In its fairly short history, TiVo has succeeded in creating marketable digital video recorder (DVR) technology applications and bundled services. It has also succeeded in establishing the foundation of a brand identity in the consumer electronics / home entertainment marketplace. TiVo has reached a delicate moment in its development, since its efforts have not been proven sufficient to generate the momentum needed to push broad scale adoption of its DVR-enabled products and services. The company is currently witnesses a low profitability and inability to achieve proper market penetration.
An analysis of the current and anticipated company’s situation, in its interaction with the market environment, indicates that overall financial and sales objectives, expected by TiVo would be satisfied if the company’s line of actions includes strategies to maximize its exposure in relation to the opportunities offered by a growing market. TiVo needs to defensively protect its current market share and to offensively look for ways to increase it through improved marketing strategy.
TiVo’s management is facing a challenging problem: low profitability generated by the incapacity to increase revenues through growth. Although TiVo’s overall marketing strategy appears feasible, its implementation fails to capture a leading market share, failure attributed to flaws in the pricing and advertising strategy.
The company’s primary objective is to achieve growth through sales increase and generate positive cash flows. This could be accomplished through development of a new pricing strategy, changes in the advertising campaign and improvements in the product strategy. Market The DVR technology and the industry that has grown up around it is relatively new, its market being at the intersection point of three markets: broadcast and TV, PC software and hardware, and electronic consumer products (Exhibit 2).
The environmental stability is relatively low: rapid technological change, price range of competition relatively high, low barriers to entry (technology is easy to replicate; there is a lack of patents) and many substitute products. Latest trends indicate, the formation of partnerships between satellite services providers and firms supplying DVR devices and services, giving them access to distribution networks, programming content and web access.
The industry strength is moderate, but the growth potential is high – analysts agreed that the DVR industry is going to experience a rapid increase, predicting a move from its current early adopter phase, well into the early majority phase in less than five years, with estimated sales between 30 and 55 million units by 2005. Customers TiVo’s customers have changed. From early adopters, mostly young and men, now TiVo attracts busy individuals with middle to upper income, young families with children, professionals, homeowners, mostly between 25-54 years old, all of them involved TV viewers.
Competition Considering its product positioning on the market (Exhibit 4) and its dual utility (digital recorder and TV viewing enhancer), TiVo’s competition falls into the following categories:
- VCR and DVD recorder. These hold several advantages over TiVo: they are assisted by the existence of complementary industries such as the home movie rental and videotapes and DVDs retailing, and in addition, many of these competing technologies possess well-established and well-recognized brands, have strong distribution channels, large advertising and marketing budgets. This category is extremely important to TiVo, given the customer structure, because it addresses to the convenience seeker. Competing successfully in this market requires TiVo to develop and increase the awareness of the functionality of the product in order to educate consumers on the benefits of its offering over these better-known technologies.
- Broadcasting and TV. TiVo’s presence on this market is characterized by the lack of awareness of its product features and a higher price than the competition. Here, the customer does not have to choose between TiVo and competition, but to choose whether or not to pay extra for TiVo. The challenge that is facing in this market is mostly a matter of offering incentives for the customer to generate the need for TiVo’s features.
- DVR and PC. While Microsoft’s UltimateTV experiment resulted in a failure, TiVo’s main direct competitor, ReplayTV, re-entered the DVR market with an expensive product and a promise for a more affordable unit in the close future. Also, DVR technology is fairly easy to replicate on a PC with a large hard drive and a video card, correlated with a lack of patents for TiVo’s proprietary software. This market segment is going to be faced with rapid development, high competition and growth.
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 of 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 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 from 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 in 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).
The 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 the 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 misled (different retailers emphasizing 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).
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.
