2. At the end of 2013, TELUS Communications (TELUS) acquired
the small wireless telecommunications
carrier Public Mobile Holdings Inc. (Public), which operated in
the lower, price-sensitive tier of the
market through 400 retail stores in Toronto and Montreal.
TELUS had previously not competed in the
lower tier of the market, which had a history of low revenues
per customer and low customer
retention. David MacLean, director of Mobility Marketing at
TELUS, faced the decision of what to do
with this newly acquired firm. He was considering the market
positioning options, brand portfolio
implications, and financial impact of his decision. MacLean’s
options included migrating Public’s
customers to one of the company’s existing brands, continuing
to operate the firm as an independent
brand, and repositioning the brand to improve profitability. At
the time of acquisition, Public had just
finished 2013 with a loss of CA$55 million.1
The case provides a detailed description of TELUS’s
competitive environment at the time it purchased the
small brand Public. TELUS is one of the “Big Three”
telecommunications companies in the Canadian
mobile carrier market; the other two are Bell Canada
Enterprises (Bell) and Rogers Communications Inc.
(Rogers). The case includes financial performance data for all
three companies, as well as a market map
of how each competes within the three price/service tiers of the
market. It is a complex market, and the
core offering of each of the major competitors is relatively
undifferentiated. The case describes some of
the market complexity to give students the opportunity to
explore how a firm can differentiate in a market
with little product differentiation.
3. The case examines the mobile phone business and the elements
that drive profitability for mobile phone
carriers, including average revenue per user (ARPU), churn
rate, and customer lifetime value. TELUS
serves several market segments with a portfolio of brands. The
case specifically examines the company’s
purchase of a small, independent, money-losing, low price-point
competing carrier and the resulting
decision that the company faces for integrating the new brand
into its portfolio of offerings without
diluting the company’s profitability.
1 All currency amounts are in Canadian dollars unless otherwise
specified.
This publication may not be transmitted, photocopied, digitized
or otherwise reproduced in any form or by any means without
the
permission of the copyright holder. Reproduction of this
material is not covered under authorization by any reproduction
rights
organization.
Page 2 8B17A049
LEARNING OBJECTIVES
This case provides students with the opportunity to complete the
following objectives:
• Analyze the strategic options for integrating an acquired
4. brand, within a broader strategic positioning
and profitability framework.
• Conduct a systematic value map and evaluation of the
acquired firm’s competitive advantage, relative
to different segment needs/priorities, and relative to the
advantage (or parity) with competitors.
• Evaluate a multi-tier, multi-brand portfolio in a complex
competitive environment.
• Analyze and understand a capital-intensive, hyper-competitive
subscription business.
• Evaluate differentiated brand positioning in a market with few
tangible points of differentiation.
POSITION IN COURSE
This case is suitable for both undergraduate and MBA programs,
in a core marketing course. It also fits
well in a competitive strategy course and a brand management
course. It provides a good opportunity to
teach complex decision-making, positioning, market dynamics,
and competitive strategy.
RELEVANT READINGS
• David A. Aaker and Erich Joachimsthaler, “The Brand
Relationship Spectrum,” California
Management Review 42, 4 (2000): 8–23.
• David A. Aker, Building Strong Brands (New York, NY: Free
Press, 1995).
• Frederik D. Wiersema and Michael Treacy, “Customer
Intimacy and Other Value Disciplines,” Harvard
5. Business Review (January–February 1993). Available from Ivey
Publishing, product no. 93107.
• Neil T. Bendle and Charan K. Bagga, “The Confusion About
CLV in Case-Based Teaching
Material,” Marketing Education Review 27, no. 1 (27–38).
ASSIGNMENT QUESTION
This case allows the instructor to use a general assignment
question, such as the one detailed below.
Alternatively, the instructor can select questions from the
teaching plan, in the section that follows the
general assignment question, to provide more specific
assignment questions.
