Company Established in the late 90’s, TiVo had the first mover advantage on the newly created DVR market. Based on the idea of interactive television, TiVo linked the improvements in the hardware manufacturing with newly developed features in order to revolutionize TV watching, thus to change human behavior on a mass scale - a huge challenge for TiVo’s marketing team. Since its early development, TiVo has continually invested in the improvement and addition of features and functionality for its product.
The company’s financial picture is weak, with negative but growing profits, but this is usually characteristic for its current product life cycle position (Exhibit 5). TiVo has a good corporate image, product quality and uniqueness, and high customer loyalty and satisfaction. One main environmental issue relates to the possible threat that TiVo represents to the advertisement industry - as consumers choose to see pre-taped programs they will watch fewer or skip the commercials that are the content providers’ main source of revenue. But despite these concerns, today, leading networks have endorsed the system, given the advantages that emerge for them from the TiVo feedback functions, and the fact that customers do not skip all the ads (during the Super bowl - they used the pause/replay feature on ads). Also, endorsements and alliances with content suppliers and hardware manufacturers offer strength, equity and a large potential customer base, thus, a certain advantage on a growing market (Exhibit 6).
Still in the early adopter phase, TiVo is trying to establish its DVR technology as a standard part of entertainment over the coming years. The company is aggressively trying to sign on subscribers, generate content and conduct market research. TiVo is situated in an attractive industry, but it lacks the financial strength to pursue its current aggressive strategy, so it should consider a more defensive one (Exhibit 7).
Marketing Mix
Target Initial strategy was to target early adopters and generate a buzz effect. After analyzing the customer surveys conducted by TiVo, the convenience seekers segment stands out as the key target (Exhibit 3). From a behavioral point of view the question is how easily will they adopt and learn to use the product over the classic VCR, but the general trend is that people are getting more and more familiar with embracing new technologies.
Targeting this segment, the strategy should focus on overcoming customers’ lack of awareness regarding TiVo’s features, and as a result, generate reasons to buy TiVo over the competition.
Positioning and Differentiation Even though as a product TiVo is differentiating itself through uniqueness and novelty, the current strategy does not sustain this position.
To maintain itself as a viable enterprise, TiVo needs to do a more effective job in: a) positioning its product in the marketplace as a “smart and friendly service that could improve” customers’ lifestyle, and b) distinguishing it from current and future competitors, changing the current perception of an expensive VCR with a monthly fee. Customers do not have a strong enough grasp of the technology to positively respond to an image-focused marketing effort, so TiVo’s strategy should educate consumers about the benefits associated with DVR technology and position TiVo as a TV content navigator, VCR supplement, and viewing enhancer.
Product The duality of TiVo should be considered: the TiVo set-top box and the TiVo service, and what generates revenues for the company: the service.
The company’s strategy should be to commoditize the product and make money on selling the service. Control of this business model is in the software rather than the hardware. A clear benefit for the service provider would be the development of TiVo enabled devices, and could be accomplished through opening its architecture to a wider base: for instance TVs with DVR hardware integrated. This also will allow increasing opportunities for innovation in the hardware. Therefore, the product strategy should focus on increasing the box distribution, thus the market size. The more devices that come already TiVo enabled, the larger TiVo’s potential market for its service. However, caution should be taken to ensure that consumers do not feel overwhelmed or begin to feel that they are paying for products they neither need nor desire.
Price One of the main obstacles that customers have to overcome in order to purchase TiVo devices and services is the price. Currently, TiVo is not inexpensive enough to convince the average television and VCR customer to make the investment. In addition to the equipment and the monthly TiVo subscription, the user has to pay for the satellite or cable provider services. While TiVo is not manufacturing the boxes, in the eyes of the consumer, the service and the set-top box are linked. This pricing structure makes TiVo technology a significant investment for consumers.
To deal with this critical issue, TiVo will have to consider revising its pricing strategy. Since the company is not manufacturing the box, it cannot directly control the hardware’s price. But it does control the price of its monthly subscription fee and the company should adjust it, so that the customer would be stimulated to buy TiVo (Exhibit 8).
Place The complexity of the product and the novelty of the technology have made effective entry into retail establishments difficult. A fully functional display unit is often absent in these outlets and also, retailers do not usually send a unified message to the customer, the latter’s perception over TiVo’s functions being misleaded (different retailers emphasizing on different TiVo features).
Retailer education is important, as is facilitating the correct store product presentation. Consumers often like to experience the new technology before purchasing it, and so far TiVo’s demonstrations failed at this. The company needs to ensure that retailers assign trained representatives, who can help demonstrate the benefits of TiVo’s functionality and services to interested consumers.
