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Tivo 2002 Case Essay

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CBE, Qatar University 12 Case Report: HBR TiVo in 2002 (Consumer Behavior) Marketing Management, Fall 2012 Eagles Team 1. Introduction: This brief report attempts to tackle the HBR TiVo in 2002 case study. The report highlights the main issues facing the company in 2002 and then proceeds to analyze the internal and the external environments around TiVo at the time with a special focus on relating the analysis to consumer behavior.

The report finally ends with proposing a number of solutions that can be applied by TiVo to resolve the issues at hand based on a better understanding of TiVo customers’ buying behavior. 2. Background on TiVo Inc. : * TiVo Inc. was founded by Jim Barton and Mike Ramsay in 1997 * Under the brand name “TiVo” The co-founders developed and marketed a Digital Video Recorder (DVR) that digitized video onto a hard disk * The first TiVo DVR shipped in Q1 1999 and was capable of only digitizing analog TV feed.

Later on, new models that recorded from digital video sources were eventually introduced by the company * To differentiate its product from other DVR offerings, TiVo heavily invested into R&D to build up sophisticated software that automatically records programs based on user requests and interests (based on actors, directors, genres, season … etc).

The software also offered a superior Electronic Program Guide (EPG) * TV implement a patented feature TiVo calls “Trick Play” that allows the viewer to pause live television and rewind and replay up to a half hour of recently viewed television * TiVo DVRs were initially offered as “standalone” hardware directly sold by TiVo, but the company later on opted to license its software to third party manufacturers and cable/satellite operators * TiVo DVRs have further evolved today into “HD Smart DVRs” that record HD content and connect to the Internet to provide access to multiple Video-on-Demand (VoD) services such as YouTube, NetFlix, and Hulu 3. The Underlying Dilemma: Issues Facing TiVo in 2002 Although TiVo seemingly had a winning product in 2002 that was technologically superior to other offerings available at the time and existing TiVo customers were apparently satisfied with the features offered by the company’s product line, several issues were building up fast to the dismay of TiVo Executives. Neither the technology advantage nor the high satisfaction rate of current customers has helped the company meet its sales forecast or its anticipated market share.

TiVo marketing executives were initially considering conducting more market research and forming up new focus groups to try to figure out why the product is not living up to the company’s expectations, but ultimately; they rightfully decided that they the key was not to collect more data, but to actually further scrutinize the wealth of information that TiVo already had in hand to look for answers. TiVo had access to valuable sources of data to help with this undertaking: First, there was the information collected from the interactive survey provided by existing customers and secondly TiVo executives realized that they would be able to look more closely at the anonymously collected user logs that could be used to unlock more information with regards to the users’ behavior patterns.

Overall, TiVo’s marketing executives wanted to work their way towards further understanding the nature of TiVo’s appeal to existing and potential customers. They also hoped to find new ways to approach all the other actors in the broadcasting industry (TV networks, advertisers, content providers and cable operators) to have a better understanding of TiVo’s relevance in the life of television consumers. The marketing executives understood that they had to break though the inertia of the potential customers and the other stakeholders in the TV broadcasting industry to place the product back on track. As part of their analysis, TiVo’s executives identified the following key issues: 1.

Slower Growth sales volume and the number of subscribers than originally forecasted: * TiVo is making losses, total cost of sales and marketing greatly exceeds Total Revenues * High marketing and sales costs have shown little significance in increasing revenues 2. Profile of subscribers remains narrow * Married couples, affluent high-income families, and middle-aged consumers make up the higher percentage of TiVo subscribers * Singles, low and middle-income households, the young and the elderly consumers remain a small percentage of TiVo subscribers 3. Disparity between Customer Satisfaction and Growth * Post purchase attitude reflects high level of customer satisfaction * In contrast, sales volume still lagging behind expectations 4. Perceived Risk: Middle and low income households constitute a small percentage of customers * Awareness and intention to buy are rising, action is not following * Customers seek reinforcement from friends prior to purchase 4. Conducting the Analysis: In an attempt to address the questions raised by the case study, our team chose to apply different analysis techniques to assess the issues facing TiVo in 2002 with a special focus on relating the outcome of the analysis to consumer buying behavior: 5. 1 The External Environment Analysis: 5. 2. 1 The Technological Environment: Although DVR was not an entirely new technology in 2002, the penetration of DVR into the US market has was yet to move to the mainstream.