General assignment question: David MacLean, the director of
Mobility Marketing at TELUS, is
considering several options to integrate the acquired brand
Public. What is your recommendation for
MacLean? How can MacLean use this opportunity to strengthen
TELUS’s market position and
profitability in the competitive wireless telecommunications
business?
Page 3 8B17A049
6. TOPIC
Introduction, Decision Criteria, and Constraints
Opening remarks
1. What are the three alternatives available to TELUS for the
newly acquired firm?
2. What should be MacLean’s overriding goals when
considering the Public decision?
3. What issues should MacLean consider to make his decision
about the Public brand?
4. What are the constraints that MacLean must work within?
Brainstorming
5. What alternative should TELUS select?
6. What are the merits of one brand versus a portfolio of
independent brands?
TELUS
7. How do companies maximize profits in a high-fixed-cost,
service-subscription
business like the wireless carrier business?
8. What is your assessment of TELUS’s performance—
financially and in the market?
Differentiation and Competitive Advantage
9. Within the three-tier market structure, how does a firm such
as TELUS create a
sustainable competitive advantage?
7. 10. How are wireless competitors differentiated in the same
market? What are the
points of differentiation in each tier of the market?
11. What points of differentiation are opposing brands
attempting to compete on within
each tier?
Wireless Consumers
12. The case discusses three tiers of customers in the market.
What is the main
difference between these three high-level segments?
13. What metrics and criteria should be used to determine which
segments are most
attractive (e.g., most lucrative or most strategically important)?
14. Which tier is most attractive?
15. What buying criteria do consumers in various segments use
to select a wireless
carrier?
16. Why does everyone not simply focus on the top tier, the
most lucrative customers?
Price-Sensitive Wireless Consumers
17. Where is Public positioned in this three-tier market?
18. What are the main buying criteria of each of the four price-
sensitive segments?
19. How attractive is each of the four price-sensitive segments?
Public Mobile
20. What did TELUS get for its investment in Public?
21. What is your assessment of Public’s performance?
8. 22. Why did 222,000 customers choose Public as their service
provider? What does this
mean for TELUS’s decision?
23. What is your assessment of the strength of the Public brand?
Evaluation of Alternatives 24. What is your assessment of the
three alternatives?
What Happened
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ANALYSIS
Introduction, Decision Criteria, and Constraints
Opening Remarks
We are all familiar with mobile phones from a user’s point of
view; however, the case provides a view of
the wireless business from the following perspectives:
• The carrier
• Profitability
• A multi-brand portfolio management
TELUS is one of the Big Three wireless service providers in
Canada, and it has a clear overarching goal
of sustained profitable growth.
9. 1. What are the three alternatives available to TELUS for the
newly acquired firm?
• Shut down the Public brand and migrate customers. This
alternative assumes that customers will
migrate to one of the other mid-market TELUS brands; most
likely, Koodo Mobile (Koodo). Then,
merge operations and re-banner the retail locations under the
new brand.
• Maintain the status quo (i.e., continue to operate the firm as
an independent brand).
• Reposition Public for profitability.
2. What should be MacLean’s overriding goals when
considering the Public decision?
MacLean’s goals should include the following objectives:
• Choose on an alternative that will have a positive effect on
TELUS (market position and financial
impact).
• Strengthen the firm’s market position to drive profitable
growth as follows:
– Provide a competitive advantage for a target segment.
– Leverage TELUS’s competitive advantage to create high
likelihood to recommend (L2R)2 ratings.
• Have a positive financial impact on the company as follows:
– Have a positive impact overall on corporate performance,
including earnings before interest, tax,
10. depreciation, and amortization (EBITDA), ARPU, and churn
rate.
3. What issues should MacLean consider to make his decision
about the Public brand?
For the analysis of this question, the instructor can prepare a
keyword list of considerations and decision
criteria on the board.
