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TiVo is a truly discontinuous innovation, a product that requires consumers to dramatically change their past behavior with the promise of gaining equally dramatic new benefits. TiVo's main challenge is convincing the consumer to buy an expensive product in a new product category. While the Early Market, categorized by visionaries and technology enthusiasts, is adopting the product, TiVo has had little success convincing the Early Majority segment, also referred to as pragmatists, that the risk of change is worth the reward of their groundbreaking technology. This is evidenced by TiVo's current overall market penetration level of .04% and lackluster future projections. Visionaries are not a good reference for pragmatists because of their belief in evolution rather than revolution: . There are two things that TiVo can do to convince the Early Majority to buy. First, they need to secure a market leadership position. When pragmatists do decide to adopt a new discontinuous innovation, they purchase from the market leader. As the market leader, everyone else in the market adapts their products to work with the leader's product. In addition, the market leader attracts third party companies who make aftermarket products, even if the leader is not responsive. Second, TiVo can position their product to a target market that values the product as a 100% solution to their problem what is typically called the whole product.
Determining the right target segment requires an analysis of the customer, company and competition (fig. 2). TiVo's customer is defined by unmet needs in the market. While TV is one of the most ensconced and ritualistic elements of contemporary American life, there are still aspects of television viewing that do not fulfill customer needs. An estimated 68% of Americans complained that they felt "widowed" by their loved one during the Fall television season because their spouses were chained to their televisions during primetime from 8pm to 11pm. Additionally, parents expressed a difficult time getting their children to do homework during key television programming times. In general, this is evidence that consumers want greater control over their television consumption habits. Analysis of the TiVo Corporation reveals their core competencies, which include proprietary software, national distribution through established retail outlets such as Best Buy, Circuit City and Sears and product co-branding with trusted electronics giants Philips and Sony.
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Our segmentation targeting strategy is built on this analysis of the customer, company and competition. There are several key variables that allow us to segment the larger Early Majority market of pragmatists. We believe that the demographic parameters of income and family as well as the psychographic elements of social behavior, lifestyle and media consumption will enable us to reach customers that have the unmet needs described in our customer analysis (fig. 1). Within these parameters, we propose two target markets. First, we intend to target socially active, busy, double-income families with children that consume television with an index of at least 110. These families should respond positively to TiVo's ability to satisfy their unmet TV consumption need to gain control over when they watch programming. Because they are busy, TiVo will enable them to watch programming at their leisure and structure precious time at home around their needs instead of the primetime schedule. This will be particularly useful in managing children's programming time. For instance, with TiVo, children can be rewarded for doing their homework rather than procrastinating by watching television that is only available during primetime hours. TiVo has also identified children's programming as the top recorded category of current owners, a fact that demonstrates the target's interest in the product. Second, we intend to target professionals under 45 who earn over $100K per year, have an active social life, travel regularly and index over 115 for lifestyle products like Blackberries and Palm Pilots. The income level and purchase behavior of this target supports trying new products that will make their lives easier. With busy social lives and successful careers, they can rest assured that their favorite programs are being recorded whether they are at the office, in the gym or taking a vacation. In addition to these targets, we considered targeting average income, in-market VCR shoppers, but assessed that their customer need would include playing VCR tapes, something that our product cannot do.
We believe that TiVo should be positioned as a lifestyle product that can augment a consumer's quality of life. Effectively communicating this to the target will require adjustments to TiVo's current product, price, promotion and placement strategy. First, TiVo will have to quality check its software and manufacturing to make sure that the onscreen program guide, navigation and image freezing "glitches" identified by the WSJ writer are fixed. It is essential that they have a 100% product for the target markets. Not every feature has to be perfect, in fact we recommend limiting the amount of advanced features such as the recording quality level and support the company's idea to produce only the larger sized hard-drive to limit buyer confusion. However, the onscreen program guide, smooth video playback and logical navigation are essential for meeting the target market's needs.
Second, we believe that TiVo should lower their price-point from $999 to $399 as proposed in the case. Most of the recent lifestyle products (e.g. Blackberry) are adopted by pragmatists at this price range and this price-point is significantly lower than Replay TV ($200 above TiVo's original price) but it is not known what price Microsoft will launch with next year. This year represents a unique time in the market before Microsoft enters with Ultimate TV. While TiVo's current strategy can be seen as skimming (lower sales with higher profit margins) the new price will focus on penetration to gain market share. It is very important that TiVo capture an established leadership position in the market because pragmatists prefer to buy from the market leader.
