your strategy? How do you
want the customer to
perceive your company?
company? Competitors could negotiate directly with one another or take any other actions their companies might take in the real world. We needed a market baseline to begin, and so before the wargame, each competitor team bid in a simplified auction for PCS licenses in five cities we chose for their population and geographi-cal diversity: Phoenix, Portland, Seattle, Chicago, and Miami.
We worked extensively with the market team before the game began, not for a few hours or a day but in several full-day sessions.
In the end, we designed a market model that tended to emulate the current thinking about wireless: that it was focused on high-end users, principally in business, and was essentially regional in na-ture. The fascinating thing about this wargame was also humbling and instructive: For once, we underestimated the power, capacity for creativity, and inevitable experiential learning of our work. Dur-ing this pregame preparation period, the market team went off, contacted another company, and asked it to do a conjoint analysis.
A conjoint analysis uses focus groups and other tools to ask poten-tial customers what features they value most in a product relative to other offerings in the same product category and how they weigh each of those features or attributes in the purchasing decision. By scrambling the combination of product features and prices, you can come up with a mathematical model of what customers will pay for a product with a certain set of features.
Members of the market team, essentially acting as surrogates for wireless customers, thought they could use this conjoint model to make more accurate judgments about company offerings and purchasing decisions. They were wrong: As the game unfolded, the pace of change in product attributes and prices quickly overwhelmed the model. And that was in the first move, which usually is the sleepiest in a three-move wargame.
Several notional steps in the first move began to solidify in the second move and became established trends in the third. Indeed, those trends emerged as the principal findings in the game, all of them reflecting an essential truth of the emerging digital age in business.
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THE BIG IDEA Technology, moving in fits and starts, often advances at speeds far faster than even the experts antici-pate, driving faster change in the marketplace. Companies, as a consequence, need to be especially nimble.
Here are the key findings:
• Prices were going to come down and come down sharply both for the wireless phone itself and for service. At the end of the game, pay-as-you-go cell phones were selling for $15 or $20 a month. Southwestern Bell, for one, came up with a “McPhone”
strategy for low-end customers. Bundled with minutes, the prices were higher, perhaps double, but still significantly below where they were at the time.
• Bundling that included entertainment and other services, not just minutes, was going to arrive with a vengeance. One team was talking about doing a joint venture with Disney to develop entertainment software for cell phones, and the US West team created an innovative alliance with Sega to offer games on hand-held wireless devices. Long-distance service, which was unheard of in cell phone use at the time, would be regarded as standard equipment in the new marketplace.
• National networks would have to be the wave of the future. It might require cooperative agreements with other companies at first, but teams in the wargame generally felt that the exploding growth of cell sites—there were 10,000 nationwide by 1992—
meant that “islands” of one-city or one-region service would dis-appear. One-company national networks, they said, certainly fit within the nine-year time horizon of the game. As the market grew, scale and strong distribution capability for the consumer market, through a company’s own stores and through other re-tailers, would be crucial.
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107• Brand loyalty was going to be essential. With the market team and its conjoint model besieged by the proliferating price changes and product offerings, “customers” became confused and tended to stick with their current providers, assuming they were satis-fied with the service. The players concluded that as brands went national and as options for product and service continued to be-wilder customers, branding would become especially important.
Churn—that is, customer movement from one service provider to another—already was perceived as a problem; establishing brand loyalty would help reduce it.
• Overcapacity would be an inevitable consequence of explosive growth. The players thought it would take perhaps six years, around the year 2000, for excess capacity to begin to show up.
There would be a shakeout, placing an even higher premium on brand loyalty and dependable national networks.
Remember, this wargame was played in September 1994. The findings were greeted with considerable skepticism by US West executives even though they had created those conditions in the imagined cell phone marketplace of 1997 and 2000 and beyond.
Because of the state of wireless at the time, they simply did not be-lieve that these developments could unfold as rapidly as the game seemed to predict. In fact, as we all know, they came even more rapidly in the real world. Within a few short years, the cost of cell phone service was a small fraction of what it had been. National networks quickly became a reality. As for bundling, we all are fa-miliar with the expanding array of services bundled in today’s cell phones. Churn, estimated at roughly 25 percent at the time of the game, began to sink into single digits as brand loyalty took hold.
One finding in the game was widely accepted by the players:
Wireless could not succeed as a stand-alone business. To be success-ful, it had to be integrated with a broad range of telecommunica-tions offerings. In the game, that proposition was driven principally by the AT&T team, which sought to meld its cell phone and long-distance services. AT&T’s idea was that wireless could be subsidized
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by wireline service, which was still ex-pensive then compared with today’s long-distance costs. US West, however, was running its wireless as a separate business, and that meant the company had to integrate the two or countenance losses in its cell phone unit. Today, most major wireless service providers do have a wireline affiliate, with the exception of Sprint Nextel.
Postscript: US West never became much of a player in the burgeoning
wire-less world. It was acquired in 2000 by Qwest Communications, a company originally built on high-speed data transmission for busi-nesses. Among other telecommunication offerings, the company now sells wireline and wireless services, the latter through Sprint’s national wireless network.
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