Promotion While TiVo’s advertisements are humorous, they do not adequately explain the product, and so they do not have the desired impact on the customers. Current company’s strategy is specifying the fact that TiVo changes its customers lives, but if fails to explain how. Although TiVo seems to reach customers needs and provide satisfaction - given the high rate of customer retention, the customer acquisition did not rise up to the company’s expectations.
A change in the company’s advertising strategy is a must. The company should shift its promotional campaign from building a brand image, to one that educates consumers about the functionality of DVR technology, and then establish TiVo as the desired DVR service brand name, by structuring its benefits in a manner that matches consumer behavior (Exhibit 9).
Conclusion
The evolution of the DVR industry has not been smooth so far. Manufacturers, service providers and content providers have all contributed through a lack of synchronization and a confused product message to the slow proliferation of this new technology.
TiVo’s ability to dominate the market lies upon the creation of an offering that, through improved marketing strategy, foresees the customers’ continuously changing needs.
Exhibit 1 Alternatives Considered and Rejected
1) Alternative product strategy Implementation of product features like swappable hard drives
Pros:
- developing a network effect around the product
- can send incentives among customers to buy the device so they can watch what friends recorded
- developing of rental services for this hard drives (given the large capacity)
Cons
- the need to security features to watch only TiVo hard drives not the competition’s
- TiVo has to compete with VCR and DVD prices
- the service subscription rate will probably fall, given the possibility of renting or borrowing the hard drive
- recommended for the maturity stage in the TiVo PLC
2) Alternative price strategy Multiple levels of price and services
Pros
- can attract larger number of customers
- customers with a low priced service might like it and want more features, thus switch to a more expensive one
Cons
- customers might turn down TiVo due to lack of functions in the cheaper service
- not good for the current stage in of TiVo’s PLC. Recommended for the end of growth stage
3) Alternative promotion strategy Different logo & brand identity (techno type)
Pros
- better relationship with the functionality and utility of the product
- more appealing to the targeted customers (technology embracers)
Cons
- TiVo is selling the service mainly, which can be “cute” and friendly
- leader in the market segment, customers have already a brand awareness
Exhibit 2 TiVo at the intersection point of three markets
TiVo’s relationships with these markets:
Exhibit 3 Customer Analysis
Exhibit 4 Product positioning map
Exhibit 5 Product Life Cycle
Exhibit 6 SWOT Analysis
Exhibit 7 Financial Analysis
- high investment in new-product development given by high R&D percentage in total operating expenses
- aggressive marketing strategy given by the total marketing percentage in total operating expenses
- total marketing and R&D cumulated percentage - very high => TiVo is concentrating its efforts on promoting brand awareness
- revenues growth rate is following the subscription growth rate, with a certain delay in its reaction. Customer growth rate going up => will the revenues follow?
- gross profits are negative but growing => TiVo is starting to make some positive gross profit margins
- operating margins are going up, but still not profitable
Exhibit 8 Recommended Pricing Strategy
The present TiVo acquisition method consists from $399 for the hardware, $12.95 monthly fee for service (or $200 lifetime subscription) and satellite or cable provider fee, thus a high initial acquisition cost.
Recommended method (note 1):
The price of the hardware should be incorporated in the monthly fee and the service should be leased on a 2-year contract base.
-
assume the cost the box for TiVo: $300
-
after 2 years, the value depreciates to 10% of the initial value: $300 x 0.1 = $30
-
thus the given lease value is $300 - $30 = $270
-
monthly installments: $270 / 24 months = $11.25
-
new TiVo monthly fee: $24.99 ( ~ $12.95 + $11.25) => it covers the 2-year lease for the box, and after the end of the contract it will generate higher revenues.
Given the high price elasticity on the electronics markets, we have three alternatives:
1) Price unit elastic – customer-based forecast
Estimated growth rate for the 1st quarter 2002: weighted average growth rate
-
1stQ-01 x 10% + 2ndQ-01 x 20% + 3rdQ-01 x 20% + 4thQ-01 x 50%
- 23.53 x 0.1 + 21.16 x 0.2 + 22.27 x 0.2 + 35.71 x 0.5 = 28.89%
- Estimated growth rate for the 1st quarter 2002: 28.89%
- Estimated new subscribers for the 1st quarter 2002: 109,797 (= 0.2889 x 380,000)
- Projected revenue growth for the 1st quarter 2002: $5,487,654.06 (note 2)
2) Price elastic relative to the lower acquisition cost – optimistic situation
We assume that customers are sensitive to the small acquisition cost and consider the monthly fee reasonable (within the price range of TV services subscription).
- Estimated growth rate for the 1st quarter 2002: 33.22% (= 28.89 + 28.89 x 0.15)
- Estimated new subscribers for the 1st quarter 2002: 126,236 (= 0.3322 x 380,000)
- Projected revenue growth for the 1st quarter 2002: $ 6,309,275.28 (note 2)
3) Price elastic relative to the higher monthly fee – pessimist situation
We assume that customers are not sensitive to the small acquisition cost and consider the monthly fee too high.
