Which market niche should SR Corp target first?

Question

What will be an ideal response?

Answer 1

The instructor may wish to create a blank matrix to help the student teams gather and assess financial and non-financial information from the case.
It is our opinion that the telephone company niche stands as the most attractive as an initial target. We come to this conclusion for the following reasons:
• Profit before tax.?Securing just several large telephone companies, such as an MCI or a Pacific Bell, would provide tremendous revenue for SR Corp and a larger contribution to the bottom line than the other two niches.
Selling to the telephone company niche also offers SR Corp two sources of potential business. First, it offers revenue from horizontal applications that a telephone company uses internally, such as in automating operator services (collect calls, call forwarding, etc.). SR Corp would earn revenues on a per unit basis, i.e., price of a fully loaded workstation with SR Corp’s boards and software. Second, once the technology is out on a telephone company’s network, it may be sold as a value-added vertical application to the company’s consumer and business customers (automated banking, reservations, catalog shopping, etc.). SR Corp could structure its agreements to collect run-time royalties.
• Knowledge and its impact on sales cycle and downstream costs and hassle.?At the same time, many of the telephone companies would be easier to work with than a pure switch manufacturer, an airline, or a financial firm. The Fortune 500 and telephone switch manufacturers would require a large teaching and integration effort on the part of SR Corp. Most firms in the telephone company niche understand speech recognition and the process of putting the technology out on their network. Senior executives will be more likely to appreciate SR Corp’s breakthroughs, to front cash on deals, and to sponsor the implementation effort through the bureaucracy. From a marketing perspective, this would shorten the sales cycle.
• Reference base.?Telephone companies would act as excellent references for SR Corp as it tries to pursue new business in any of the three market niches. The reason is simple: SR Corp needs to prove it can deliver a high-volume deployment of speaker-independent speech recognition and be able to manage a large-scale integration effort. There is no better proving ground than a large telephone company. Telephone switch manufacturers would keep SR Corp distant from their own customers. The LAN/WAN’s of a Fortune 500 firm, while large, pale in comparison to the 15 million plus phone lines that the large telephone companies operate.
• Intellectual property.?This is one area where the telephone companies are not the best choice. SR Corp’s protection of its intellectual property is essential for sustained success. The firm currently had seven domestic and international patents. Patents can be powerful mechanisms. Yet SR Corp must still be careful with whom its does business. One approach might be as follows: any of the current firms selling speech recognition products should be avoided until SR Corp has a secure installed and financial base. Firms such as AT&T and Nynex, known to be working on this problem, must be avoided. Furthermore, since all of the RBOCs work closely with AT&T and Northern Telecom on switch integration, SR Corp should be cognizant which of the RBOCs may be currently working on SR technologies with them. The instructor should engage the students in a discussion about which firms within the telephone company niche might be approached first based on these risks.
There are alternative solutions which should arise from class discussion, and which may be supported by reasoned logic. For example, students may believe that benefits of accelerated market penetration that may be achieved by working through strong switch manufacturers outweigh the margins sacrificed by reselling the technology through them. Or, some students might feel that targeting financial services firms and airlines might be the best initial target because of the compelling application needs of these companies and the sheer number of potential customers participating in these respective industries. Other students might feel that if SR Corp’s technology was indeed that good and was appropriately protected by patents, it should have no fear approaching AT&T directly to form a strategic alliance. This might remove the resource constraints facing SR Corp and provide it with a strong intermediary who could rapidly generate market share.
Each alternative solution might work. The question is obviously which approach offers the greatest return for risk borne by the company.