MacLean should consider the following potential issues:
• The decision’s overall benefit to corporate performance
(EBITDA, ARPU, churn rate)
2 The Likelihood to Recommend rate is measured by dividing
the number of people who respond “Probably” or “Definitely”
when asked if they would recommend a service by the total
number of survey respondents.
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• The role the decision plays in the portfolio (e.g., how will it
help the firm acquire a new customer
segment and how will it help build a funnel of customers that
can be migrated from prepaid to
postpaid)
• Whether the plan instils shareholder confidence
11. • Upholding L2R and corporate values
• Feasibility and ongoing operating structure
• The effect of his decision on existing customers and
employees
• Adherence to federal government acquisition requirements
• Minimizing undue implementation challenges
• Choosing an alternative with a high likelihood of success
4. What are the constraints that MacLean must work within?
MacLean must work within the following constraints:
• Adhere to federal government acquisition requirements (e.g.,
TELUS must maintain a $19 plan until
December 2014).
• All customers must migrate to TELUS’s High Speed Packet
Access network.
Brainstorming
We often find it useful to have a short brainstorming session
early in the case discussion to allow
opposing ideas to be presented and many issues and factors to
be identified. This is done before we
structure the analysis and apply some of the learning concepts
of the case. This brainstorming section is
intended to surface a lot of information, but not necessarily
reach any conclusions.
5. What alternative should TELUS select?
There is a detailed response to this question in the latter
12. sections of this TN. At this point in the
discussion, it is important to find supporters of each of the three
alternatives, and ask them why this is the
optimal approach, or why other alternatives are not optimal.
6. What are the merits of one brand versus a portfolio of
independent brands?
This is an opportunity for instructors to introduce the spectrum
of brand strategy alternatives, ranging
from a single unified brand to a brand portfolio strategy. The
instructor can prepare a keyword list of
considerations and decision criteria on the board.
Draw a sample brand spectrum on the board, such as the one
shown in Exhibit TN-1, or you can also refer
to the board plan (see Exhibit TN-15).
The brainstorming discussion should raise the following topics,
among others:
• Brand equity (awareness, preference, image)
• Cost of marketing separate brands
• Positioning and target segment fit (resonance)
Page 6 8B17A049
• Diversity of offerings within the company’s portfolio
• Diversity of distribution and service, and the cost to deliver
customer value
13. TELUS
7. How do companies maximize profits in a high-fixed-cost,
service-subscription business like
the wireless carrier business?
A series of major factors contribute to financial success in this
high-fixed-cost business, which relies
almost entirely on subscription revenue. The main contributing
factors are listed below:
• Revenue maximization is the key driver of success in this very
high-fixed-cost business. The
performance indicators are calculated as ARPU × number of
users.
• There will always be a need to control the operating expenses
and capital expenditures of the network
(which is not within the scope of this case decision).
• The variable cost to serve each customer is very low. Not all
customers are the same, which ignores
network utilization rates and other more complicated technology
issues related to serving different
types of client usage.
• Success is driven by the ability to reach the following goals:
– Maximize revenue, which consists of growth in the number of
customers and ARPU. Growth
could be generated from data consumption beyond the consumer
plan, price increases, and/or the
customer’s rate plan selection.
14. – Minimize cost of acquisition (e.g., sales and marketing costs
such as device offers, bundling
offers, and rate plan discounts).
– Minimize churn, which means managing the cost of retention.
– Achieve operational efficiency. For example, improve market
access to maximize value to the
customer, and lower the cost to operate in that location.
A key driver in this industry is revenue maximization (as noted
in the first item above). Over 7.8 million
subscribers contribute an average of $61 each (see case Exhibit
5). The total number of customers in the
market is 28 million users (as mentioned in the case). The
market extends from premium to price-
sensitive consumers. To understand how to capture 7.8 million
customers across a price spectrum of
segments, we need to consider demand curve economics.
