MBA 610 Marketing Management Case Study

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This case was presented in summer 2007 and revolves around the changing landscape of high speed Internet during the mid-1990s. Rogers Communications had to decide if it was going to enter the market and, if so, how would it enter the market.

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MBA 610 Marketing Management Case Study

  1. 1. Rogers Communications, Inc. The Wave Case Analysis Prepared by: Samy Gennaoui Amos Tsay William Wong Hongyan Xiao Mark Bundang For: MBA 610 August 8, 2007
  2. 2. Agenda <ul><li>Introduction to Rogers Communication, Inc.: The Wave </li></ul><ul><ul><li>Background </li></ul></ul><ul><ul><li>Main Business Issue </li></ul></ul><ul><ul><li>Other related issues </li></ul></ul><ul><li>Situation Analysis </li></ul><ul><li>Alternatives </li></ul><ul><ul><li>Identification and evaluation </li></ul></ul><ul><li>Recommendation and Rationale </li></ul><ul><li>Plan of Action </li></ul><ul><li>Conclusion </li></ul>
  3. 3. Agenda <ul><li>Introduction to Rogers Communication, Inc.: The Wave </li></ul><ul><ul><li>Background </li></ul></ul><ul><ul><li>Main Business Issue </li></ul></ul><ul><ul><li>Other related issues </li></ul></ul><ul><li>Situation Analysis </li></ul><ul><li>Alternatives </li></ul><ul><ul><li>Identification and evaluation </li></ul></ul><ul><li>Recommendation and Rationale </li></ul><ul><li>Plan of Action </li></ul><ul><li>Conclusion </li></ul>
  4. 4. Main Issues Facing Rogers In November, 1995, Rogers Communications, Inc. was poised to become the world’s first cable television company to sell high speed access to the Internet over its cable lines. Named Rogers WAVE, the project would take Canada’s largest television and cellular telephone operator into an unfamiliar and unpredictable market. 1 st Decision to make Rogers Communications, Inc. must decide whether or not to proceed with the plan to provide a service of high speed access to the Internet over its cable lines. 2 nd Decision to make If Rogers decides to proceed with the launch of such a service, then the company must then decide the details of this launch: target a niche or mainstream market .
  5. 5. Background Current sources of Rogers’ revenue % of revenue
  6. 6. Agenda <ul><li>Introduction to Rogers Communication, Inc.: The Wave </li></ul><ul><ul><li>Background </li></ul></ul><ul><ul><li>Main Business Issue </li></ul></ul><ul><ul><li>Other related issues </li></ul></ul><ul><li>Situation Analysis </li></ul><ul><li>Alternatives </li></ul><ul><ul><li>Identification and evaluation </li></ul></ul><ul><li>Recommendation and Rationale </li></ul><ul><li>Plan of Action </li></ul><ul><li>Conclusion </li></ul>
  7. 7. Internal Analysis Strengths Weaknesses <ul><li>Consecutive net losses even if revenue increases </li></ul><ul><li>Long-term debts, i.e., 50% from ‘93 to ‘94 </li></ul>Rogers Cable’s growth comes mainly from adding channels Revenue growth b/w ’93 and ’94 was 68% Largest cable TV & cell-phone operator in Canada Impressive revenue growth during the period of ’92 to ‘95 Diversified in media and telecommunication Used to taking initiatives / Proactive management for R&D Existing coaxial network in Ontario and BC Customers have high price perception of Rogers Low diversity of revenue growth Rogers does not have any previous Internet service providing experience “ Negative option” left bad taste in the mouths of subscribers The board is reluctant to invest
  8. 8. External Environment Analysis Opportunities Threats Becomes important when Rogers expands into Business segment Computer Jocks and the Aware are amazed by speed of cable connection and are willing to pay $50/month ADSL technology will need 3 to 5 years before commercialization – Potential First Mover’s Advantage for Rogers Participation of other companies in development of cable Internet 70% computer penetration foreseen by 2000 / Internet users doubled yearly New Internet contents/applications are more rewarding at high speed Neophytes see Internet as just entertainment and are not willing to pay higher rates before experiencing. ADSL expected to be faster than cable internet. Bell can cross-subsidize its new services and cause major price competition. It also has major brand recognition T-1 is a more competitive technology in commercial segment 163 existing ISPs in Canada with experience.
