Calyx and Corolla: Case Study Write-up Prepared by: Group 3 Brendon Jordan Krystal Juren Matt Leslie Andreas Rudin University of Florida Gainesville Executive Summary Tivo’s new consumer electronics product has the potential to revolutionalize media consumption habits and the structure of the television industry. The key challenges include: (i)how to improve the value of the product in terms of the benefit to cost ratio and (ii)how to increase awareness of the brand as well as the many different product attributes.
We recommend that i)TiVo improve the value of the product by unbundling it in terms of the various benefits provided and then bundling the individual components with other complementary products. (ii)So as to increase the awareness of the different TiVo products and the brand, we propose to segment the market in terms of the specific customer profile whose needs are aligned to the particular benefit provided by the product. Accordingly, we arrive at a communication plan for the different TiVo products that target different customer segments through a mix of advertising, promotion, distribution and branding strategies.
In the following section, we analyze the situation that Tivo is faced with and follow it up with the logical sequence that helped us arrive at the above recommendations. Company Analysis Calyx and Corolla is a new company in the fresh flowers market. They have pioneered the concept of selling fresh flowers by mail. In its short lifetime, C&C has established strong relationships with many large growers, who cut flowers when ordered, thereby increasing the life of the buds tremendously over typical florist shops whose buds may already be a week old when purchased.
They have also developed a strong relationship with Federal Express, who is their primary distributor. Federal Express has a well-established brand name, known for speedy, on-time, and reliable delivery, giving C&C’s promise fro freshly delivered flowers credibility among customer who are unfamiliar with C&C’s brand. C&C reaches customers through a catalogue, which is mailed out to repeat customers and rented mailing lists. This makes it difficult to reach new customers, and catalogue mail-out have a low response rate. Individual consumers are more familiar with competitors such as FTD, who has a national network of florists.
C&C’s top executives, however, are no strangers to the mail-order business, which gives them at least somewhat of an edge. Competition Analysis In recent years, supermarkets have emerged as a serious competitor to traditional florists. In the last ten years alone, their flower sales on average have grown nearly fourfold, bringing them close to 18% of the floral retail market. Supermarkets are using their growth and increasing importance to form valuable and cost effective relationships with growers, distributors and importers.
This will undoubtedly help save costs along their supply line. In 1990, around 65%, or approximately 11,350, national supermarket chain stores sold flowers. Nearly 35% of independent supermarket stores sold flowers as well. As these stores raise price points to be more competitive with florists, they are likely to become formidable rivals. The major downside of the supermarkets’ flower retail operation is the employee base. These outlets lack employees with specialized floral knowledge and expertise required to handle, package and maintain the good.
In comparison to florists, this lack of knowledge equates into an overall lack in service. Calyx & Corolla also faces competition from the national network composing FTD… Context (Industry) Analysis Product Benefits: The core benefits of TiVo can be classified as: (i)Watch what one wants: find, group, record, and compress programs (ii)Watch when one wants: pause, replay, slow motion, flexible time (iii) Convenience: No supplies required, user-friendly and easy programming Value Chain: TiVo is an entertainment service intermediary.
This product makes use of new technology to satisfy potential customer problems in entertainment consumption. This is similar to that of many other intermediaries like internet portals and search engines (for example, Yahoo or Google positions between ISP and the internet and seek to satisfy potential problems in information consumption). Similar to these products, TiVo is likely to influence the value chain of the entertainment consumption process resulting in altered relationships between buyers and suppliers.
The parties directly affected by TiVo are the media communication provider (like cable, satellite) and the media hardware provider (TV manufacturers). The TV networks and advertisers will also be indirectly affected. Below we present the potential effect of TiVo on these players: a)Cable, Satellite: Negative effect in terms of pricing power. Since customer budget is limited, TiVo’s gain will be cable/satellite industry’s loss. Positive effect in terms of market expansion effect. However, cable being a mature industry this effect will not be large.
Overall, negative for cable, positive for satellite. b)TV stations: Positive in terms of more viewers for its program. This effect is likely to be more for niche (specialized) TV channels. May be negative for large networks which might lose some advertising revenue for its primetime programs. However this effect may be offset by additional revenue generated by daytime programs. Also, TV networks may also indirectly benefit since their buyers (cable/satellite) will be less powerful if TiVo becomes the preferred access point of end-consumers.
