Cell Phone Industry Research

I. Problem Definition

Cell phones have fast become common place and rarely do you find a person without one. In June of 2002 ‘62% of Americans owned a cell phone, up from 55% in 2000.’ (Fetto 2002) As competition increases among phone manufacturers, they continue to add options in hopes to increase their market share. A phone is no longer a phone as manufacturers add features like cameras and video. Even something as simple as the ring tone is becoming ornate as you download your favorite songs to create a personalized ring. But what features of the future will find success and more importantly, as these features increase the cost of the phone, what will people be willing to pay for these new features?

The technology lifecycle shows us that there are different segments of the buying public each adapting to new technologies at a different time and price. ‘Industry observers say the market for mobile entertainment in the United States, which lags behind much of Asia and Europe, is about to take off because of technological innovations, an increase in the quality and quantity of content, and customers who are slowly becoming aware of features available on their phones.’ (Kim 2005) The future of revenue for cell phone makers will derive from being able to satisfy a new market of tech savvy consumers who are interested in specific high tech features. As a product manufacturer investing in these new features, marketing to the correct segment at the correct price can mean the difference between success and failure. ‘Some analysts believe the growth in mobile entertainment will be fueled, in part, by content providers putting more sophisticated applications -- everything from GPS navigation tools to streaming DJ beats -- on handsets.’ (Kim 2005)

Our group has chosen to focus on three of the latest cell phone features that would require the customer to purchase a new phone: Downloadable Music, PDA Phone Combinations, and Cell Phones with Gaming Capabilities. Downloadable music phones have recently hit the market with both a Motorola E 790 iTunes phone and the Sony Ericsson W800 Walkman Phone. Sony Ericsson also has the P910i smart phone, a cell phone that is also a PDA, and Samsung's new MM-A800 will feature 3-D gaming capabilities.

II. Approach to the Problem

We would like to find the price elasticity of three new cell phone features among different consumer segments. The three new features we will be focusing on are downloadable music, gaming, and PDA/cell phone combinations. We would like to research the difference in price elasticity between several different consumer segments, including male versus female, age defined segments and also business versus the personal user. Furthermore, we would like to explore consumers’ current technology habits and purchases as it relates to the price elasticity as it applies to these specific features.

b. Hypotheses:

1. H0 There is no relationship between sex, age and gaming features.

H1 The age level, sex and gaming features are dependent

2. H0 There is no relationship between usage of cell phones and price paid for PDA/Cell phone.

H1 The type of cell phone usage and price paid for PDA services are dependent.

3. H0 There is no relationship between type of cell phone usage and price for music or gaming services.

H1 Type of cell phone usage and price paid for music or gaming features are dependent.

4. H0 There is no relationship between people who currently download music and the price paid for downloading music.