by John H. Roberts, Charles J. Nelson, Pamela D. Morrison
Telstra, the Australian telephone company, was facing the threat of competitive entry by a major rival, Optus, and sought help in developing a defensive marketing strategy. The problem was to assess the obtainable market share of the new entrant in the residential Australian long distance telephone call market , to gauge how quickly that share would be gained, and determine the factors that would influence its dynamics and ultimate market appeal. The authors developed probability flow models to provide a framework to generate forecasts and assess the determinants of share loss. Telstra used the models to set prices adaptively, direct service initiatives, design advertising copy, and dimension the network (including financial and manpower planning). Decisions based on the model included a move to compete on service (rather than price) including specific service components, a decision not to oppose an early move to preselection by Optus, the setting of actual price levels and formats, a targeting plan for telemarketing, and dimensioning decisions based on model forecasts. Telstra avoided head-to-head price plan comparisons, representing an increase in contribution of $US 22 mm per year and other benefits of the model application lead to incremental revenue of over $US 50 mm a year.
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