TiVos Troubles in 2000: A Case Study Marketing 650 Dr.

Hansen Mohammed Al-Alassi, Christopher Boykins, Timothy Grant, Aaron Hussain, Jwana Carson & Timothy Price February 6, 2012

TiVo, the personal video recorder or digital video recorder was introduced into the market in 1999. The black box allows for users to control what they watch and when they watch it. These tasks are accomplished by letting the user pause, replay, and fast forward live TV as well as record it. The basic idea of the product is to take away control from networks and put it in the hands of consumers. The electronic program guide and season pass are two ways that TiVo allows for users to customize the programs the watch as well as record the programs they are interested in. The product generated low sales at the time of its release. Although there were many functions for the device, Brodie Keast, TiVos vice president of marketing and sales had to decide the best way to advertise the device. They chose Program your own network. TiVo. TV your way. TiVos promotional activities consisted of public relations, a website, and a limited mass media campaign. There was confusion about the new product category when TiVo was released. Mediocre critical reviews due to bugs and problems did not help TiVos marketing team, even though 90% of TiVo users said they would recommend the product. Competitors began to emerge as Replay Networks chose to include service in a more expensive unit and Microsoft augmented its already successful WebTV service claiming it would be bundled with DirecTv. VHS recorders and DVD players were selling at the time as well. TiVo experienced disappoint sales though Christmas of 1999. Retail sales pitches varied among salespersons that tried to find ways to sell the product to consumers and families. Perhaps the struggle to sell unities could be attributed to a point Keast made, no matter how great TiVo is, improving television viewing is not on top of anybodys priority list. He also came to the conclusion that pricing was too high, and although it targeted early adopters, no particular group was easy to target first, and early adopters were not great advertisers.

Plans for the future of TiVos marketing include bundling it with DirecTV, dropping the price of the units, and using different media to advertise different aspects of the product. Exhibit 3 shows an increasing amount of loss from September of 1999 through December of 1999. The next two quarters also had large losses of $24,055,000 and $29,436,000 respectively. The highest expenses were generally attributed to marketing and sales. Fourteen months into the launch, TiVo signed up 42,000 subscribers, with a current rate of 14,000 new subscribers per quarter and everyone who owned TiVo seemed satisfied with it, with 72% of owners claiming that TiVo made their viewing experience more enjoyable. TiVos beginning numbers were astonishing but in comparison to the total amount of TV viewers, they were just not enough. With 102 million TV-watching households in the U.S. at the time, that was about .04% presentation of TiVo. As a result major issues lie within TiVos marketing team who are responsible for the lack of awareness and lack of overall sales to penetrate beyond .04% of TV users. Another major issue stems from the innovation and relevancy of the product. Founders Jim Baton and Michel Ramsay original goal or idea was to equip homes with a home network in efforts to integrate all household communication devices. Although the project was considered a success, the developers of TiVo understood that internet, not television, was quickly becoming the key home interactive instrument but failed to develop TiVo with relevant integrated internet options. Currently, DVR boxes or personal recorders are provided with current home services such and cable and internet, bundles such as these are intended to lock out single function components. Minor issues TiVo may need to address are in the areas of pricing and design. TiVo was priced as a distinct service not included in the cost of the hardware but decided to launch the box $499 for 14 hours of recording capacity and $999 for 30 hours of recording. The service feature came with an additional charge of 9.95$ per month or 199$ for

the lifetime of the unit. The overall design of the TiVo software had to be tweaked or debugged at times and there have been reports of consumers stating that the onscreen program guide and navigation menu was confusing and changing channels caused the unit to breakup or freeze briefly. Consumers demand a more cost efficient simpler model. The critical problem that TiVo faces in this situation is the companys ineffective marketing strategy, particularly in the value delivery process. TiVos inability to market its device as a good or a product stems from a number of different reasons, including delivering customer value. Such an expensive product, and an additional expensive service, fails to cater to the customers perception of value. There seems to be some trouble for the marketing team in identifying, delivering, and communicating superior value to TiVos customers. In regards to identifying, the company selected the early-adopter group as its target market, but did not specify what demographic an early-adopter for this device might be. In regards to providing the value, the price of the product and service is too high for a new customer to purchase without having any reassurance that it will be for a well-spent investment. Lastly, in terms of communicating the value, the marketing team did not successfully announce and promote the product through the use of advertising. One of the obstacles facing the company in establishing customer value is the fact that there are so many product specs and details, and not all of them cater to the same target market. Customers who purchase TiVo and are satisfied, like the device for different reasons. Every customer is not inclined to buy the device for one particular benefit, for instance pausing live television. For some customers, this is a great reason to buy TiVo. For other customers however, they prefer TiVos ability to record every episode of a particular show for the entire season. Another customer might just like the idea of skipping past commercials. 72% of TiVo

