) they followed the pattern of paging business to lower the handset margins (sold at HK$ 1,688, HK$1,488, HK$1,388 depending on different pre-payment plans) to secure more subscribers. Handset price competition became more popular during the first year of launch.
Hutchison and Chevalier also emphasized their brand images and network coverage
24
CS:CT2-HK
by setting up respective logos & signpost at street and shopping mall levels. In early
1993, operators started to adopt a brand-new promotion strategy of education and market repositioning – CT2 (improved version integrated with small pager), your personal phone booth in your pocket, rather than a substitute of the cellular phone.
CT2 growth after one year launch lagged behind operator’s expectation, but it was still much faster than that of the counterparts in the telecommunication market mainly due to the lower price (compared with cellular phone) and the complementary features (with reference to pager) as revealed by the following table:
Products
No. of Subscribers
CT2
Cellular Phone
Pager
37,44
1,000
14,925
(Source: Chan, 1995)
After the brand-new promotion program in Apr 1993 the market grew substantially and marked a record of more than 10,000 units sold in one month. This implied the new entrant of the third player re-fuel the new game of CT2 competition. Regarding the handset manufacturer, Sony and Kenwood had announced their plan of CT2 handset production. It was also expected that more handset and improved models available to the market would further fuel up the diffusion process.
25
CS:CT2-HK
Chapter 4
Recommendations and Conclusions
1. Technical functionalities of network coverage, quality of reception and service reliability were the key Critical Success Factors (CSFs) which required huge financial investment of the operators. The operators should have conducted detailed long-term cash flow based capital budgeting with sufficient risk factor adjustment. (see points 5 and 6 below for exogenous critical factors)
2. Improved/upgraded version of handsets integrated with small pager must be provided to secure relative competitive edge over pagers and against cellular phones 3. More brands and improved models of handsets must be sourced from more manufacturers to bring down the handset prices through competition.
4. More realistic advertising and promotion programs about the functional features of the communication device in order to manage customer’s expectation properly. 5. Handset pricing as well as subscription fees structure must be carefully designed and monitored with special reference to those of cellular phone. One exogenous critical factor was the pricing of handsets and subscription plans of cellular phone.
Since Hutchison and Pacific TeleLink were both key players of Cellular Phone and
CT2 sectors, normally they would not price cut to squeeze the product. Hong
Kong Telecom (trading as CSL), however, a key cellular phone player, was granted a license for operating CT2 but decided not to go for the project, might have incentive to upset the game. SmarTone (a new cellular phone player with no vested interests in CT2) might also have strong incentive to upset the CT2 game for the customers. (see Figure 19)
6. Given the technical functionality gap discussed, CT2 operations would not be viable for long should the pricing differences of handset and subscription plans between cellular phone and CT2 were less than 60%. For example, CT2 + pager sold at HK$1,988 against cellular phone at < HK$5,000 and calling charge per minute HK$0.4 (CT2) against < HK1.0 (cellular phone). In other words, the viability of the CT2 operating system would depend very much on the pricing strategy of its superior substitute in other segment.
26
CS:CT2-HK
Chapter 5
References
Baker, M J (1988) Marketing – An Introductory Text (4ed); Macmillan Education
Bennett, P D (1988) Marketing; McGraw Hill
Buggie, F (1981) New Product Development Strategies American Management
Association
Chan, YK (1995) An Analytical Study of the Diffusion Process of A New Product –
Cordless Telephone 2nd Generation in Hong Kong; unpublished article
Crawford, C M (1980) ‘Defining the Charter for Product Innovation’ in Britt et al,
(1983) Marketing Management and Administrative Action; McGraw Hill.
Crawford, C M (1994) New Products Management (3ed); McGraw-Hill
Dalrymple, D J and Parsons, L J (1990) Marketing Management – Strategy and
Cases (5ed); John Wiley & Sons
Evans, M (1995) ‘ Market Segmentation’ in Baker, M J (1995) The Marketing Book
(3ed) Butterworth Heinemann
Ferber, Robert (1975) ‘What Do We Know About Consumer Behavior?’ in Britt et al, (1983) Marketing Management and Administrative Action; McGraw Hill.
Foxall, G (1995) ‘Consumer Decision Making’ in Baker, M J (1995) The Marketing
Book (3ed) Butterworth Heinemann.
Kashani, K (1998) ‘Make Yourself Heard: Ericsson’s Global Brand Campaign’ in
Jeannet, J-P and Hennessey, H D, (2003) Cases in Global Marketing Strategies
(5ed) Houghton Mifflin
Kotler, P and Singh, R (1981) ‘Marketing Warfare in the 1980s’ in Britt et al, (1983)
Marketing Management and Administrative Action; McGraw Hill
Moutinho, Luiz (1995) Cases in Marketing Management (2ed) Addison-Wesley
27
CS:CT2-HK
Nagle, T T and Holden, R K (1995) The Strategy and Tactics of Pricing – A Guide to
Profitable Decision Making (2ed); Prentice Hall
Ricks, D A (1993) Blunders in International Business; Blackwell Publisher
Thomas, M J (1995) ‘Product Development and Management’ in Baker, M J (1995)
The Marketing Book (3ed) Butterworth Heinemann
Wilson, R M S, Gilligan, C and Pearson (1993) Strategic Marketing Management –
Planning, Implementation and Control; Butterworth Heinemann.