There may also be a negative effect for pay-channels in terms of the budget constraint of the customer. Overall, positive for specialized channels, negative for pay channels, and uncertain effect on large TV networks. c)TV manufacturers: TiVo enriches the media content. Therefore, there should be a positive effect in terms of demand for high-end TVs. d)Advertisers: Positive effect in view of the targetability of customers. Change in technology: There is a major change in technology in the entertainment industry.
First, analog devices are being converted to digital devices by customers (VCR to DVD Player, Picture Tube TV to LCD, etc. ). Second, there is a race between the TV and the PC to be the centerpiece of all home entertainment appliances. Proliferation of TV channels: There are now numerous TV channels that target different segments and sub-segments of the population (Travel Channel, Weather, Spike for men, Lifetime for women, etc. ). Moreover, several pay channels like HBO, Showtime, etc. , that do not depend on advertiser support have grown significantly.
Customer Analysis Customers have widely different TV viewing behavior. In addition, there are circumstances under which the same individual views TV differently. In general, we categorized the viewing behavior under these broad patterns: •Couch potato: who watch TV viewing is the most important “activity” •TV geek: who watch TV in search of new “stuff” •Sports fan: watches TV primarily for sports •Busy: likes to watch TV but cannot see it (as a result cannot follow program) •TV-haters: does not enjoy T viewing because of ads, irrelevant content, etc.
Customers are now overloaded with many new subscription-based services like cell, DSL, and cable/satellite. This makes it harder to start a stand-alone subscription service. In addition because of the frequent changes in technology, customers are uncertain (both about price and future technology standards). This leads to customers making up their mind (in view of the incremental benefits of a new appliance but postponing the purchase. There have also been concerns raised about privacy when service-providers use information about customers to earn additional revenue.
Next we use the above analysis to arrive at a SWOT analysis for TiVo. SWOT Analysis Strengths • Can deliver flowers quickly, usually within a few days of being cut. • Relationship with Fed-Ex, a reliable distribution source with a well-known brand name • Dedicated sales force • Top Management is very involved, often hand-on in operations • One-on-one relationships between C&C account manager and growers • Have contracts with growers restricting their business with other mail-order florists • Low overhead, low product loss Appeals to women’s magazines who offer free publicity Weaknesses • Top executives have limited time to focus on long-term • No customization capabilities like local florists • Cannot deliver on Sundays or holidays • Only 30 growers in concentrated growing regions (CA, FL, HI) • C&C does not have a well-known name brand yet. • Difficult to reach new customers • Unavailable for last-minute purchases, takes at least a day to arrive • Relies on growers to arrange bouquets. Opportunities • Potential in solving media clutter problem Dying VCR market – replacement opportunity as recording device • Exploding plasma/LCD TV market – bundling opportunity • Growth of pay channels and blockbuster programs – increase in TV recording needs • High penetration of PCs with DVD Recorder – opportunity to be compatible • Rivalry between satellite and Cable – opportunity to negotiate deal • Increase installed base – targeting opportunity for advertisers Threats • Seasonality in both demand and growing climate • Low response rate from rented mailing lists • Susceptible to increases in postal rates • Unpredictable weather can have detrimental effects on supply. Idea is easy to imitate • FTD has 25,000 florists and a large ad budget/cooperative ads • Supermarket and grocery chains are gaining market share • Competitors cans offer spur-of-the-moment purchase decisions The SWOT analysis leads us to consider several factors that are responsible for the rather slow growth of the TiVo. While confusing communication and lack of adequate sales effort (commensurate with the radical nature of the product) are partially responsible for this poor performance, we believe there are deep-rooted issues that need to be considered before solving the communication problem.
