Harvard Business Review

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HBR CASE STUDY

Should Joe ignore or respond to TelZip’s bold move?

The Upstart’s Assault
by Marco Bertini and Nirmalya Kumar


Reprint R1007X

What do you do when one of your small competitors pulls out its big gun?

HBR CASE STUDY

The Upstart’s Assault
by Marco Bertini and Nirmalya Kumar

COPYRIGHT © 2010 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

Joseph Ulan spent his first few minutes in the office on Wednesday Googling the weather in Sardinia. He, Ana, and the boys were set to fly there on Saturday, and although he wasn’t looking forward to the Alitalia flight, the prospect of two weeks on the beach seemed heavenly. No questions from his CEO about why the new customer initiatives were behind schedule. No excuses from the landline, mobile, and broadband division heads about why their respective service centers and billing systems couldn’t be integrated. No meetings to run, no presentations to prepare. He couldn’t wait to step out of his chief marketing officer suit and into his Daddy sandals and swim trunks. Only 72 more hours, Joe thought, smiling as he opened that morning’s Financial Times. But the ad spanning page 3 made his lips narrow. “Free broadband forever with TelZip! Save at least €450 a year when you switch from Meridicom!”

TelZip, a small mobile-network operator eager to break into new markets, had decided to offer free broadband service to business customers who were willing to leave their current provider and enter into a long-term contract. As the oldest and largest telecommunications player in the country, Meridicom was accustomed to seeing both old and new competitors—bigger mobile companies, cable TV operators, and internet providers—undercut its prices on all types of services by the usual 10%. Meridicom was the industry price leader, so when it published rates, everyone else reacted predictably. But TelZip was now changing the game—not only giving away a high-growth, high-margin product but attacking Meridicom head-on. Joe had barely digested the news when CEO Gerald Segner opened the door. “Why didn’t we know about this?” he asked, stern but calm. “We suspected that TelZip was planning to

HBR’s cases, which are fictional, present common managerial dilemmas.

harvard business review • july–august 2010

page 1

The Upstart’s Assault •• •HBR C ASE S TUDY

go after new markets,” Joe answered. “But I must admit I didn’t expect it to be broadband—or for them to give it away free for life.” “Look, the ad is a shock, but it’s not really TelZip I’m worried about,” Segner said. “We’ve ignored price attacks from gnats like these in the past, and we always come out on top. Meridicom is one of the best-known brands in this country, in Europe even—and customers, especially business customers, know and trust our quality. We don’t want to jeopardize that. But the real question is: Could this threat become bigger? The word ‘free’ gets attention, especially from the press. If our larger competitors follow suit, would customers then take the offer more seriously?” “It’s a good question.” “Don’t forget, this isn’t only free broadband,” Segner continued. “If customers decide to migrate to TelZip, we’ll lose their landline revenue and, worse, the connection between the local exchange and their home or office. That’s the umbilical cord—it’s how we gather data about customers and figure out how to build and sell them tomorrow’s telecom services.” Joe nodded. He may have been new to the business, but he understood the importance of owning the “last mile” in the network. “This is just the sort of thing I brought you over from Pimmit for,” Segner said. “You picked the right fights there, internally and externally. You got the division heads to work together and even built market share with all those newbies nipping at your heels. And you did it without hurting the brand. I’m sure you can do it again here.”

Heels Dug In
An hour later Joe and the...
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