Winkler, J (2995) ‘Pricing’ in Baker, M J (1995) The Marketing Book (3ed)
Butterworth Heinemann
郎咸平 (2004) ’和記黃埔多元化互補戰略’ 錄入 郎咸平 (2004) 整合-中國
企業多元化與專業化整合戰略案例; 東方出版社
黃秉華 (1988) 香港商戰錄 博益出版社
28
CS:CT2-HK
References: Baker, M J (1988) Marketing – An Introductory Text (4ed); Macmillan Education Bennett, P D (1988) Marketing; McGraw Hill Buggie, F (1981) New Product Development Strategies American Management Association Chan, YK (1995) An Analytical Study of the Diffusion Process of A New Product – Cordless Telephone 2nd Generation in Hong Kong; unpublished article Crawford, C M (1980) ‘Defining the Charter for Product Innovation’ in Britt et al, (1983) Marketing Management and Administrative Action; McGraw Hill. Crawford, C M (1994) New Products Management (3ed); McGraw-Hill Dalrymple, D J and Parsons, L J (1990) Marketing Management – Strategy and Cases (5ed); John Wiley & Sons Evans, M (1995) ‘ Market Segmentation’ in Baker, M J (1995) The Marketing Book (3ed) Butterworth Heinemann Ferber, Robert (1975) ‘What Do We Know About Consumer Behavior?’ in Britt et al, (1983) Marketing Management and Administrative Action; McGraw Hill. Foxall, G (1995) ‘Consumer Decision Making’ in Baker, M J (1995) The Marketing Book (3ed) Butterworth Heinemann. Kashani, K (1998) ‘Make Yourself Heard: Ericsson’s Global Brand Campaign’ in Jeannet, J-P and Hennessey, H D, (2003) Cases in Global Marketing Strategies (5ed) Houghton Mifflin Kotler, P and Singh, R (1981) ‘Marketing Warfare in the 1980s’ in Britt et al, (1983) Marketing Management and Administrative Action; McGraw Hill Moutinho, Luiz (1995) Cases in Marketing Management (2ed) Addison-Wesley Nagle, T T and Holden, R K (1995) The Strategy and Tactics of Pricing – A Guide to Profitable Decision Making (2ed); Prentice Hall Ricks, D A (1993) Blunders in International Business; Blackwell Publisher Thomas, M J (1995) ‘Product Development and Management’ in Baker, M J (1995) The Marketing Book (3ed) Butterworth Heinemann Wilson, R M S, Gilligan, C and Pearson (1993) Strategic Marketing Management – Winkler, J (2995) ‘Pricing’ in Baker, M J (1995) The Marketing Book (3ed) Butterworth Heinemann 郎咸平 (2004) ’和記黃埔多元化互補戰略’ 錄入 郎咸平 (2004) 整合-中國 企業多元化與專業化整合戰略案例; 東方出版社 黃秉華 (1988) 香港商戰錄 博益出版社 28
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SOA RECORD. Volume 29, No.1. Session 7PD Pricing Risks Management. May. 2003. 18 Oct. 2010 Society of…
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The landline telephone is the service that I chose because it’s a service that is still on the market but is has declined to consumer appeal. Alexander Graham Bell invented and patented the first long distance landline telephone in 1876. It took 90 years after the first landline was installed to reach 100 million users worldwide. Although the landline has been around for a long time technology has improved over the years as well leaving the landline in the dust. The advanced technology has cause the landline telephone service to become obsolete. Several studies show that people prefer to have cell phones over landline telephones for the simple fact of convenience. The cell phone allows them to take their phones with them anywhere they go and never have to worry about missing a call.…
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The discussion on price theory during the first half of the 20th century that would later be known under the term “full-cost controversy” had its debut with the publication of the aforementioned article by the Oxford-based economists Hall and Hitch (1939). In their work, entitled “Price Theory and Business Behaviour”, they presented the results of a survey accompanied by interviews among 38 firms, of which 33 were in the manufacturing business. The large majority of the firms were found to set their price in the following way: first, an ex-ante estimate of average costs was derived. On this cost base, two percentage margins were added to arrive at the final price. The first was a mark-up to cover overhead costs which could not be directly attributed to products; the second had the function of a profit margin. The authors called this “full-cost pricing” and insisted that it was a “rule of thumb”, which could only lead to profit-maximizing prices in the neoclassical sense by accident (Hall and Hitch, 1939, p. 113). Furthermore, they asserted that managers did not make any implicit or explicit attempt to estimate demand elasticities or other factors that would reflect the demand situation for the price setting process. Additionally, they included sunk costs (in the form of fixed overheads) into the pricing decision and were reluctant to alter prices if market conditions changed. All these answers Hall and Hitch received from managers seemed - at least at first glance - to be at odds with the postulates of the predominant economic doctrine, namely that prices are determined optimally so as to equate marginal costs and marginal revenues and thus to maximize profits.…
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Noble, P., & Gruca, T. (1999). Industrial Pricing: Theory and Managerial Practice. Marketing Science, 18(3), 435-454.…
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The telephone line to be used in communicating and transacting with customers, as well as handling the company…
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