  9. 9. Important Environmental Factors Two sides to every coin Technology and regulations are allowing convergence of Cable TV, Telephone, and Computing Major Opportunity Potential for Rogers to become “full service” network and compete with Bell in their market Major Threat Satellite TV and telephone companies allowed to offer cable TV – Potential for companies like Bell and DirecTV to compete with Rogers in its own market .
  10. 10. Agenda <ul><li>Introduction to Rogers Communication, Inc.: The Wave </li></ul><ul><ul><li>Background </li></ul></ul><ul><ul><li>Main Business Issue </li></ul></ul><ul><ul><li>Other related issues </li></ul></ul><ul><li>Situation Analysis </li></ul><ul><li>Alternatives </li></ul><ul><ul><li>Identification and evaluation </li></ul></ul><ul><li>Recommendation and Rationale </li></ul><ul><li>Plan of Action </li></ul><ul><li>Conclusion </li></ul>
  11. 11. Alternatives Status Quo No implementation of cable internet across Rogers' network for now . Offer cable access to the Internet as a Service to a Niche market Offer cable access to the Internet as a Service to a Mainstream market Cable Internet Decision 1 2 3
  12. 12. Alternatives <ul><li>Pros </li></ul><ul><li>No extra capital </li></ul><ul><li>Wait until the demand for internet is “real” and known </li></ul><ul><li>No need to develop the technology , since other are working on it </li></ul><ul><li>Focus on experienced offering </li></ul><ul><li>Cons </li></ul><ul><li>Forego possibility of being a pioneer in internet industry </li></ul><ul><li>No pro-activeness vs. Bell to become full service network </li></ul><ul><li>No diversification of sources of revenues </li></ul>Status Quo 1
  13. 13. Alternatives Service to a Niche market <ul><li>Pros </li></ul><ul><li>Focus marketing efforts on target market most likely to buy the product </li></ul><ul><li>Higher prices can be charged per subscriber </li></ul><ul><li>Be the only affordable high-speed provider currently in the market </li></ul><ul><li>Cons </li></ul><ul><li>High capital investment required </li></ul><ul><li>Relatively small target market (1% of cable subscribers in Newmarket) </li></ul><ul><li>Long recovery period on initial investments </li></ul><ul><li>No certainty on expansion of market </li></ul>2
  14. 14. Alternatives Service to a Mainstream market <ul><li>Pros </li></ul><ul><li>Perception as being the leader in high speed ISP </li></ul><ul><li>Target a fast-growing market </li></ul><ul><li>Offering a full range of service (cable, internet, cell phone) to existing customers </li></ul><ul><li>First-mover's advantage over Bell </li></ul><ul><li>Cons </li></ul><ul><li>High capital investment required </li></ul><ul><li>Market growth still uncertain </li></ul><ul><li>Lower prices charged to customers than in &quot;niche&quot; positioning necessary to penetrate mainstream market </li></ul>3
  15. 15. Agenda <ul><li>Introduction to Rogers Communication, Inc.: The Wave </li></ul><ul><ul><li>Background </li></ul></ul><ul><ul><li>Main Business Issue </li></ul></ul><ul><ul><li>Other related issues </li></ul></ul><ul><li>Situation Analysis </li></ul><ul><li>Alternatives </li></ul><ul><ul><li>Identification and evaluation </li></ul></ul><ul><li>Recommendation and Rationale </li></ul><ul><li>Plan of Action </li></ul><ul><li>Conclusion </li></ul>
  16. 16. Recommendation and Rationale Profitability Required Capital Protection of existing customer base Growth potential A B C D Decision Criteria Service to a Mainstream market 3