Demand Curve Economics
Demand curve economics, as shown in Exhibit TN-2, and the
company’s goals to maximize total revenue
raise the following implications:
• At each point in the market, there are some customers who are
willing to pay a given rate for service.
• The network has a finite amount of capacity.
• The goal is to maximize revenue by attracting high ARPU
rates.
• Ideally, to maximize revenue, the capacity of the network
should be filled solely with Segment #1
(premium-tier) consumers. However, this is the primary target
15. for all competitors.
• The network has capacity for more than solely Segment #1
users.
• The marginal cost to serve one more customer is very low.
Page 7 8B17A049
• Because there is excess network capacity beyond Segment #1,
Segment #2 supplements the revenue;
because there is excess network capacity beyond Segment #2,
Segment #3 supplements the revenue;
and so on.
• Because the network has a finite amount of capacity (as
mentioned in the second item above), the
firm will never want to displace a Segment #4 customer with a
Segment #6 customer.
• The firm needs multiple price levels of products to fit each
segment.
• Multiple price-point offerings alone are insufficient to attract
customers in each segment. Beyond
price level, multiple market positions each require a target
segment, a value proposition, a brand
position, and offering-packages with characteristics that provide
a competitive advantage to attract
different segments.
• Price and product alone are insufficient. In this highly
competitive field, with very little tangible
difference between competitors’ products, it is important to
16. have unique positioning and consumer
brand messaging.
8. What is your assessment of TELUS’s performance—
financially and in the market?
TELUS seems to be a strong financial performer, based on the
following factors:
• Its EBITDA is 45.8 per cent of revenue, only slightly behind
industry leader Rogers, and ahead of Bell.
• It has become one of the Big Three and leveraged its first
mover advantage to generate 28 per cent
share of the wireless market in Canada, slightly behind Rogers,
which has 34 per cent.
• Its blended ARPU is $61, which is higher than either Bell or
Rogers.
• Its cost of acquisition is lower than direct competitor Bell
(Rogers’s cost of acquisition is not known).
• Its blended churn rate is 1.41 per cent, which is the lowest of
all three main competitors.
TELUS seems to be doing well in the market, based on the
following factors:
• The company’s brands in the premium and mid-market tiers
(TELUS, Koodo, and PC Mobile) have
the industry’s top L2R ratings, a key driver in low churn rate
and customer retention.
• The company has created a clear market position for each of
its brands, which seems to be resonating
17. with each brand’s respective target in each market tier.
• The TELUS brand has a clear differentiated market position of
high customer service. Its strong L2R
rating, at 69 per cent, is the highest among premium-tier
competitors. In addition, while complaints to
the regulator across the industry rose by 26 per cent, complaints
about TELUS decreased by 27 per
cent in 2013. With an industry-leading churn rate of 1.03 per
cent in postpaid subscribers, it appears
that real service performance and perceived market position as a
superior service provider are aligned.
• The Koodo and PC Mobile brands have the highest L2R rating
in the industry. Each mid-market
brand has a strong brand image—independent of TELUS. Koodo
has a set of volunteer brand
ambassadors who propagate the brand’s strength. PC Mobile has
a brand association with one of the
strongest private labels in Canada (President’s Choice).
• Sustainable superior customer service is difficult to achieve,
and usually can occur only when
customer service is a core plank of the organization’s culture. It
is even more difficult to achieve in
large, widely distributed, and decentralized organizations that
have multiple customer touch points
(e.g., retail, online, and telecentre). It seems that TELUS has
had some success in this area. If this is a
core part of its culture, it can be a sustained competitive
advantage because it is hard to duplicate.
18. Page 8 8B17A049
DIFFERENTIATION AND COMPETITIVE ADVANTAGE
9. Within the three-tier market structure, how does a firm like
TELUS create a sustainable
competitive advantage?
To evaluate competitive advantage, it is important to consider
direct competitors in the same target
market (e.g., TELUS versus Bell or Rogers; or Koodo versus
Fido
Solution
s or Virgin Mobile).