Foremost among them is our finding that customers even after being informed of the several benefits of the product remain unsure of the value delivered by the product. The other key opportunity pertains to the future alliances with partners both in terms of potential and success probability. Improving the value proposition or benefit to cost ratio will likely improve the growth of the product. Since there are several players in the market, a higher growth will lead to a resolution of technology standard uncertainty. There are three different alternatives that we consider. i)Reduce price of the product to $299 plus monthly fee. The price reduction strategy is likely to see an increase in the installed customer base. However given the current financial position of TiVo this will likely see a financial loss to the tune of $ XX. (get the idea from P&L account) Also the growth in customers will be incremental and not exponential since the key resistance factors remain. These include customers resisting subscription for a service that did not have to pay for earlier (when they used their VCR to record). (ii)Improve benefits of the product ex. ‘lifetime’ subscription rate that will retain the current price-level. The benefit improvement strategy is likely to protect our financial position and peg it at the current levels. Even though this level is unsatisfactory, future reduction in marketing fixed costs may improve our profitability. This will also increase the loyalty of our current subscribers and possibly increase their duration of subscription. However, installed base will only grow very sluggishly and at the current pace, we expect it to be lower than XX % (Get the idea from revenue growth over the years). iii)Unbundle the product benefits and price based on value for target market This alternative is likely to alter both the cost and benefit of the product by dividing the product in terms of sub-products. One key weakness of TiVo is that it seeks to provide too many benefits. Some of these benefits may be deemed unimportant by specific customer segments. If the cost (and therefore the price) can be reduced by eliminating these marginal benefits, then the value proposition will increase and also will be clear. The three different core benefits of TiVo are (i) recording (ii) reviewing (like replay, pause, etc. and (iii) optimizing, which can be satisfied by three different products. The ‘recording’ TiVo can be targeted towards the “couch potato” customers. The “reviewing” product can be targeted towards the sports fans, while the “optimizing” product can be targeted towards the busy professional (More details of this number potential for each of these segments can enrich the discussion). The downside of this alternative is that there will be multiple versions of the product with different marketing strategies that may lead to further confusion regarding the brand.
One possible way to minimize this problem is through brand extensions. The second core opportunity is regarding the formation of alliances. Alliances are important for radical products since developing a virgin market requires both high resources and efforts. Since TiVo is wanting on both counts, it has no option but to seek alliances. The question remains as to which components of the chain have higher potential of cooperation and success. The alternatives in this case are (i)Original Equipment Manufacturers (OEM) (ii)Cable/ Satellite service providers (iii)Advertisers There are several advantages of opting for the OEMs.
First both large-screen digital TV and DVD recorder are likely to see exponential growth in future. While a scaled down (in terms of features) version of the product can be bundled with the high-end TV, a separate DVD recording equipment that bundles DVD playing and hard disc recordability could be developed as an alternative to the current DVD recorders. To ensure that DVDs can be burnt, the DVD player-TiVo combo needs to be made compatible with the PC and a downloading software needs to be provided. The cable providers suffer from an ethical dilemma in popularizing TiVo.
The satellite providers can perhaps overcome this dilemma by signing up more customers. An alliance with the advertisers may ensure the reduction of price for the “subscription” service. However, more advertising through the subscription of the “My Channel” service may deplete the trust and confidence of the subscribers. Overall the potential of each partner is limited by: OEM: Growth% in big screen TVs / DVD recorders Cable/Satellite: Growth in Satellite systems Advertisers: Growth in advertising revenue Based on the above discussion, we propose a marketing plan that consists of : Product: 3 modified products.
The first product is a TV-Tivo bundle. The second product is a DVD Player-TiVo bundle (competing with DVD recorder. The third product is a subscription service. Price: The first product increases the price of high-end TVs by $100 which is roughly about 3% and targeted towards US households with income >$60000. The second product is aimed at the segment who is likely to buy a DVD recorder. This will lead to a bundle that may save > $50 over the conventional DVD recorders while delivering higher value and convenience. The third product aims at a subscription fee of $5 a month and will include extra hardware with a yearly contract.
Promotion: Branding to be done through advertising of bundled products. Sales demonstration of bundled products through stores like Best Buy, Circuit City. The subscription service is to be advertised through business magazines, in-flight and hotel magazines. Distribution: The bundled products will be distributed through the traditional channel. The distribution of the subscription product will be done by satellite companies. Depending on advertiser support, TiVo needs to include this service as a part of the mid-level satellite subscription package (120 channels).
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