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 / Autumn 2008 / Issue 52(originally published by Booz & Company)


Tracking the Elusive Consumer

Of all phone users, owners of low-end handsets made by the Nokia Corporation value their phone package the least. Consequently, these consumers are the most willing to switch to another carrier and handset — an opportunity for competitors to attack Nokia’s base by, for example, producing a low-cost package with a function or two that outpaces the relatively plain Nokia product.

The consumer choice model also revealed that owners of handsets made by Sony Ericsson Mobile Communications AB, which tend to be highly designed, full-featured products, care much more than Nokia users about functionality, usage range, and purchase location (they prefer to buy their packages at stores that offer personal attention, rather than at Costco or Circuit City, for example). And although these customers, too, are price conscious, they’re willing to pay a premium to have their preferences met. A service provider could use these findings to target Sony Ericsson owners with a slightly less expensive offering that in all other ways matches their current package.

Consumer choice modeling also has the ability to predict the impact of future products and ser­vices on the market. To illustrate this, Booz & Company used the data collected from the mobile in­dustry surveys to simulate the characteristics of “the ideal high-end phone” as consumers viewed it. From this, the survey gleaned that three primary factors — feature, design, and brand — are of paramount value to consumers considering a higher-priced model. These factors, of course, were exactly what Apple focused on in developing its blockbuster iPhone, launched in July 2007.

Significantly, as the model predicted, Apple stumbled when it came to price, which the survey showed matters at all levels of cell phone purchases. At a price point of $599 for an eight-gigabyte phone, the research forecasted that Apple would have difficulty reaching a significant portion of the high-end market. But the same research suggested that performance would improve quickly as soon as Apple cut prices. In fact, that is precisely what happened: In September 2007, Apple discounted the phone by $200, and sales rose well over 1,000 percent in the succeeding quarter from sales in the prior three-month period. And in June 2008, CEO Steve Jobs announced a much faster eight-gigabyte iPhone — using AT&T’s state-of-the-art 3G network — for only $199, a move that further aligned Apple’s pricing with that of its peers and that will almost certainly improve the product’s market share.

A perfect research topic for consumer choice modeling would be hybrid-electric vehicles, which have tripled in sales since 2004, though on an admittedly small base. As the first realistic alternative car that addressed environmental and fuel cost concerns, the hybrid was a novel idea that intrigued early adopters. Today, these cars are at­tractive to consumers put off by higher gasoline prices because they offer improved fuel economy (particularly to urban and suburban drivers) and, since they use the electrical power of the vehicle’s cordless battery when they can, because they do not require a new recharging infrastructure. These obvious benefits notwithstanding, sales of hybrids have also risen because of government tax incentives.

But hybrids are not the only possible response to environmental concerns and high gas prices. Ad­vances in diesel and biofuel technology suggest that there may be more palatable choices to power the traditional automobile engine in the near future. Meanwhile, all-electric and hydrogen-powered vehicles are also in development and show some early promise. In short, the only trend certain in the auto industry these days is uncertainty. A great deal will depend on future environmental and tax policies, but at present, auto companies can focus on one factor they can understand and address: consumer demand. What do consumers really want, as op­posed to what they say they want?

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