Submitting InstitutionLondon Business School
Unit of AssessmentBusiness and Management Studies
Summary Impact TypeEconomic
Research Subject Area(s)
Information and Computing Sciences: Information Systems
Economics: Applied Economics
Commerce, Management, Tourism and Services: Marketing
Summary of the impact
Telstra is an Australian telecommunications company. In the late 1990s,
Telstra was faced by
a new entrant, which would be competing against it with modern technology
and a lower cost
structure. Telstra needed to know how much share it would lose to
undertake its resource planning.
More importantly, Telstra also had to understand which customers it could
retain and the actions it
needed to take to retain them in terms of service design and delivery,
pricing, and communications.
The underpinning research was conducted in conjunction with Telstra, and
met their needs. This
project generated published academic research output, and in parallel had
a valuable impact on
the client company. This impact was estimated, by Telstra, to exceed
In summary: this study reports research that was prompted by the
direct need of a potential
beneficiary, and which successfully achieved a signifb01cant fb01nancial
impact for that beneficiary.
The underpinning research project was led by John H. Roberts, Professor
of Marketing at London
Business School; he also holds a joint position at Australian National
University. He held his LBS
position when this work was conducted in the late 1990s and beyond; the
outputs were published over the 2000-13 period.
While scholars of marketing science knew much about fuelling the
diffusion of new products,
the obverse problem of an incumbent defending share against such
intrusions had (at the time)
attracted very little academic attention. New product research tends to
either be static (with a
focus on market share and the effect of design on it) or dynamic (looking
primarily at category
level effects, and usually implemented post launch). A key academic
contribution of the relevant
research outputs was to fb01ll this gap, by modelling the defensive
response to a new entrant.
Any modelling framework needs the ability to model market share as a
function of consumers'
perceptions of service attributes and prices. It also needs to include the
dynamics of how share
evolves as advertising, experience, and word of mouth spread information
about the new entrant.
This research reported here developed a four-stage model with closed-form
solution that was
able to describe the adoption process by which consumers of the new
service would make their
purchasing decisions. The research was particularly innovative in
developing methods to calibrate
the associated response functions prior to the new product's launch. Flow
levels were ascertained
by information acceleration to estimate the choice-based conjoint elements
of the methodology,
while fb02ow rates were determined by combining analogy and self-stated
decision times to calibrate
the dynamic diffusion models.
Technically, a semi-Markov approach was used in which consumers are
allowed to fb02ow from one
state of knowledge, preference, and behaviour to another. This provides a
very fb02exible framework
within which to address this management problem. The behavioural states
may be specifb01ed to
suit the marketplace phenomena. Flow levels between states may be modelled
choice theory (in this case, logit models). Flow rates may be modelled
using diffusion models (in
this case, a Bass formulation). Moreover, not only are these two model
subcomponents based on
strongly grounded theory, they are tied together in a rigorous way and
lend themselves to ready
calibration prior to the launch of the new service.
References to the research
"Effective Marketing Science Applications: Insights from the ISMS-MSI
Practice Prize Finalist Papers
Gary L. Lilien, John H. Roberts, and Venkatesh Shankar, Marketing
32(2), 2013, pp. 229-245. dx.doi.org/10.1287/mksc.1120.0756
"Defensive Marketing: How a Strong Incumbent Can Protect Its Position,"
John H. Roberts, Harvard Business Review 83(11), 2005, pp. 150-157.
"A Prelaunch Diffusion Model for Evaluating Market Defense Strategies,"
John H. Roberts, Charles
J. Nelson, and Pamela D. Morrison, Marketing Science 24(1), 2005,
"Implementing A Prelaunch Diffusion Model for Evaluating Market Defense
Strategies," John H.
Roberts, Charles J. Nelson, and Pamela D. Morrison, Marketing Science
23(2), 2004, 186-191.
"Defending the Beachhead: Telstra vs. Optus," John H. Roberts, Charles J.
Nelson, and Pamela
D. Morrison, Business Strategy Review 12(1), 2001, 19-24.
"Defending the Domestic Long Distance Telecommunications Market: A Case
in Defensive Marketing
Strategy," John H. Roberts, Charles J. Nelson, and Pamela D. Morrison, in
for the Pacific Region, edited by Bill Merrilees and Rhett Walker,
McGraw Hill: Sydney.
Evidence of quality. Marketing Science is the leading
marketing journal; Harvard Business Review
is the leading practitioner-oriented journal for management. The research
project is prize-winning.
It won the American Marketing Association's Advanced Research Techniques
Forum's Best Pa-
per Award, as well as being a Finalist in the INFORMS Society for
Marketing Science's John D.
Little Award and its Marketing Science Practice Best Paper Award. The
component papers have
been republished in several books; for example in New Directions in
Corporate Strategy and in
Marketing: People, Technology, Strategy, Sixth Edition.
Details of the impact
This research guided the defensive actions of the incumbent in the
Australian telephone market,
Telstra, when faced with an external challenger in the long distance
domestic call market, Optus.
The research led to both prognostic actions (planning manpower
requirements, network dimen-
sioning, and fb01nancial structuring) and diagnostic ones (guiding
pricing, communications and ad-
vertising, and product and service provision). The results of the study
were used from six months
prior to the launch of Optus in 1998 through to 2005. The methodology was
also applied to other
markets of Telstra (including business long distance calls and mobile
churn) and to other telecom-
munications carriers (SingTel before it owned Optus, Alberta Telecom,
Mobicom in Mongolia, and
others). It was also applied in other industries, including aviation and
In terms of industry impact, the study was both accurate and insightful.
prognostically it forecast a loss of 8.8% share to Optus after eight
months, compared to an actual
loss of 8.8%. Diagnostically, it was able to re-direct communications away
from to a more nuanced
message about targeted improvements being implemented to continue and
enhance Telstra's his-
toric service record. Financially, the direct impact of the study was
estimated by Telstra to be
over US$146 million, accruing from US$80m pricing benefb01ts, US$63m
benefb01ts in more focused
advertising, and US$3.5m savings in capital works adjustments.
Telstra also spoke of the soft benefb01ts in terms of improved service
capabilities and effb01ciencies.
Adoption of the study's fb01ndings with the organization were ensured by
extensive executive brief-
ings, customised workshops for individual functional areas, a decision
support aid usable in Excel,
and a series of management and technical reports. As indicated in Figure
1, the study was ex-
tended to other Telstra markets and was still being used on an updated
basis when the authors
last had contact with Telstra in 2005. Finally, the approach has been used
by several organizations
around the world since its initial implementation.
Sources to corroborate the impact
The INFORMS (the Institute for Operations Research and Management
Science) Society for Mar-
keting Science Practice Prize recognises impact on industry practice of
cutting edge marketing
science techniques. The judging panel validated all proposals' claims by
reference to materials
supplied directly by the fb01rms for whom the work was undertaken and
other sources. The Chair-
man of Judges (Professor Gary Lilien who may be contacted at firstname.lastname@example.org)
is able to detail the
steps that they took. In addition, INFORMS produced a video presentation
which is available at:
This presentation includes interviews with three senior Telstra
executives who speak of the impact
that the work had on the organization and verify the above impact numbers:
Anna Corluka (Market
Research Manager), Gail Thomson (Group Manager, Market Analysis), and Phil
Manager, Market Information). Other senior executives are quoted in the
Marketing Science and
Harvard Business Review articles, including Charlie Zoi, Group Managing
who described it as the most valuable piece of research that the
organization had ever undertaken.