CHAPTER 9: NEXTEL
SUMMARY
The cell phone market is massive, with between 50 and 80 percent market penetration
worldwide. As evidenced by the big promotional campaigns, it is a very competitive marketplace
with 100 carriers in the United States alone. About six carriers control 85 percent of the market,
and they are all competing for the same subscribers. The consumer holds the power, forcing
carriers to provide hundreds of choices of phones, plans, etc. To compete, carriers need to
differentiate their services to win the consumers.
Nextel is one of the six major cell phone service providers. It targets business customers and
believes it’s safe in charging these customers premium prices because it offers something unique.
Its premium price point may be difficult to sustain in such a competitive industry.
Nextel is very different from the others, based on the fact that it took an unusual approach. The
company solely targets business consumers by pushing a product differentiation strategy. Due to
the differentiated service offering (e.g., “push to talk” technology), Nextel can charge a premium
for its service. “More for more” is the phrase used to described this pricing strategy. However,
the company still struggles with market pressures and pricing trending downward. How will it
remain competitive? Nextel will continue to offer additional services to keep the average revenue
per user up and increase profits overall.
DISCUSSION QUESTIONS:
1. Considering the fact that this video is dated (i.e., around 2003), the cell phone industry may
be considered one of the fastest changing industries in the world. Discuss the industry
conditions mentioned in the chapter and how they affect setting prices for cell phones/cell
phone service.
2. Premium pricing is often driven by the price-perceived quality relationship: the premium
price must be reflective of a superior quality product, right? Do you believe Nextel’s direct-
connect technology in 2003 (i.e., “push to talk”) signified their superior quality?
3. What is the potential danger facing Nextel’s future sales and marketing success regarding
competitive pricing?
1. Name a cell phone/service brand or two for each of the following perceived value
relationships mentioned in the chapter:
Perceived Value > Price > Cost
Price > Perceived Value > Cost
Price > Cost > Perceived Value
The first relationship mentioned above signifies that the price is set below what customers
are willing to pay. The second relationship signifies that the price is higher than the target
market is willing to pay. The third relationship signifies a failed product and should be
yanked from the market.
2. Use the survey-based method to obtain willingness-to-pay information from customers for
brands of cell phones.
A variety of types of questions can be used in this exercise, including:
Above what price would you judge (the brand) to be too expensive?
At what price would you consider (the brand) to be so expensive that regardless of its
quality it is not worth buying?
What is the highest price you are willing to pay for (the brand)?
What is the likelihood you would buy this product at a price of _____?
How much would you be willing to pay for this product?