  17. 17. Recommendation and Rationale Status Quo Service Launch <ul><li>No extra capital is required </li></ul><ul><li>(although Rogers already seems to have a high capital investment trend already) </li></ul><ul><li>Continue the current trend seen in the financial statements </li></ul><ul><li>High initial capital investment required </li></ul><ul><li>Potential to become profitable again within a few years </li></ul>1 2 3 1 st Decision to make Does Rogers provide the service or not Required Capital A Profitability B
  18. 18. Financial performance of Rogers Communications, Inc. Revenue Net Income (loss) Loss trend ’92 to ‘95 Net Loss = decrease of 57% Revenue growth overall = 130% Capital Exp’s = increase of 46%
  19. 19. Recommendation and Rationale Status Quo Service Launch <ul><li>No extra capital is required </li></ul><ul><li>(although Rogers already seems to have a high capital investment trend already ) </li></ul><ul><li>Continue the current trend seen in the financial statements </li></ul><ul><li>Bell may take the initiative to venture into broadcasting while Rogers waits . </li></ul><ul><li>Minimal growth potential if Rogers assumes a “wait-and-see” approach </li></ul><ul><li>High initial capital investment required </li></ul><ul><li>Potential to become profitable again within a few years </li></ul><ul><li>Ability to position in the market before Bell Canada ( first-mover's advantage ) </li></ul><ul><li>Potential for huge growth . Rogers can expand its service regionally, then nationally </li></ul>1 2 3 1 st Decision to make Does Rogers provide the service or not Required Capital A Profitability B Protection of existing customer base C Growth potential D
  20. 20. Recommendation and Rationale Service Launch 1 st Decision to make Does Rogers provide the service or not Required Capital A Profitability B Protection of existing customer base C Growth potential D
  21. 21. Recommendation and Rationale Niche Mainstream <ul><li>Lower initial investment </li></ul><ul><li>Longer time required to recover costs and become profitable </li></ul><ul><li>Higher initial investment </li></ul><ul><li>Shorter time required to recover costs and become profitable </li></ul>2 3 2 nd Decision to make Target a niche or mainstream market Required Capital A Profitability B
  22. 22. Estimated 1 st Year Financials for Newmarket launch of WAVE 70% computer penetration foreseen by 2000 / Internet users doubled yearly Opportunities 160 (1% of 16,000) 800 (5% of 16,000) Recurrent Costs = $272,000 (independent of # of customers) Expected penetration: Mainstream: 5% at $30/month Niche: 1% at $50/month Conservative forecast: New users are likely to pay more than $30/month in the future
  23. 23. Recommendation and Rationale Niche Mainstream <ul><li>Lower initial investment </li></ul><ul><li>Longer time required to recover costs and become profitable </li></ul><ul><li>Slower growth allows Bell time to come in and take larger portion of customer base </li></ul><ul><li>Slow but steady growth. </li></ul><ul><li>Higher initial investment </li></ul><ul><li>Shorter time required to recover costs and become profitable </li></ul><ul><li>Faster growth means quicker establishment of customer base </li></ul><ul><li>Faster growth </li></ul>2 3 2 nd Decision to make Target a niche or mainstream market Required Capital A Profitability B Protection of existing customer base C Growth potential D
  24. 24. Recommendation and Rationale Mainstream 2 nd Decision to make Target a niche or mainstream market Required Capital A Profitability B Protection of existing customer base C Growth potential D