We think that TiVo should pursue a promotion strategy focused on getting TiVo into people's homes. TiVo's current strategy relies on humorous television and print advertising for awareness and on retail sales reps to close the sale. The problem with this strategy is that people continue to have a low awareness about TiVo and are generally confused about what TiVo actually does. This confusion isn't helped much by the sales reps at their distribution outlets like Best Buy who are not knowledgeable or passionate enough about the product to provide an effective demonstration and address customer queries. There is no better way to do this than to make every store and sales rep a TiVo client. We think that TiVo should make sure that every store has a functioning TiVo set up with the TiVo subscription service and that every sales rep has access to a free TiVo with subscription service. This would be a great use of the extra 14-hour TiVo boxes that the company has proposed giving away as they standardize with the 30-hour model. We believe, however, that TiVo needs to rely less on sales reps at their distribution outlets to communicate the value of the product. Instead of relying on sales reps to close the deal, TiVo should educate the target market utilizing a variety of media channels. The message that TiVo should convey is specific to the positioning for each target. The family message should position TiVo as a device that lets them take control of when they watch programs. For single professionals, the message should position TiVo as a device that gives them piece of mind that they will never miss a favorite program. The strategy is to get TiVo into the homes of the target markets.
To support this strategy, TiVo should launch a promotion that lets people who receive a certificate take a TiVo home free for a month. If they like it, they will be billed $399 for the DVR and $9.99 per month. We considered a lower fee, but believe that the target market can and will pay $399 for TiVo, along with the monthly fee, once they experience the product. This decision maximizes profits in both the short-term (products sold to the target market) and in the long term when the larger market is prepared for the price-point. Advertising materials should lead with this offer and then contain straightforward, descriptive information about the TiVo service along with quotes from current users to communicate TiVo's benefits. Materials should contain quotes from current consumers. We believe that TiVo should utilize targeted direct mail, online advertising and magazine articles to reach the target audience. Each would provide the user with a coupon to take home a TiVo for one month from TiVo's distribution partners. While we considered including television advertising, at $50MM over the next year, it is an expensive medium that does not target our market as effectively as direct response advertising vehicles like print and direct mail. Instead of television advertising, we recommend a 30-minute infomercial that could be used on target channels as well as in-store.
We also believe that referral marketing would be an effective way to connect with the target market. When buying consumer electronic equipment, research showed that 71% of consumers were influenced by friends or relatives. To capitalize on this influence, we would like to provide new TiVo customers in the target markets with a direct mail offer containing coupons for their friends to receive a free TiVo for 30 days. In exchange for each new customer they bring in, members of the target market would receive one free month of TiVo service.
Finally, we recommend expanding the place strategy. TiVo has achieved considerable advantage by securing large national retailers to carry the product and we believe that TiVo should enhance this further by working with Cable and Satellite providers. These providers hold a key beachfront inside consumers houses because the majority of consumers have little black cable boxes above their TV's and already see the value that cable provides. An upgrade option on a cable box is a less technologically discontinuous proposition for consumers.
If TiVo is going to succeed, it needs to bridge the gap between their product, advertisers and networks by convincing them that TiVo is a friend. We recommend walking away from the "program your own network" creative because it alienates networks. Rather than alienate networks and advertisers, we want them to understand that TiVo has fantastic benefits for both. For networks, TiVo can provide increased product sampling by hosting Fall Launch programming on demand, expanding primetime and providing viewer feedback. For advertisers, TiVo can provide more predictability of audience size and characteristics, and direct response offers when consumers press the "thumbs up" button during an ad. With relevant advertising and quality programming, we believe that TiVo has the power to help evolve television towards a more customer-focused medium with a significantly improved value proposition.
Figure 1 - Analysis of consumer needs
Figure 2 3C's and STP
CustomerUnmet Needs § Control over when they watch a program§ Don't want to feel "widowed" during Fall Launch§ Manage kids time§ Sample new programs
CompetitorVulnerabilities § Replay TVo $200 more than TiVoo Positioned as a digital VCR§ Ultimate TVo Technologically superior, but won't launch for one yearo Expected to match current TiVo price
CompanyCompetency § Proprietary software§ Distribution, Service and Production§ Co-branding with Philips and Sony
Segmentation § Psychographico Social, Lifestyle, Media Consumption§ Demographico Income, Family
Targeting § Busy Familieso Socially active, busy, double-income families with children that consume television with an index of at least 110.§ Single Professionalso Under 45 who earn over $100K per year, have an active social life, travel regularly and index over 115 for lifestyle products like Blackberries and Palm Pilots.
Positioning § For busy families, TiVo is the DVR that lets them take control of when they watch television.§ For single professionals, TiVo is the DVR that gives them piece of mind that they will never miss a favorite show.