TiVo’s survey confirms this fact by showing that the majority of customers were affluent high income families with a good exposure to technology. TiVo had invested a lot into R&D to develop sophisticated DVR software with an appealing and intuitive user interface and existing TiVo customers were quite satisfied with it. In addition to that, TiVo introduced innovative features like Trick Play and recording TV shows based on the users’ interests and preferences. In this regards, TiVo had a competitive advantage against its rivals, and TiVo knew that it needed to protect that advantage by defending its copyrighted software and hardware features against those who try to violate it.

Nevertheless, TiVo was apparently failing to use its technological advantage in a way that can raise the awareness of potential buying customers to alter their perception of the product’s value. 5. 2. 2 The Socio-Cultural Environment: Consumers nowadays tend to spend more hours watching TV and consuming video content than ever before. Prior to the introduction of DVRs, however; consumers’ behavior towards the way they want and need to consume TV and video content remained virtually unchanged. TiVo seemed to want to break the familiar TV consumption culture by allowing consumers to control the timing of watching their favorite TV shows and movies.

TiVo also broke the usual usage pattern by enabling consumers to skip ads. Although at first glance, one would think that customers would be greeting these changes with welcoming arms, the message conveyed by TiVo at the time seemed to be improperly communicated with much focus on changing the TV viewing experience of users rather than focusing on how TiVo can change their lifestyle and emotions with TiVo. 5. 2 The Micro Environment Analysis: If TiVo were to implement the right measures to unlock the non-customers, the DVR market had a lot of potential in 2002. In general, DVR consumers’ pains ranged from high DVR hardware prices, unintuitive user interfaces and limited content.

While TiVo had a disadvantage in terms of its higher price per DRV unit, the company seemed to have an edge over competitors with its advanced EPG, Trick Play feature and on-demand Internet video content. The company also enjoyed a competitive advantage over rivals with its sizable arsenal of patented software features. Nevertheless, TiVo’s original business model of selling DVR hardware either directly or via specialized retailers such as Best Buy was losing momentum. The costs of selling and marketing the hardware were running high. Hence, TiVo needed to explore new options to rejuvenate its business model based on a better understanding of consumer buying behavior.

TiVo needed to build the new model with the idea of breaking the inertia of potential customers in mind. The business model of licensing TiVo DVR software to cable operators seemed to be more attractive because it can help reduce the selling and marketing cost and it can give TiVo access to the wider more mainstream consumer base of existing cable subscribers. 5. 3 The Value Chain Analysis: TiVo’s DVR business lies in the middle between content providers (TV networks, cable operators, VoD providers) and consumers. TiVo’s rivals were gradually trying to emulate TiVo’s unique position in the value chain, while on the other hand; the mainstream consumers seemed to be confused about TiVo’s role in this chain and the value the product provides.

TiVo needed to further secure its position in the value chain by working with cable operators rather working against them. To do that, TiVo was required to break away from its dependency on the vertical integration. This is again relevant to accessing the mainstream cable consumer’s base. In addition to working with cable operators, TiVo needed to convey a better message to advertisers who were worried that TiVo’s add skipping feature was kryptonite to their ad sales. TiVo had to convince the ad agencies that to the contrary, TiVo could provide them with the right medium to study consumers’ behavior towards new ads. 5. 4 BCG Matrix Analysis (How to Be Stars):