Estimated growth rate for the 1st quarter 2002: 24.55% (= 28.89 - 28.89 x 0.15)
Estimated new subscribers for the 1st quarter 2002: 93,290 (= 0.2455 x 380,000)
Projected revenue growth for the 1st quarter 2002: $ 4,662,634.2 (note 2)
Present method:
Monthly subscription fee: $12.95
Estimated growth rate for the 1st quarter 2002: 28.89% (customer-based forecast)
Estimated new subscribers for the 1st quarter 2002: 109,797 (= 0.2889 x 380,000)
Projected revenue growth for the 1st quarter 2002: $ 2,843,742.3 (note 2)
Note 1: For this analysis we don’t consider any changes in the product (as those proposed in the product strategy), thus TiVo is still sold as a combination of the set-top box and the service (if the product strategy is followed, then the customers are going to percept TiVo only as the service - company’s goal).
This strategy requires payment agreements with the hardware manufacturers, but the expected growth offers them incentives as well. If the company follows this strategy, the revenues are increasing, but part of the monthly fee goes toward the manufacturer, so the revenues growth is not going to be reflected in the company’s profits. If for example the fee increase ($11.25) goes to the manufacturer, TiVo is going to experience profit growth mostly after the ending of the 2-year contracts. A viable solution is to extend TiVo contracts with the hardware manufacturers over a period of time longer than 2 years.
Another issue to be considered is that after 2 years, some customers will not renew the contract, thus the boxes given to some of the new customers don’t represent a cost. Also, the customers canceling the service don’t get stuck with a piece of equipment that they don’t have a use for.
Further analysis and data are needed.
Note 2: For the simplicity, we assume that the sales are linear (basically the same each month), even though in reality are seasonal or influenced by other factors. To calculate the quarterly revenue with known monthly fee we consider the following table:
So the quarterly sales can be estimated with the formula: => 2 x customer# x mo. fee
Exhibit 9 Recommended Advertising Strategy
TV ads should focus on category awareness rather than brand awareness. Considering that the key target - convenience seekers might not watch enough live TV to be adequately exposed to the ads, TiVo should plan to schedule them during popular prime time shows or reruns of them, on basic channels and children’s programs.
Media execution:
1) A family is coming home late and after they put the kids to sleep, the young couple is watching a recorded show that was aired earlier that day. They don’t remember (or quarrel over) what happened in a previous episode, so they push the menu and choose from the episodes bank the one that they were interested in. The announcer should then say: “Now you can automatically record and view at the touch of a button your entire favorite shows using digital video recording technology. All you have to do is sit and enjoy.” And as the ad ends the TiVo logo should appear briefly.
2) On a TV set is currently being aired live content (e.g., a sporting event) when the commercials begin. The ad showing with the network executives thrown of the window begins, but after they are thrown, the image should suddenly stop-rewind-play, again stop-rewind-play. Laughs are heard on the background along with a voice: “This is so funny; I have to see it again”. The image should then swivel gradually from the TV set to the young people or couple that enjoys watching the ad. The announcer should then say: “Yes, it is possible to do that with live TV using digital video recording technology”. And as the ad ends the TiVo logo should appear briefly.
3) A group of friend in a supermarket with a cart filled with food (movie watching type – popcorn, etc.) is waiting in a check-out line. Other customers are peeking at them. Smiling, they justify: “Long movie night”. Next image is in the house with the group comfortably sitting on the sofa. The image swivels to the TV screen where the menu shows all “Taken” episodes (or other popular long series) and the “Play all” command is chosen. Then the image goes through the TV screen, components and wires (fast moving image), and reaches the inside of the hard drive (with the TiVo logo on it), which is looking like an immense hall – library like, with walls full of shelves filled with video tapes. The image then starts rotating slowly to capture the huge number of tapes. The announcer should then say with a low tone voice (“Taken”-like): “Is it possible? With TiVo it is.”
4) A father and his 4-5 year-old daughter are sitting on the couch enjoying an episode of children programming (cartoons, Lassie, etc.). The episode ends, and the kid is asking for other episodes. The father then uses the remote, and the image should focus on the menu from whom the father chooses one from the multitude of recordings. The announcer should then say: “With TiVo you can have at the touch of a button your kid’s entire cartoon collection”.
5) A kid is watching cartoons while in the background the mother is in the kitchen cooking. The kid needs to use the restroom but the action on TV is far to interesting to miss. The mother then hears the child, comes and pauses the cartoon using the remote, and sends her kid to the restroom, telling him that when he is going to came back, Tom & Jerry will still be here. The announcer should then say: “You won’t miss a thing with TiVo” (or: “Necessary breaks? You got them covered now with TiVo”).
