Learning From Corporate Mistakes, Essay Example

Marketing Case Study

In the case of introducing Iridium to the market, it is evident that several marketing and planning mistakes were made. Indeed, the decision to launch the service cost Motorola 5 billion dollars in loss. The below review of the case will attempt to reveal the reasons for the failure of the project, the mistakes made by positioning and marketing the product.

Reasons for Failure

Market Demand. While there was a market for the new service, the demand was not strong enough to justify the price that the company set. In 1999, information technology was not as reliant on mobile communication as it is today. Executives and those on the go did have their own solutions to resolve issues originated from low coverage; for example, landlines and scheduling interaction to times when they had service. From the case study, it is evident that Motorola greatly over-estimated the size of the market and the demand.

Pricing. The price of the product and service was not justified with strong enough benefits. It is likely that executives needing connection and communication service did not see that the benefit of getting a few calls initiated from remote areas was worth the investment of $3000. While Motorola did think that the price was a “small investment when major decisions needed to be made and access to key people”, it seems like the market did not think the same way. Strategic decision was made without creating a strategy based on the research of the potential market, and this is one of the main reasons why the project failed.

Marketing. The company should have taken into consideration the fact that the market was just emerging and the cost of development (satellite networks, infrastructure) might not return. Being too innovative in an emerging market can create a mistrust in the target customer. In the end of the 1980-s, several coverage issues and problems were associated with mobile technology. People were generally cautious about new systems, and were just about getting used to mobile communication. This mistrust, combined with the high investment required has reduced the chance of Iridium to become successful on the market. The marketing communication focused on differentiating between satellite and traditional mobile services, instead of focusing on the benefits Iridium could provide for target customers. Targeting problems have also been identified, such as missing to target businesses located in remote areas that could possibly have justified the cost of network access and focusing on businessmen who would only rarely use the network. A great positioning marketing mistake was made.

Competition. The authors of the current study agree with Lim, Klein & Thatcher (2005, p. 53) that Motorola, when creating Iridium, “underestimated ‘the threat of substitute services’”. While other mobile companies focused on improving their existing service, customers had to make a decision: change service providers that can offer more reliable mobile networks or pay $3000 extra to access a new network that has no proven track record and is relatively new.

Missed Strategic Steps

One of the main steps Motorola missed before commercializing the product was monitoring the market demand. Several studies, market research and return on investment studies should have been completed before launching the service and product. The company should have determined the size of the target market and their preferences. It is likely that – as Lim et al. (2005, p. 52) state- “many consumers may not value quality as much as cost when purchasing communication services”.

Further, price discrimination strategy should have been used to cover a larger segment of the target market; creating packages for users who only needed the service once a month. However, the high initial cost could not have been justified given the price advantage of traditional networks and landlines available.

The company also failed to take into consideration the network effect of the mobile industry. The more people use the network the more popular it becomes. As Lim et al. (2005, p. 53) state, network effect is: “a service or technology becoming more valuable as more people use it, which may allow firms to lower costs and eventually acquire more customers”.

Motorola, on the other hand, according to Finkelstein & Sanford (2000) did not consider the impact of research and development investment made by the competition. By other companies becoming more reliable and ultimately cheaper, the number of substitute services and products on the market has gradually increased, while Motorola was still trying to create a return on investment.

Lessons Learned

The above review of the Iridium case has revealed that in emerging and highly competitive markets, it is important that companies correctly determine not only the target market characteristics and size, but also the potential growth of the market, threats of substitute services, as well as try to predict the return on investment by creating studies related to the product life cycle. The initial cost of accessing the network, the limitations and customer mistrust all contributed towards Iridium’s failure. Iridium was a costly and risky project in an unstable and undefined market environment. Today, Iridium’s market positioning is better defined than it was back in 1999, and the company offers customized solutions for different market segments.

References

Finkelstein, S., Sanford, S. (2000) “Learning from corporate mistakes: The rise and fall of Iridium.” Organizational Dynamics, 29 (2):138-148

Lim, J., Klein, R. &Thatcher, J. (2005) Good technology, bad management: a case study of the satellite phone industry. Journal of Information Technology Management Volume XVI, Number 2, 2005

MKT 500 Case Study. Iridium Company. Southern New Hampshire University.