  25. 25. Recommendation and Rationale Evaluation of Alternatives based on Decision Criteria Status Quo Niche product Mainstream product Rating Scale 1 to 5 for each criterion (1 = poorest rating; 5 = best rating) 11 12 15 Sum of ratings (max 20) 1 2 3
  26. 26. Recommendation and Rationale 1 2 Evaluation of Alternatives based on Decision Criteria Status Quo Niche product Mainstream product Rating Scale 1 to 5 for each criterion (1 = poorest rating; 5 = best rating) 11 12 15 Sum of ratings (max 20) 3
  27. 27. Agenda <ul><li>Introduction to Rogers Communication, Inc.: The Wave </li></ul><ul><ul><li>Background </li></ul></ul><ul><ul><li>Main Business Issue </li></ul></ul><ul><ul><li>Other related issues </li></ul></ul><ul><li>Situation Analysis </li></ul><ul><li>Alternatives </li></ul><ul><ul><li>Identification and evaluation </li></ul></ul><ul><li>Recommendation and Rationale </li></ul><ul><li>Plan of Action </li></ul><ul><li>Conclusion </li></ul>
  28. 28. Timeline JAN ‘96 JUL ‘96 JUL ‘97 JAN ‘99 Offer cable internet in Newmarket and a few selected locations across Ontario and BC Jan ’96 (launch) Upon success of launch in initial locations, use revenues (and secured future revenues) obtained to finance progressive launch in other selected locations Jul ’96 (6 mos.) Continue expansion to have a coverage spread across Ontario and BC Jul ’97 (18 mos.) To be prepared against launch of ADSL , cable internet should be accessible to most of Roger’s cable subscribers Jan ’99 (3 yrs)
  29. 29. Tactics Financial advantages to progressive launch in various locations <ul><li>Reduces risks by having lower expenditures in short periods of time to make technology available </li></ul><ul><li>Allows to reduce costs of advertising by having local campaigns rather than national </li></ul><ul><li>Create hype in new location before technology is made available to increase demand </li></ul>First-mover advantage <ul><li>Advertise the only affordable high-speed internet service </li></ul><ul><li>New source of revenue that will require low operating/maintenance costs once technology is installed </li></ul><ul><li>Position as full-service network before Bell Canada </li></ul>
  30. 30. Control Responsible staffs Approaches Types of Control Purpose Plan Project Manager (coordinate financial, sales and technical managers) Pricing Strategy, Product offering Evaluate achievement of forecasts Profitability Financial Manager Financial analysis, Sales-to-expense ratios Examine the real time financial situation Efficiency Sales Manager Sales force, Advertising, Sales promotion Evaluate and improve impact of marketing expenditures Field Progress Technical Manager Installation, Customer service center Examine the progress of installations and service support Assign a project manager reporting to V.P. Marketing
  31. 31. Agenda <ul><li>Introduction to Rogers Communication, Inc.: The Wave </li></ul><ul><ul><li>Background </li></ul></ul><ul><ul><li>Main Business Issue </li></ul></ul><ul><ul><li>Other related issues </li></ul></ul><ul><li>Situation Analysis </li></ul><ul><li>Alternatives </li></ul><ul><ul><li>Identification and evaluation </li></ul></ul><ul><li>Recommendation and Rationale </li></ul><ul><li>Plan of Action </li></ul><ul><li>Conclusion </li></ul>
  32. 32. Conclusion Offer Cable Service and How Main Issue Analysis of Internal Competencies and Environmental Factors 1st Status Quo, Niche, or Mainstream 2nd Launch to Mainstream in Newmarket 3rd Progressive Growth in Ont and BC 4th Established as a Full Service Provider before Bell Finally
  33. 33. Thank you for your Time! Any Questions?