owners claimed that it made television a lot more enjoyable, according to the article, but what does this generic statement mean to the average couch potato or even the average family? The article mentions, TiVos marketing problem went well beyond the usual task of inserting a product within pre-existing preferences and lifestyles of targeted consumers. In order for such a product to be great, it had to call consumers to change their behavior. This is not an easy task, especially with a simple advertising campaign, which did nothing to inform users of the product itself. There was a general lack of awareness of the product in the mainstream environment, and the advertisement campaign opted for humor and style rather than demonstrations, facts, and testimonies. Envisioning the potential of [the preference engine] was perhaps more difficult for nonusers, meaning potential customers were unaware of the devices infinite ability to change how viewers watched television completely. TiVo may have been ahead of its time in terms of customizing the television experience, but it was the job of the marketing team to ensure that consumers understood what the product meant to them. In an attempt to find a solution to this problem, TiVo can do three things. TiVo can focus on target marketing. The company can also outsource marketing to a professional company. Its third option is to collaborate with manufacturers as well as cable and satellite providers to market the product and service as a bundle, through service providers. If TiVo focuses on target marketing, it needs to use customer data to find out who is purchasing the product. It is the ability of marketers to identify and profile distinct group of buyers of product or services. Then the market presents the group that has the greatest opportunities. According to HBR (2005), when friends and relatives influenced 71 percent of consumers who buy consumer electronic equipment. This is also true that if 71% of the target market influences the rate of purchase, then there will be higher sales recorded. A quick look at

the financials indicates loss from September 1999 to June 2000; this is understandable in the short run but not in the long run if product had been marketed in defined geographical location. Another alternative is outsourcing marketing to a professional. To improve and strengthen the product brand, a professional advertising resource could be used instead of Sony & Philips that produced the black box. This way product knowledge will be shared and right message taken to the final consumer. Sony and Philips had a strategy of selling the products they developed from the scratch; hence the conception/design of the TiVo is best described in the hands of Jim Barton and Michael Ramsay. Again, to improve on marketing sufficient product awareness should be carried out. There should be a clear demarcation between manufactures, product marketing and product positioning. In addition, TiVo has the alternative to partnership with manufactures and sub-contract with cable providers to market the product as a whole. After the launch of TiVo competitors analyzed the issues that consumers were experiencing. Consumers were unaware if TiVo was a product or service and paying for the high cost of the equipment, the cost of the service itself, as well as the cost for a telephone line. In 1999 more homes had television than telephone service and this could be a major issue for non-users. It could be in the best interest of the company to partnership with the manufactures and cable providers to market this product as one. The best action and the one that is recommended, is to focus on target marketing. In doing so, the company can develop a strategy based overall cost leadership, differentiation, or focus. Using market research will enable TiVo to identify customer service and needs, giving the company adequate knowledge for developing a generic business strategy from the above mentioned. Since competitors have entered into the market, it is critical that the company directs

a strategy to a strategic group. In doing so, it will not have to waste resources on potential customers who are not willing to spend time and money learning about and purchasing the product. This will lower the costs associated with marketing and sales. Retail salespersons will know exactly how to pitch the product to consumers, and they will not have to provide different explanations to different types of users. Also, the advertising campaign will be able to focus on the individual consumers needs rather than trying to explain different aspects of the product in different sources of media. Developing this generic strategy will help the company from being stuck in the middle of its competitors. It will be able to deliver on price, quality, service, or any two of the three. It will help establish the companys breadth of competitive scope. Once the company sets itself a part from rivals by capturing and securing a specific group of consumers, it may try to form alliances with cable or satellite providers to capture a domestic or global market share in the future.