I am taking the management course this term. We looked at the company called Iridium. Iridium was the firm that innovated the satellite, and Motorola was its primary contractor. I think it’s a pretty interesting topic. I am going to talk about the reason why Iridium failed to perform well in the market, which is quite related to Marketing Strategy.
- Low Customer Satisfaction: Consumers were not satisfied with the size of the Iridium cell phone and thought their phones were heavy and inconvenient to bring around. Customers were also not satisfied due to the blocked access, rampant interference and dropped calls. In order to use Iridium service, customers had to purchase Iridium cell phones, which cost about 3000 dollars. On the other hand, its direct competitor Globalstar, for example, offered the phone for less than 1000 dollars. Service cost per minute for Iridium was $3, which was almost 10 times greater than Globalstar’s.
- Low Market performance: By the end of 1998, Iridium only obtained 3000 subscribers, which is 0.5% of their target amounts 600,000. The market penetration was 2.5% in 1992 and increased to 33% in 2000. Competitors’ subscribers were from 23 million in 1992 to 650 million in 2000.Their competitors were growing much stronger than before.
- Porter’s Generic Strategy: Iridium had high differentiation in their product, however; the company focused on the single segment. Iridium concentrated on the high-income market and tended to target successful business people who travelled a lot. There were risks involved in targeting such single segment. For instance, this group of people might no longer want their service when they change their taste or requirements. Management team should be responsible for this because they should target different segments to diversify the risks.
- High cost structure: Iridium’s operating expenses were extraordinary high. Iridium had system cost of 4.9 billion, which is 33% more than its competitor globalstar. Their debt-equity ratio was quite high and they had never considered lowering the costs as part of the strategy. The management team should have developed a better cost-structure for the firm.
- Wrong forecasting: Iridium overestimated the demand of their service and underestimated cell phone and Internet technology improvement. The firm failed to understand the customers’ needs. To determine if there is really a need for their product and service and obtain the better estimation, their marketing department should spend more time and investments on the marketing research such as focus group interview, survey, and etc.
- Failure of understanding the industry: The rival in the industry is very high. There are a lot of competitors already existing in the market. Cell phone industry, like any technology-based industry, is always changing constantly. The delay in launch did cost them a lot. Iridium had many technical problems and unrealistic launch time in which had to be postponed for more than a month. As a result, it exerted negative impacts on their brand image. The industry and customers are very time sensitive. Iridium was unable to sell their service due to the delay of delivering the phones. Iridium’s bargaining power over their suppliers was low. The service provider was not exclusive to Iridium because they had several other options to sell.