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Implementing a prelaunch diffusion model: measurement and management challenges of the Telstra switching study.

Article Excerpt
This paper describes the challenge of applying a marketing science model in practice and the benefits from doing so. There have been many tools developed in marketing science, but their use and impact have often been disappointing (e.g., see Steenkamp 2000). One major reason for this is the difficulty of adapting our models to the managerial context at which they are targeted (including ensuring completeness, providing timeliness, and calibrating total effects). Another is achieving organizational adoption of the model findings and translating analytical insights into marketing actions. In this paper the context in which actions need to be focused is the preparation of a defensive strategy prior to the launch of a new entrant. While the two major problems of managers are growth and defense, use of marketing science models for the latter is less prevalent than for growth (with, for example, choice-based conjoint analysis and diffusion modeling. (See Dick R. Wittink and Trond Bergestuen. 2001. Forecasting with conjoint analysis. J. S. Armstrong, ed. Principles of Forecasting: A Handbook for Researchers and Practitioners. Kluwer Academic Publishers, Boston, MA and V. Mahajan, E. Muller, and Y. Wind, eds. 2000. New Product Diffusion Models. Kluwer Academic Press, Amsterdam, The Netherlands.)

Key words: choice models; competitive strategy; defensive strategy; diffusion; market entry; market response models; prelaunch forecasting

History: Processed by Gary L. Lilien, ISMS Practice Prize Editor.

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We consider the problem of implementing a marketing science model for the Australian telephone company, Telstra, prior to the deregulation of the long-distance toll-call market as it faced competition from a new entrant, Optus Communications. We review the type of information it needed to focus marketing actions prior to Optus's launch and the market research and modeling necessary to obtain that information. After calibrating a model of market response to Optus's possible market positioning and pricing strategies and Telstra's potential reactions to them, we identify the insights that this model provides in directing defensive strategy. We then discuss challenges of implementing the results across the organization and the benefits of doing so.

Management Problem

For a model to be useful it must be focused on the management actions that it wishes to influence. Therefore, we begin by looking at the information that Telstra needed and the actions that would be supported by that information. Deregulation of the Australian long-distance toll-call market and impending entry of Optus, a subsidiary of Cable and Wireless of the United Kingdom and Bell South from the United States, provided Telstra with two types of challenges: how to minimize and slow market share loss (requiring diagnostic information) and how to estimate the extent of the loss for planning purposes (prognostic information). The management actions that would be used to control Optus's growth were pricing (including price levels, pricing formats, and route-by-route prices), customer communications (including advertising copy and spend, as well as customer service levels), and account management strategies (including selective protection of desirable customers and up-selling and cross-selling). In terms of planning, forecasts under likely scenarios were required by Engineering groups for network provisioning, by Manpower Planning for recruitment and training, and by Finance for capital raising and budgeting. These strategies and plans had to be in place prior to the launch of the...