The BCG Matrix Analysis for TiVo raised the following question: How to acquire new customers to be a “star”? The answer lies in analyzing the results of the customer attitude survey and the wealth of customer behavior information available to TiVo to find new ways to break through the inertia of new customer segments towards moving from a narrow subscriber profile to mainstream. This can be used to: * Lock- in existing satisfied customers * Penetrate into the segment of single women * Penetrate into under the under 24 and over 55 segment * Reach out to low income consumers * Before the maturity of business, a new market needs to be created 5. 5 SWOT Analysis Strengths: TiVo is the pioneer of DVR technology with an arsenal of registered DVR patents * Friendly and intuitive user interface (superior customer experience) * A “cute” and easily recognizable brand name that would give a gracious name to the hardware * Multiple revenue streams from selling hardware to customers, and licensing software and providing services to cable/satellite operators * High customer satisfaction rates * TiVo is readily able to collect detailed user logs with in depth customer behavior and service usage information Weaknesses: * Lack of brand category recognition (customers are often unable to tell whether TiVo is a standalone cable receiver, an accessory or a service? * TiVo is yet to be able to capitalize enough on evangelist customer base and increasing brand recognition * Ineffective communication with customers (partners and third-party resellers often stand in the way between TiVo and its customers) * Relatively expensive upfront price for the DVR hardware in addition to recurring monthly charges for the service make it difficult for TiVo to compete on price * Very limited mass media promotion for the product * Still dependent on debt to support its cash flow needs Opportunities: * Demand for DVR is increasing as TV viewers are increasingly leading busier lifestyles * TV viewers are increasingly becoming technology-savvy * TiVo would be able to generate tremendous cash flows if it wins the copyright infringement lawsuits filed against its competitors * Valuable market research data available to TiVo can be used to formulate a more effective marketing strategy * Possibility to target a wider base of potential customer within the US by partnering with cable/satellite providers * Possibility to expand internationally Threats: Increasing completion in the DVR market (rivals are increasingly competing on price) * Legal challenges (competitors are retaliating with their own copyright law suits against TiVo) * The technology is not difficult to imitate (low technology barrier for new entrants) * Rising R&D costs 5. 6 Understanding TiVo’s Consumer Buying Behavior: Buying a TiVo is a “High-Involvement” purchasing decision. Consumers buying TiVo look at the following factors to evaluate this decision: * Cost attributes * Performance attributes * Social attributes * Availability attributes (distribution channels) 5. Recommendations and Solutions that Can be Implemented by TiVo: 5. 1 Unlocking the Non-Customers (Blue Ocean Strategy): Existing customer

A Part of TV viewer: high educated, high income earner, married, and single male, mid-aged Soon to be TV viewer: low educated, low income earner, single woman, younger or elder Refusing Movie watcher (including VOD), Magazine reader, online gamer, etc Unexplored Other entertainment consumers 5. 2 Close the gap between “Intention to Buy” and “Action” * Product Awareness, Understanding, and Intention to Buy are increasing. This needs to be properly channeled to convince consumers to buy TiVo, a product with a “perceived” higher quality * Existing customers have a deep Emotional Response to TiVo. These customers are not only fascinated by the technology, they emotionally attached to the product.

This needs to be exploited to break through the inertia using that emotional response * A set of large-scale consumer surveys had been designed to crystallize those numerous insights and to assess their significance and key learning from all these sources (Consumer Meeting, emails, .. ets) had already been incorporated in everything from pricing to commercials. 5. 3 Penetrate a “Broader Consumer Market” * Increase sales to Singles, Low and Middle-income Households, and the Young and Elderly * Maintain strong relationships with current subscribers 5. 4 Decrease Perceived Risk * Produce a quality product and focus on customer satisfaction 5. 5 Target Solutions: “Experience TiVo” Plan of Action – Short Term: * Offer one month free trials * Give consumers “experience” * Get TiVo into more households * Eliminate perceived risk Word of Mouth using existing, satisfied customer (Referral marketing): * Reduce marketing cost * Develop consistent marketing and sales approach: * Advertise and promote the “TiVo experience” using the partner which is well known in the market 5. 6 Target Solutions: “Experience TiVo” Plan of Action – Long Term: * Create partnerships with cable/satellite providers (promote package deals) * Maintain strong relationships with subscribers * Establish Joint venture to go into the new region * Maintain high barrier to entry using the patents * Backward/forward integration (Effective management of cost and increase of revenue) * Combine service and product to make new value (VOD service + DVR, Web contents + DVR … etc. )