Management Consulting Case Study-Cable Television Company

Q: Why is the Tucson cable company underperforming despite similar operating costs?

The underperformance may be attributed to the low cable penetration rate (20%), due to better television reception in Tucson. The absence of strong substitutes like satellite dishes and the lower need for cable are likely contributing factors.

Q: What are the key differences in market dynamics between Tucson and the Northeastern cities?

While Tucson has higher per capita income and a growing market, the cable penetration rate is much lower (20%) compared to Northeastern cities (45%). Tucson also benefits from better free-to-air television reception, which reduces the need for cable subscriptions.

Q: What could be the reasons for Tucson's low cable penetration rates?

The low penetration rate in Tucson is likely caused by better traditional TV reception, making cable unnecessary for many households. Additionally, high cable prices compared to the perceived benefits of free-to-air TV might be a deterrent.

Q: What marketing efforts could the Tucson cable company implement to boost growth?

The company could explore localized marketing strategies, such as offering bundled services, enhanced content offerings, or better pricing models that highlight the benefits of cable over free-to-air options. Additionally, addressing the specific climate and reception advantages in Tucson could help shift consumer perception.

Devang JohariSenior Writer

Posted 09 Sep 2023 · Updated 26 Jun 2025 · 2 min read

Case Prompt

Your client is a small holding company that owns three cable television companies in the Northeast: Rochester, NY, Philadelphia, and Stamford, CT. Each of these three companies is profitable, experiencing steady sales growth over the past few years. However, despite being profitable in the Northeast, your client acquired another cable television company in Tucson, Arizona, a little over a year ago. Unfortunately, despite management's best efforts, the Tucson company's sales have remained stagnant, and the company is losing money.

Your task is to analyze this situation and determine the potential causes of the poor performance of the Tucson cable company.

Additional Information :

Market Size and Growth: The Tucson area is smaller than Philadelphia but larger than Rochester and Stamford. Tucson is experiencing an average annual growth rate of 12%. Per capita income in Tucson is higher than in Philadelphia and equal to that in Rochester and Stamford.
Operating Costs: Operating costs in Tucson are similar to those in the other markets, except for maintenance, which is higher due to the larger service area. Fixed costs are associated with the physical area covered by cable lines.
Marketing Efforts: The Tucson company has attempted marketing efforts in the past, mirroring programs used in the other three markets, such as offering free Disney programming for one month, free HBO for one month, and free hookups.
Penetration Rates: Cable penetration rates in the three Northeastern markets average 45%, while in Tucson, it's only 20%. These rates have remained stable in the Northeast but have increased by only 2% in the past three years in Tucson.
Substitute Goods: Satellite dishes are the primary substitute for cable television. However, many communities in Tucson are enacting legislation limiting their usage, and they are often too expensive for most residents.

Final Analysis:

The poor performance of the Tucson cable company may be attributed to a failure to recognize another substitute good: no cable television at all. Television reception in the desert Southwest is notably better than in Northeastern cities, likely due to different climate conditions and lower interference in Arizona. This suggests that lower cable penetration rates in Tucson may be a result of viewers finding traditional television reception more satisfactory.

Frequently asked questions

Why is the Tucson cable company underperforming despite similar operating costs?

The underperformance may be attributed to the low cable penetration rate (20%), due to better television reception in Tucson. The absence of strong substitutes like satellite dishes and the lower need for cable are likely contributing factors.

What are the key differences in market dynamics between Tucson and the Northeastern cities?

While Tucson has higher per capita income and a growing market, the cable penetration rate is much lower (20%) compared to Northeastern cities (45%). Tucson also benefits from better free-to-air television reception, which reduces the need for cable subscriptions.

How do substitute goods like satellite dishes affect Tucson's cable market?

While satellite dishes are limited by local regulations and high costs, free-to-air television reception in Tucson serves as a strong substitute for cable TV, further hindering the need for cable subscriptions in the region.

What could be the reasons for Tucson's low cable penetration rates?

The low penetration rate in Tucson is likely caused by better traditional TV reception, making cable unnecessary for many households. Additionally, high cable prices compared to the perceived benefits of free-to-air TV might be a deterrent.

What marketing efforts could the Tucson cable company implement to boost growth?

The company could explore localized marketing strategies, such as offering bundled services, enhanced content offerings, or better pricing models that highlight the benefits of cable over free-to-air options. Additionally, addressing the specific climate and reception advantages in Tucson could help shift consumer perception.