Depending on the value-oriented segments, differentiation can
be achieved through service (e.g.,
customer service or channel outlets), offerings (e.g., rate plans
and features such as long distance and
roaming), phones, price, network, and company values (e.g.,
community involvement, corporate social
responsibility initiatives, and sustainability).
Companies can also create barriers, which can either make it
challenging for new entrants to enter the
industry or make customers reconsider their willingness to
19. leave. Competitive barriers include the high
capital cost of entry in this industry, among other
considerations (e.g., cost of the network, spectrum
availability, type of spectrum, and the ability to provide
multiple product offerings such as Internet,
television, home phone, and wireless). Retaining customers and
enticing them to stay may include various
methods, including loyalty offers, bundling discounts, brand
stickiness, contract structure (e.g., requiring
customers to pay out the outstanding balance on their device if
they leave), and considerable effort to
change suppliers (e.g., having to move multiple subscribers
from one account).
10. How are wireless competitors differentiated in the same
market? What are the points of
differentiation in each tier of the market?
Classical thinking indicates that a firm can choose to create a
competitive advantage under one of three
leadership categories: product (or technology) leadership, cost
(or operational excellence) leadership, or
customer intimacy (or the best total solution).3
20. The instructor should draw a three-dimensional axis on the
board like the one shown in Exhibit TN-3 and
ask students how the Big Three players differentiate and
compete under the three main categories.
The three-axis model can be applied to assess the level of
differentiation and competition among the Big
Three companies in the Canadian wireless carrier business (see
Exhibit TN-4). The primary competitive
area is the struggle for customer relationships. To compete in
this area, the three companies use a
multiple-brands portfolio, unique brand positioning within each
tier, customized offering packages to
attract specific customer sub-segments in each market tier, and
multiple differentiated customer
interface/service points (e.g., retail, kiosk, online, call centre,
and others).
Ultimately, the biggest differentiator for a company in the
telecommunications industry is the customer’s
perceived level of service, which refers to friendliness and
helpfulness through multiple touch points of
the organization. This differentiation is difficult to achieve for a
company with a variety of support
21. mediums, and it is challenging to replicate across the
organization. However, once the firm has won the
loyalty of a customer thanks to its level of service, the customer
is less likely to leave for a competitor and
more likely to use positive word-of-mouth marketing or refer
friends.
3 Frederik D. Wiersema and Michael Treacy, “Customer
Intimacy and Other Value Disciplines,” Harvard Business
Review
(January–February 1993). Available from Ivey Publishing,
product no. 93107.
Page 9 8B17A049
11. What points of differentiation are opposing brands
22. attempting to compete on within each tier?
The case identifies a series of points of differentiation that each
of the brands uses to compete in this
market. Exhibit TN-5 summarizes the various potential
differentiators.
Within each tier, each competitor emphasizes a different
strength to gain advantage and add value in the
market (see Exhibit TN-6).
Note to the instructor: These charts can be difficult to reproduce
on the board in a classroom. Therefore, a
supplemental PowerPoint file is available (product no.
5B17A049) with this teaching note that includes a
set of charts from the case as an aid for instructors.
Observations of Top-Tier Competitors
• Very little differentiation exists; all three companies have
competitive parity on most elements.
• Although TELUS and Bell share a network—which means that
their networks are identical—Bell has
23. positioned itself as offering superior network coverage. On the
other hand, Rogers claims that it offers
a seamless international roaming connection (potentially
negating Bell’s advantage) for a segment
whose customers travel internationally (e.g., business
travellers).
• TELUS has identified service as a competitive weakness of its
competitors. The company has
exploited this fact by adding resources into developing service
capability for TELUS’s advantage.
Observations of Mid-Market Tier Competitors
• Very little differentiation exists; all three companies have
competitive parity on most elements.
• Fido