  34. 34. Appendix
  35. 35. Segmentation patterns and demographics * 1995 Commercenet / Neilson survey **1995 Angus Reid Group Survey Home and Business users* US and Canada Canadians with Internet Access** Canadian Population Households with computers 29.4 million people 11.1 million households Households with Computers and modems <ul><li>1 million Canadians connected to the Internet from their homes in 1995. </li></ul><ul><li>Average Canadian users were on the Internet for 7 hours per week. </li></ul>3.2 million households (28.8%) 1.3 million households (12% of all households) (42% of all households w/ computers) <ul><li>Average usage time per week = 5hrs 28mins. </li></ul><ul><li>15% of users accounted for 50% of usage: Heavy users vs. Light-to-Moderate users. </li></ul>Usage Time* US and Canada
  36. 36. Focus groups Focus Groups - July 1995 Before prototype usage Focus Groups - October 1995 After prototype usage <ul><li>Appealing Features </li></ul><ul><li>Fast </li></ul><ul><li>Doesn’t tie up phone line </li></ul><ul><li>Estimated cost </li></ul><ul><li>Between $25 and $39 per month. </li></ul><ul><li>Younger users very resistant to high prices. </li></ul><ul><li>Preferred the metered rate for fear that they would not use the service enough to justify a high flat rate. </li></ul><ul><li>Estimated cost </li></ul><ul><li>Preferred the high flat rate for fear that metering usage will ruin the experience. </li></ul><ul><li>Computer Jocks and Aware groups were most impressed. </li></ul><ul><ul><li>$39 to $75 per month, $49.95 generally acceptable. </li></ul></ul><ul><li>Neophytes enjoyed playing with the Internet, but were less impressed. </li></ul><ul><ul><li>Less willing to subscribe at higher rates. </li></ul></ul><ul><ul><li>View is that this is just entertainment. </li></ul></ul><ul><li>Installation fees acceptable at $75 to $100 range. </li></ul><ul><li>Resistance to modem purchase for fear of obsolescence. </li></ul><ul><li>Conclusions: </li></ul><ul><li>Willingness to pay for higher rates depends on the type of user. </li></ul><ul><li>Buy-in usually occurs after potential customers have had a chance to use the service. </li></ul>
  37. 37. Advantages of cable access over other forms in the market Comparison of Data Transmission Rates Analog – 28.8 Kbps Digital – 128 Kbps 1.54 Mbps 500 Kbps Increasing Relative Access Rates Comparison of Installation/Modem Costs Decreasing Cost ($)
  38. 38. Estimated 1 st Year Financials of WAVE in Newmarket, ON Newmarket Population Target Segment 50,000 people 16,000 households passed by Rogers cable Revenue Generated from 1 st activity Niche (1%) 160 households Mainstream (5%) 800 households Costs associated with WAVE and adding subscribers $272,900 $272,900 <ul><li>Increase in Annual Costs of Operating Cable Network attributable to WAVE </li></ul>$1,183,002 $722,202 <ul><li>Total </li></ul>$334,102 $334,102 <ul><li>Capital Cost </li></ul>$115,200 Niche (160) $576,000 <ul><li>Cost of installing a subscriber </li></ul><ul><li>($720 per subscriber) </li></ul>Mainstream (800) $268,000 $112,000 <ul><li>Total </li></ul>$80,000 $16,000 <ul><li>Installation charge ($100 per subscriber) </li></ul>$96,000 Niche (160) $288,000 <ul><li>Rate of subscription </li></ul><ul><li>($50 per mo for Niche; $30 per mo Mainstream) </li></ul>Mainstream (800)
  39. 39. Questions to answer for roll out <ul><li>Customer Acquisition Spending </li></ul><ul><ul><li>Modest vs. Aggressive </li></ul></ul><ul><li>Price Level </li></ul><ul><ul><li>$400 2 nd gen modems: charge for modems vs. cost recovery in subscription fee </li></ul></ul><ul><ul><li>Single subscription rate vs. tier rate system (basic and premium) </li></ul></ul><ul><li>Metered or Flat Rate Pricing </li></ul><ul><ul><li>If mean rate of usage stayed under 5 hours a day, Rogers’ costs were independent of usage, flat rate favored. </li></ul></ul><ul><li>Installation and Service </li></ul><ul><ul><li>Minimal customer service offering vs. full service offering </li></ul></ul><ul><li>Proprietary Content </li></ul><ul><ul><li>Don’t spend on developing content vs. invest in developing content to differentiate one access route over the other </li></ul></ul><ul><li>Extension to Business Markets </li></ul>

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